Subject:
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Re: eBuisness Model
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Newsgroups:
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lugnet.dear-lego
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Date:
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Sun, 10 Dec 2000 15:57:49 GMT
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Viewed:
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3423 times
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Amnon, I think you may have misinterpreted my message, likely
because I misinterpreted yours :]
I assumed you meant that any average Joe consumer off the
street would be able to design their own sets, set up a
site, and sell them. This I think is unrealistic. TLC
would have no control over site content/presentation.
Whether or not the sets are TLC-native, they are nonetheless
LEGO products. TLC must be protective of its brand recognition
regardless of where their sets come from. Thus the
administration required to ensure that all these 100s of
little sites are kept in line with company doctrine is just
way too immense. The Tech Support requirements alone to
make sure everyone's ordering interface to TLC works okay
would be massive when everyone is running different systems,
software, languages, etc.
Anyhow, that was my initial assumption that you meant
*anybody* could sell. The rest of my post then went on
my assumption that since that was impractical, the sets
would be sold off LEGO.com directly. The only thing
a designer would do is submit a design to TLC, and that's
it. Completely in TLC's court after that. If you re-read
my post with this in mind it should now make more
sense, especially the bits about design copyright, royalties,
etc.
Now as I think I understand it better, you are instead
suggesting that only a small number of "groups" be allowed
to sell? This makes more sense. Keep it to a limited
number of "licensed" on-line LEGO merchants. In some
ways they would be like the official LEGO stores that dot the
world, but these would be responsible for designing their
own sets, and wouldn't sell TLC-native sets. This would
be far more manageable.
However, now the day-to-day control over which sets get
sold is with these group sites (TLC would still monitor
things for compatibility with company desires). So
now the average Joe from above who wants to have his set
sold submits it to the group site. So the overhead
burden of reviewing sets, making them available for
order, etc., gets pushed onto the group sites. And here's
the part that concerns me: who decides if a particular set
is going to be sold? If someone gets ticked because a
group site won't put their set up for sale, remember the
independent complaint channel probably runs directly
to TLC. Instant discrimination suit? I dunno...
Part of my original read on your post was that *every*
design submitted gets made available for sale. And
again I'm back to the overhead cost issue, whether it's
covered by TLC or the group sites, or both. Now if
you meant only selected designs are made available, then
we have this above issue of design selection. If
no group site will accept the design, then does the
individual not lobby LEGO Direct for permission to get
their own site? And etc...
In lugnet.dear-lego, Amnon Silverstein writes:
> In lugnet.dear-lego, Kyle D. Jackson writes:
> > In lugnet.dear-lego, Amnon Silverstein writes:
>
> No, this could be made to look like the customer was dealing directly with
> the FOL. Check out the T-shirt ordering system here. Go to the main page, go
> to the left corner, order a shirt. Everything you see in the following
> process is LUGNET. All the design copyright is owned by LUGNET. All the
> money, manufature, ordering, is handled by cafepress, but you don't see that.
Appearance and copyright issues aside, the key bits I was after
here was "money, manufacture, ordering". In particular the
manufacture. Once a design is made available to sell, it needs
a set number. There must be sorting for the pieces into that
kit. Instructions need to be printed. Potentially box art
needs to be made (I'd say skip it for cost reasons, but their
goes brand recognition again). And sets need to be available
for shipping on-demand. All of this is overhead investment.
TLC has to spend money before the kit even sells. If they
agree to offer *every* design for sale (so my 50,000 a year
number), then that is a massive cost, 1000 times more than
they might normally do. If however they severely limit the
number of designs to, say, 50 (so about double their yearly
offering), then it is much more maneageable. But still
expensive---they've just doubled their investment in
set preparation.
> If special interest groups maintained and promoted their own sites, they
> could do the editing and quality control on their own, so Lego wouldn't have
> to worry about it. LUGNET could have a list of member-voted excellent sets,
> and you wouldn't have to wade through tons of garbage to see great ideas.
> The train builders cold maintain a page for great train models, etc.
