TCS Daily


The 99-cent Technology Store

By Dominic Basulto - February 12, 2004 12:00 AM

It looks like the 99-cent online technology store is ready to sweep across America. In the brick-and-mortar world, the concept is already wildly successful -- the National Association of Small Business Retailers estimates that there are over 10,000 "single price" stores within the U.S., with the predominant form being the 99-cent variety. Anyone living in a major metropolitan area has probably shopped at least once in one of these traditional retail stores -- they sell a variety of outdated, surplus or just plain low-cost knick-knacks for 99 cents, no questions asked. Now, 99-cent stores are emerging in the technology sector in areas such as digital music and digital movie downloads. But are these stores just a short-lived fad -- or part of a long-term sustainable trend?

The first real 99-cent technology store, of course, was the Apple iTunes digital music store. If imitation is the sincerest form of flattery, then the Apple iTunes digital music downloading service has been a rousing success. At the Las Vegas Consumer Electronics Show (CES) in early January, digital music was the theme of the day -- and companies such as Wal-Mart are now pushing into the digital music business with bargain-priced 88-cent downloads. No fewer than five companies -- including Sony, Napster 2.0 and MusicMatch.com -- already offer or have plans on tap to offer 99-cent digital music downloads.

Moreover, in mid-January, AOL announced plans to offer a five-week trial to 2.6 million broadband customers of 99-cent digital movie downloads. AOL will offer these downloads through its partner, MovieLink, which was formed by five major movie studios in response to widespread piracy and file-swapping. The offer includes blockbuster films like "Finding Nemo" and "The Matrix" so that consumers will have access to premium content at what appears to be a bargain price, considering that a DVD would cost 15 bucks or more. The idea of "movies on demand," of course, is not a new one -- but the decision to offer downloads of blockbuster films for 99 cents is.

Consumers, it seems, have latched on to the idea of paying 99 cents for digital products and services. Is 99 cents the magic number for selling digital goods and services on the Internet -- a happy compromise between giving it away for free and making it cheap enough that demand far outpaces supply? In the brick-and-mortar world, these 99-cent stores are able to offer such low prices for three simple reasons -- minimal advertising (ever seen a Sunday morning newspaper ad for a 99-cent store?), willingness to stock out-of-fashion, near-dated or overstocked goods and proximity to high foot-traffic.

These stores are successful, too, because inside every shopper, there is the hidden desire to find a true bargain. And this is why the Internet is such a natural breeding ground for 99-cent stores. The widespread popularity of discount shopping sites like Overstock.com shows that there is an untapped niche for out-of-season or surplus items. Internet users have also flocked to price optimization engines like mySimon or DealTime (now part of Shopping.com) that claim to find the lowest price on the Internet for a certain product. Most obviously, there are auction Web sites like eBay that offer all types of items in a type of high-tech flea market. Quite simply, people love to poke through junk and find undiscovered bargains -- and the Internet allows people to do this in a low-cost, highly efficient manner. Only suckers pay retail, right?

The 99-cent stores also tap into a sort of psychological barrier of the one-dollar mark. From a psychological standpoint, it's simply convenient to walk into a 99-cent store with 10 bucks in cash and know that you can pick up a tube of toothpaste, a can of Coca-Cola, a bag of chips, a box of holiday ornaments and six other assorted odds-and-ends. There're no sales, coupons, price clubs, or any of the other gimmicks that clutter the shelves of most stores. There's no complex math to perform -- just count up 10 items. Moreover, there are no salespeople to pester you -- just shelves and bins of plentiful products. Even products that perhaps aren't so hot (e.g. 99-cent wineglasses) can pinch-hit during a last-minute emergency. Heck, it's only a dollar.

The key, of course, is building "foot-traffic" to these stores. And that means low-cost, ubiquitous broadband Internet connections that make downloading songs and movies as painless as possible. It also means access to quality content at wholesale prices. The best 99-cent stores, after all, are those where the shopper actually recognizes the name-brand product. Most people, one assumes, would rather buy a 99-cent "travel size" premium shampoo than a 99-cent tub of some generic shampoo. If broadband Internet connections continue to proliferate AND if content providers agree to the distribution of quality content (e.g. new songs from well-known artists), then the future looks bright for the 99-cent technology store. One day, instead of sorting thorough bins of laundry detergent, soap and potato knishes, the modern consumer could be electronically sifting through bins of ring tones, movies, songs, sound clips and books.

The author is a frequent TCS contributor. He last wrote for TCS about innovation and Silicon Valley.


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