Rethinking economy/economic geographies

Roger Lee, Andrew Leyshon and Adrian Smith, “Rethinking economy/economic geographies”. Final submitted version of paper published in Geoforum (2008)

R000239472 – Putting e-commerce in its place: constructing electronic times and spaces

Funded by the Economic and Social Research Council

Award/Grant Name: Putting e-commerce in its place: constructing electronic times and spaces

Award/Grant Holders: Andrew Leyshon, Shaun French, Louise Crewe and Nigel Thrift.

Duration: November 2001 – January 2004

For the full End of Award Report, click here and for a Project Summary click here

Non-Technical Summary

The research focuses on e-commerce from producers’ perspectives, and sets out to investigate claims (made before and during the dot.com boom) that the internet would fundamentally change the relationship between supplier and consumer.

Detailed observation of organisations in the sectors chosen – music, fashion, and retail financial services – constituted the bulk of the research activity. Interviews and analysis of texts were also undertaken.

The main objectives were (in brief):

1. To modify the concept of ‘virtualism’ to incorporate a broader set of participants beyond academic economists, and to include types of abstractions outside formal economic theories.
2. To analyse ways in which such ideas and concepts are translated into practices.
3. To produce an audit of the e-commerce knowledge community (EKC)
4. To consider the take up of ideas and concepts among managers in the chosen industries.
5. To map the material impact of e-commerce on the chosen industries.
6. To consider the ways in which e-commerce has forged new interaction between companies and consumers, and the effects of its outcome.

Key findings

1. Broadly, virtualism is the translation of abstract ideas and concepts into material form. The dot.com boom was integral to transforming ideas to reality, and then to acceptance as the norm.
2. Following the dot.com collapse in April 2000, the role of e-commerce was fundamentally reassessed. Dot.com companies faced the same success criteria as traditional business – sufficient revenue has to be generated to cover the cost of capital and make profits. This led to a change in the assessment of the desired outcome for many e-commerce activities. Most companies now have web sites, but for a variety of purposes. Many are not directly aimed at, nor designed to make sales, but used for promotion, information dissemination, research, assessment of success/failure and other measurements.
3. Evidence supported the hypothesis that a discernable EKC has emerged, and that it is a more diverse and dynamic group than originally envisaged, with boundaries which are constantly shifting. The ECK is wide ranging, encompassing management consultancies, business schools, the media, etc. at one end, and practitioners such as software and technology providers at the other.
4. Practical, incrementally gained, and even mundane knowledge was frequently more influential in shaping e-commerce than researched theory and concepts, particularly for smaller businesses. Larger organisations, such as financial service providers, were more likely to use formal and consultancy findings than were smaller companies such as fashion retailers. In general, the better the economic climate the more experimental firms become in using new e-commerce technology.
5. Originally it was thought that e-commerce was best developed by start up and stand alone businesses. With some notable exceptions, the most successful e-commerce has been undertaken within existing organisations. Cost absorption, market knowledge and the use of established brands have all contributed to this success.
6. i. The internet has provided faster access and better knowledge of commodities and prices.
   ii. The ability to exchange information in both directions between producer and consumer has created a relationship not previously possible, and can result in modification of the product or service.
   iii. Information exchange and web chats for fan club members, hobbyists, collectors, etc. is enabled. It poses questions about the relationships between formerly ‘isolated’ individuals with shared, but sometimes competitive, interests.
   iv. Consumers appreciate being able to make fast transactions, search for unusual items, participate in auctions, and track markets.
   v. The screens on electronic devices have become a motif of cultural transmission, and a new way of monitoring activities. All organisations are now expected to have a website.
   vi. Speed has become the accepted ‘ambient’ pace.

The impact on the three sectors researched differed considerably:

• fashion retailing relies to a large extent on touch and fit. E-commerce has had little impact beyond specialist items.
• established financial service providers use e-commerce as an additional distribution network.
• the music industry’s value chain has been completely destabilised by piracy, leading to a major restructuring.

About the study

The project was started in November 2001 and ended on 31 January 2004. It involved five researchers: Professor Andrew Leyshon (Principal Researcher), co-applicant Dr S French, and Professor L Crewe (all from the School of Geography, University of Nottingham), Dr P Webb (University of Birmingham) and Professor NT Thrift (University of Oxford).