This is where I figured I misunderstood your original post. But
as above, I'll still contend that TLC will be strictly monitoring
controlling appearance/content on these sites. And the voting
to get sets selected, with maybe 50,000 entries per year (across
all sites) comes under scrutiny for fair play.
[5% Royalty]
> > I can't see this happening either. The set would either be
> > available for sale or it wouldn't. By allowing TLC to sell
> > the set, the designer is giving away their copyright on
> > the design (I doubt TLC would be willing to sell under
> > license to Joe FOL like it does with Lucas, Disney, etc.) So
> > at most if a design is accepted by TLC, a small one-time
> > royalty fee might be paid but then the FOL is cut out of
> > profits after that, regardless of quantity sold.
>
> This isn't true. LUGNET didn't give up its logo to the shirt printing
> company. You can design things with other people's parts and keep your
> design and copyright. If I design a new machine, I don't have to turn over
> my design rights to Ace Hardware because I made it using their bolts and
> brackets.
Again, I was at the scenario where there are no independent sites,
and all designs go direct to TLC. My claim is that TLC will
not negotiate floating royalties with submittals. They will at
most pay a one-time small fee..., in LEGO gift certificates.
Designers will be surrendering all rights to their design. Only
Lucas, Disney, etc., get to negotiate rates and keep designs,
permitting LEGO to sell under license only.
With your independent site scenario, yes the design rights can
stay with the designer.
> There is no reason Lego couldn't have any terms they want for the deal. My
> 5% proposal would reward people for helping them sell parts. AC Delco must
> give a price break to car manufacturers who sell cars that use a lot of
> their parts. This would be a similar buisness model.
Don't get me started on the automotive industry (that's where I
work now). You don't give a price break to OEMs (mfrs) that sell
more cars. You give the dirt cheapest price and the most insane
delivery timing you can to *any* mfr, just to make sure you
get to sell your parts. Otherwise you're out, because there is
no such thing as supply loyalty (on either end). Someone is always
willing to take your place. Besides, all parts going into a
vehicle are custom designed, and only afterward do they show up
in the replacements parts market. I've yet to have seen an
off-the-shelf part end up in a new car design..., including
most bolts.
As for the 5% rewarding people for helping TLC make money,
I'm back to TLC having to severely limit the number of designs
(and pieces) that will be made available for sale. See
below...
> > To come to this conclusion I look at it this way. Let's say
> > TLC today has about 50 new set designs introduced each year.
> > Let's say with FOL designs made available, that rises to
> > 50,000, or 1000 times as many sets available for sale. The
> > market would never rise so that 1000 times as many sets
> > are sold for each design. So far fewer sets would be
> > sold per design (intially 1/1000th the sales). Overhead
> > costs are going ride heavily based on the number of unique
> > items in inventory, which has gone from 50 to 50,000.
> > Ultimately the profit margins plummet..., unless prices
> > to consumers are raised and/or production costs are
> > lowered (lower quality, plain bagging for e-sales instead
> > of pretty boxes, etc.).
>
>
> One part you are missing in your calculation is the growth in the market. I
> have seen a lot of LUGNET people's designs that I would love to buy.
> Instead, my choice is to buy dozens of Throwbots, discard 90% of the parts,
> buy rare parts on eBay, buy a bunch of $10 service packs, and do the best I
> can. Most of the time, this doesn't cross the threshold of being worth
> doing, so I end up not buying anything. If I design a set, Lego is bound to
> sell at very least 1 copy, to me. I probably have a few friends who would be
> interested in buying my set, so that is a few more. I would be providing
> Lego with free marketing. Something like this worked great for Amazon.com. I
> can think of a dozen sets I would buy from FOLs, even though I have all the
> sets I want from Lego already. Many people who had never bought Lego sets
> before would certainly be persauded to buy sets designed by their friends,
> or buy special-interest designs that Lego has never produced.
I didn't missing the market growth at all. I'm saying initially it
will be zero. I'm also saying it will never reach 1000 times.
Again with my scenario that *every* design submittal is offered
for sale, annual unique offerings can shoot from 50 to 50,000
in one year. But intially the market will be the same size.
