Another race to the bottom?

by admin on June 24, 2009

in Marketing

Tom Foremski has written a thought provoking piece talking about how the internet has ‘devalued everything.’

One of the more stark examples he offers is Craigslist:

Take a look at the classified ads business. The Pew Center reports that in 2000 this was a $19.6 billion a year business. In 2008 it had fallen to $9.9 billion because of online classified ads — mostly Craigslist.

And Craigslist doesn’t charge for the vast majority of its classified ads. Craigslist has managed to pull the majority of nearly $10 billion out the classified ads industry in a single year using an operation staffed by just 30 people. There are estimates that Craigslist could take in $100 million this year.

Again, we see the power of the Internet and how it devalues everything it touches. In this case, Craigslist’s use of Internet technologies has managed to transmute $10 billion in value into $100 million. It’s the opposite of the dreams of alchemists – Craigslist has managed to transmute gold into lead. That’s what the Internet provides — the means to dramatically devalue an existing industry.

The last few days I’ve been dipping in and out of, a software and services offering that at first troubled me.

When you visit the site there isn’t a lot to be seen other than a bit of video (shown above) and some information about the founders along with a sign up form and the promise of tax savings through the creation of a limited company. I’m not going to comment on the company thing because as always there are ups and downs though I see the logic. Instead, I was drawn to the ‘about’ section where it says:

The key team members are Darren Fell, Drew Griffiths and Steve Crouch. With a combined experience of a successful internet entrepreneur, a web agency owner and an accountant who’s had his practice (with 750+ customers) since 1991, you could say it could be the perfect team to revolutionise the way Freelancers accounts are done.

And that’s just the founders. The rest of the team are outstanding with top Project Managers, outstanding Development Managers and uber-cool, not stuffy Accountants and book keepers!

This is fascinating because it is giving us a glimpse into what the future of practicing accounting might look like. On the price front, Crunch is offering all compliance work at a fixed fee of £59.50 a month. It requires that the client uses Crunch’s billing banking and expense service and there is no offer of face time. But that’s unlikley to be necessary for many of its market: freelancers, contractors and small business people.

When I left practice 16 years ago there was no way to realistically prepare a set of limited company accounts and get everything filed for much less than £1,000 or roughly £1,400 in today’s money. We considered ourselves pretty efficient. Assuming the model works then that means Crunch has created a service that halves the cost of my example albeit they’re factoring in some time and attention by the client. But there are nuances to this model.

Blevin Franks, which uses FreeAgentCentral, has developed a spreadsheet which helps contractors work out which structure to use. See above. They are giving that away for free. In my day, that would have been a good half day consultation combined with another half day running all the spreadsheet permutation, peer review etc. In today’s money that’s: £1,200 just disappeared. Oh yes – and they’re on Facebook. Earlier this week I took a client call about developing some communications tools for the firm’s tax department. These will help the firm limit its marketing spend while expanding its authority in the markets it serves. Even as little as five years ago, that would be a serious engagement. Today, we’ll get it done in maybe two days and I’ll likely tag it onto other things I need to get done at around the time and so making best use of time. The trip will be arranged in the Internet using Kayak and probably Travelodge or Ibis, depending on where I need to be and what the Oyster card costs are likely to be, depending on hotel choice. Do you see where this is going? If we think about it, much of our lives is now being impacted by Internet based services. We just don’t necessarily see it. But then I never thought I’d hear the day when someone said:

#e2conf twitter and facebook are the new crm.

But then I know of companies that are getting leads via Twitter. Which is free. And did you know that will integrate with Twitter in the near future? Why should you care? I suggest investing 6 mins of your time listening to John Peavoy, the greatest salesman never had. Part two of that conversation will be coming soon. If Twitter piques your interest then I thoroughly recommend Laura Fitton et al’s Twitter for Dummies. Laura’s a good pal and someone with her heart in the right place.

We might not like it and with compliance shrinking for all but the largest players, the market is going to get unquestionably tougher as the drift effect takes hold, especially in the middle market. Are you ready? If not then I suspect you might get run over by the likes of and Blevin Franks.

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Frank Scavo June 24, 2009 at 5:32 am

I would note that both examples–classified ads, and the sort of accounting services you describe–involve services that are basically non-value-added. They thrive on information gaps: in the case of classified ads, the inability of buyers and sellers to find each other. In the case of accounting services, access to the specialized knowledge on how to set up a legal entity. So, if the Internet closes these information gaps and drives the costs of such services, so much the better. Forces accountants like Dennis to do more value-added work.

Dennis Howlett June 24, 2009 at 5:37 am

Great point Frank and one that I talk about often on these pages: Value Add is the ONLY viable place to go but…you need to have that entree via commoditization. It will be painful but for those that see where this goes, the rewards will be enormous.

Phil Richards June 24, 2009 at 1:58 pm

Thanks Dennis for the comments regarding our services for Professional Contractors and Freelancers. A couple of points that I would like to add:-

1. We rebranded as BFCA Limited on the 6th April
2. Our current services include FreeAgent Central as you say. We have a good relationship with FreeAgent and took the decision to package their accounting solution with our services, which does exactly what we need for our clients, rather than offer an in-house system. For me that was important – a) So that clients are not tied to us for the accounting system , they can leave us as clients and still use FreeAgent with another accountant b) FreeAgent are focussed on developing their system, we would never have the resource or skill to do this as well as they do.
3. Frank suggests we are trading in "non value added services" – I do not think so – The value of our service today is the package – Information ( available free ) + Speciality & Focus ( years of experience in a niche market ) +Tools ( FreeAgent ) + Advice ( bespoke to each client as required ) + Compliance ( protect and serve clients )

Internet Strategist June 25, 2009 at 1:55 am

Changing technology always creates winners and losers and requires repositioning. No matter how commoditized something can be made there will always be a demand for exceptionally talented and highly experienced and skilled advisors and implementers beyond what free or inexpensive services can provide.

Newspaper advertising was not extremely effective for many advertisers and Craigslist is similarly ineffective for many purposes. Little has changed in that regard except that the risk of testing is now more time and less money.

Michael June 25, 2009 at 4:25 pm

I loved this piece and, as someone who uses Crunch, I feel happy to be part of something that'll shake up the industry a little.

As for 'face time' Crunch agents are available to me via phone and email which I think I prefer to having to make an appointment with a real live accountant.

If I had huge turnovers and complex arrangements and deals then obviously I'd require detailed, personalised information from time to time but, as a freelancer with typical clients, costs and a simple structure why should I pay through the nose for advice that can be built into an online, automated system?

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