Arbitrage in the global village

It’s funny how markets work. For all our collective progress in creating a global marketplace, with the free flow of information across borders and a world-wide choice of suppliers, sometimes you come across examples of old-school practices that make you shake your head.

In recent months I was a consumer of several intangible products. These are ideally suited to selling and distributing online, so you could be forgiven for expecting keen pricing and competitive service from major vendors, wherever they are in the world.

The reality, however, was very different. Below are two specific examples where companies are trying to extract a premium price from one particular country – Australia. This time-honoured tradition used to earn companies a nice profit (call it an antipodean tax), because of our geographic isolation and relative scarcity of alternative purchasing options. But its days as an effective strategy are numbered…

Example 1:

Have you bought domain names recently? The first one I bought was from Melbourne IT, one of the biggest Australian providers whose professional looking website boasts they are “a world leader in domain name registrations and related online business solutions”. However, they charge A$69 for a basic .com address, with extra fees for proper DNS management.

Having made that mistake, I now use the US-based Nettica, who provide a domain with DNS management for only US$20 (equivalent to ~A$23, i.e. 1/3 the cost of Melbourne IT). If you look around, there are even cheaper options. For example, Google now sells domain names for only US$10 via Google Apps.

Example 2:

I recently downloaded a 30 day free trial version of Adobe Flash CS3 (ah, the magic of free) and after rigorous testing concluded it was well worth purchasing. But would you believe that, buying direct from Adobe, I can pay up to 67% more on their Australian website versus their US website ?

That’s right – I can buy the software in download form via Adobe US for US$699 or Adobe Australia for A$1245. And with the mighty Aussie dollar where it is, the US price is equivalent to about A$750. The difference is very nearly $500 on a $750 product.

Conclusion:

It’s deliciously ironic that two web-centric products like domain names and Adobe Flash are being priced and distributed in such an old-school way.

When consumers had few options, distributors could extract premium prices like this, but it’s an increasingly risky strategy in an internet-savvy world because arbitrage between markets is so easy. Plus it (rightly) annoys the customer, potentially damaging brand equity.

For start-ups, this presents an interesting opportunity. Can you spot markets where equivalent or better products can be sourced elsewhere and provided at lower cost through new distribution channels? This is your chance to shake up an incumbent living on an excessively fat profit stream. Consumers will thank you…

Advertisements

One thought on “Arbitrage in the global village

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s