People spending money on custom designs will notbe spending them
on TLC-designs. People now buying thru the web, or their friends
as you suggest, will not be buying from stores. It's sales in
one market at the expense of another. A phenomenon that's
affecting just about every brick'n'mortar outlet out there
that's opened in .com-land. Some are doing better than others.
Everybody's struggling to take advantage of the paradigm shift,
but few can get it right. Anyhow, the market will never
grow by 1000 times. If it did, it would mean TLC just put
almost every single other toy manufacturer out of business,
and could now buy Lucas for themselves, hehe.
Yes there could be some small market growth. But not enough
to offset the overhead costs of 1000 times as many set offerings.
Take it waaaaay down to your scenario of only group sites
selling, and severely limiting the total design offering to
about 50 or so, then you may have something. But at only
50 extra offerings, wouldn't it make more sense for TLC to
run the whole thing, and just take design submission from
the group sites? Cuts out the middle man.
> The other part is the inventory. No FOL sets would be kept in inventory at
> all. They would be produced as needed. Computerized machinery would bag
> parts on demand. The 5% cut to the designer would be a sales bonus, not a
> cut for the economy of scale for producing a large number of identical sets.
And this is unrealistic. You can't say "we make them on demand
so there's no inventory and no costs". Quite the opposite, that
is extremely expensive. You need to have the computer systems
set up, printed matter designed and ready, packaging all set,
and employees ready to go. This isn't like shipping CDs and
books from on-line. This is *manufacturing* the CDs and books
in their entirety and then shipping them. And if you have
1000 times as many unique items to prepare for, you've just
sunk your company in overhead expenses. If you only have 100
total, then you have a chance, like with Mosaic. Keep a
very small number a design offerings with a very limited
selection of elements (e.g., just plain bricks) and you
have a chance.
> Also, the packaging could be automated and cool. There are several
> mini-press techniques for putting together great looking, finished booklets,
> for a cost of around $2. A nice ink-jet box could have the original FOL
> cover art, for the cost of perhaps another $2. The plastic box insert would
> be standardized based on the parts count.
Working at home these are great. Working with 1000's of sets
per day and you will be out of business.
> > With no guarantee that any given set will sell, TLC risks
> > the overhead cost on each and every design. And with very
> > low sales volumes per design, the FOL is almost going to
> > have to *pay TLC* to get them to try selling it.
>
> There is no inventory. Lego loses nothing if a set doesn't sell. They will
> already have the capacity to produce sets on demand, according to what they
> posted for their 2002 plan. The only thing that is different is the
> additional sales of kits from the new market.
Again I don't buy this. Above all else I stand by my assessment
in the above quoted paragraph. TLC has not said they can produce
any piece in any quantity on demand. We are likely going to
see the bulk offering expanded, and some basic common elements
made available for rudimetary designs.
> > I could only see this working on this scale if TLC ran an
> > ebaY or BrickBay. Let the FOLs sell whatever they want. TLC
> > gets a percentage cut of all sales. However, the FOL sellers
> > are responsible for getting their own parts, printing instructions,
> > etc., etc. TLC bulk ordering would provide their supply, where
> > practical.
>
> This would be less efficient than my proposal, since the FOL would have to
> order from Lego, and then sell kits themselves and ship them again, but this
> could be an additional channel.
I think the xxx-Bays sucks too, but now that I think about it, what's
efficiency matter? TLC sells the bulk elements. And then they
make a percentage off the MOC sales on the "LEGOBay". What could
be more beautiful than that to a business? Double-dipping off
the same product! :] And it doesn't intrude on retail sales at
all. (Kinda like how automakers make money on leasing a car,
and then make it all over again when they sell it after the
lease.) Ultimately a small market though.
> Thanks for your comments on my proposal, and I think you have some good
> points. But please look at my proposal assuming that Lego already has the
> automated kit production capacity in place, as they describe in their recent
> announcement.
I don't think they said this at all. Everyone seems to be misreading
their release clouded with pipe dreams of getting any set they
want on demand. It will not happen at that scale.
When you buy a new car, you specify the options you want. If a dealer
does not have that car on the lot, he can get it from the factory.