Key words

E-commerce, producer/consumer relationship, internet transactions, information dissemination, dot.com boom

Books

Peter Daniels, Andrew Leyshon, Mike Bradford and Jon Beaverstock (Eds) (2007) Geographies of the New Economy: critical reflections, Routledge, London

Andrew Leyshon, Roger Lee and Colin Williams (Eds) (2003) Alternative Economic Spaces, Sage, London

Andrew Leyshon, David Matless and George Revill (Eds) (1998) The Place of Music, Guilford, New York

Andrew Leyshon and Nigel Thrift (1997) Money/Space: geographies of monetary transformation, Routledge, London

The software slump: digital music, the democratisation of technology and the decline of the recording studio sector within the musical economy

Andrew Leyshon. “The software slump: digital music, the democratisation of technology and the decline of the recording studio sector within the musical economy”. Submitted to Environment and Planning A. Please do note cite without permission. Comments welcome.

“There’s unlimited supply, And there is no reason why”*

The leaks emanating from the private equity firm Terra Firma about the excesses they claim to have found at record company EMI has no doubt ensured that large helpings of schadenfreude have been hungrily consumed within the rest of the musical economy in recent weeks. Terra Firma bought EMI in the summer of 2007 and has been poring over its books and accounts ever since as part of the standard private equity project to reorganise a company so that it be flipped back onto the market in three to five years time at a profit. Terra Firma has a track record of buying companies with ‘failed’ business models ; ironically, it has already given the private equity treatment to Thorn, previously part of the Thorn- EMI conglomerate before it was demerged in the 1990s. This in itself should have sent some kind of message to the outgoing executives of EMI that Terra Firma hardly had a positive view of their managerial abilities. The revelations of extravagance approaching the bacchanalian seem to have so shocked the sober-suited bean counters Terra Firma that they were simply unable to keep it to themselves. Admittedly, the disclosure reveals business practices that one might think a tad unusual and indulgent, such as the £20,000 spent on candles to decorate a Los Angeles apartment used to entertain clients, and a £200,000 annual budget for fruit and flowers.

Over the last couple of years, as part of research I’ve been conducting on the musical economy, I’ve talked to large numbers of people who work in recording studios and associated activities, and it is safe to say that they do not hold recording companies and their employees in high esteem. Indeed, one senior member of this community was so dismissive of their abilities that he insisted that should anyone care to undertake an comparative analysis of management ability across the British economy he was confident that it would record company executives would be found way to the left of the bell curve. So, while those working at the sharp end of the musical economy would certainly have found Terra Firma’s revelations of interest, they probably would not have been all that surprised. The recording studio sector in the UK and elsewhere is under going a crisis of significant proportions, which has meant that the institutional base of the sector has been receding at a rapid rate. Many studios have closed and those that remain open often struggle to get by. Redundancies have followed while those that remained in employment have found their conditions casualised or degraded.

But in addition to spinning against the old management, the head of Terra Firma, Guy Hands, has also discredited the established record company business model, and argued that executives in the company were slow to embrace the possibilities of transforming the demand for downloads into a viable business model. In this respect, Hands echoes findings from earlier research which has argued that one of the problems for record companies was an industry-wide corporate cultural crisis, and the inability to think beyond the business model that has sustained the recorded music industry for the past 100 years or so. The problem is finding a new business model that will enable to the industry to sustain itself – and allow Terra Firma to get their money back and more. Ironically, one band that left EMI to strike out on their own rather than work for Terra Firma was Radiohead, but which at least provided conclusive evidence of one model that they can safely discard: the pay what you think it’s worth model. Customers wishing to download the album were invited to set their own tariff, plus an obligatory 45 pence to cover administrative charges. As many as 60% of people chose to pay nothing at all. Radiohead are rich enough so that this level of freeloading doesn’t really matter, and can easily make this back in ticket sales from a stadium tour. But it is hardly a promising business model for new bands without Radiohead’s brand recognition. Terra Firma’s urgent need to find a coherent business model for the music industry will be worth watching.

* ‘EMI’, The Sex Pistols, Virgin Records, 1977.