But have you noticed how the list of options combinations is
shrinking? Everything comes in "options packages". You want
the cruise control but nothing else? Too bad, you're getting
power-everything. You only want alloy wheels? You're stuck
with spoilers, stiff suspension, sunroof, etc. You want the
higher output engine? Sorry, you just bought every option
available. The options are being melted into the trim levels.
If you choose LX, DX, SE, whatever, you've just automatically
picked almost all of your options. That's how many places are
building computers now. And its how automakers are building
cars. It allows an assembly line for each trim level,
with no monkeying around to figure out which options go
into which car as they move along. If anything, the small
custom stuff gets left to the dealer to install.
I typed this novel, I have now come to a moment of perfect
clarity. I have only ever had 2 of these regarding the
internet, and I forget the second one :] Anyhow, it's
this:
The internet has not altered the physical world.
Everyone is continually trying to find ways to get on the
internet bandwagon and get rich. And they are rethinking
the entire business paradigm to do it. This is not a
bad thing. However, while the internet has brought amazing
advances, it is still only a communication tool. It's
an amazing way of spreading information, or gathering
information. It has been put to very good use in
commerce transmitting financial information (banking,
shopping, etc.).
But it has *not* radically affected manufacturing and
shipping. These are actions with physical items that
must be manipulated in the physical world, and sent
to physical destinations. The internet can help with
tracking and etc., but it cannot radically change
the physical processes themselves. The reality is
the more customization you put into your product
lines, the more expensive it gets, somewhat
exponentially. A company is not going to be able
to sustain making 50,000 different unique items
available on demand.
The internet is a remarkable tool for TLC to take
advantage off. If they can't do it right, they
are as good as dead. It's a very good idea to use
it to transfer design ideas from customers to TLC.
Whether they then choose to make those available
for sale is internet-irrelevant. They can put
them on the shelf in stores with the rest of the
sets. Or on LEGO.com. Or wherever. But they
cannot automagically produce anything and everything
that is requested from the Net. They can pull
off Mosiac because its very homogeneous. Limited
piece selection and colours. All pre-bagged (in
quantities of 90 each I've heard). A uniform interface
to design the sets and determine auto-sorting.
Plain jane packing.
But expanding this into generic parts selection,
many more colours, and unlimited restrictions
on the shape of the final model? They'll go
broke. 50 designs, okay. 50,000, no way. How
high can they go? They'll figure it out, but
don't expect the moon.
I would sincerely expect that if TLC has half the
lick of sense I give them credit for, they've got
manufacturing, shipping, etc., personnel in with
LEGO Direct helping guide them away from trying
something that looks great "with the internet"
but just can't be done in the physical activities.
I believe TLC would be wiser to increase bulk
offerings (and for gawd-sakes promote it more!),
and keep a few interesting custom-designed
sets options as practical, but that's it. And
I think that's where they will head.
I hope I'm not sounding too harsh and squashing
your good ideas, Amnon. I'm just trying to tie
in the limitations of the physical world with the
e-world. Unfortunately it took me an entire
novel to figure it out :]
I think a few custom-designed sets sold through
LUGNET would be awesome. But beyond that, just
make bulk more accessible so people can buy
and build whatever they want. There's going
to be a limited market for other people's
designs anyhow. If everything under the sun
is available for sale, where's the incentive
for kids to learn to create their own with what
they have?
KDJ
________________________________________
LUGNETer #203, Windsor, Ontario, Canada
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Message has 1 Reply:
 | | Re: eBuisness Model
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| (...) I won't quote your novel here, (instead I'll write my own! :-) but I think that you are wrong. TLC *could* put together thousands of different sets. Your error comes in thinking that the customer designed sets will be put together with the (...) (24 years ago, 10-Dec-00, to lugnet.dear-lego)
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Message is in Reply To:
| | Re: eBuisness Model
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| (...) No, this could be made to look like the customer was dealing directly with the FOL. Check out the T-shirt ordering system here. Go to the main page, go to the left corner, order a shirt. Everything you see in the following process is LUGNET. (...) (24 years ago, 10-Dec-00, to lugnet.dear-lego)
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