Tech Could Drive a Deflationary Cycle

Either way, though, prices for all content are heading lower. And that's deflationary.

And, of course, price control over any service that can be transmitted digitally will be lost as commoditization kicks in. From stock trading and analysis (you used to need to be in a major city to be a serious stock trader and analyst), to accounting (how many times have you read about companies outsourcing simple accounting jobs to India and elsewhere?) to brand management -- the examples of services that the Internet commoditizes goes on and on.

Ironically, in this analysis, the only products that can avoid the loss of price control and commoditization through excessive competition are physical goods. From fashion to concerts to live sporting events, only the physical world retains pricing power. Service sectors, which make up the majority of U.S. jobs and GDP, end up with price battles and endless competition from all corners of the country and the world.

And that, my friends, is how deflation really could become a problem, and how the bears finally could have their depression, while earnings evaporate as content, information, capital and services all flow toward the lowest possible price and most cost-effective areas until all the value is squeezed out of "value-added."

But wait, don't panic. This isn't today's business. And there are lots of strategies and legal protections that will counter these trends, even in those areas already under siege. I'll look at that in a column next week. (In case you're wondering, a "coming column" tease is indeed a strategy for protecting against commoditization of content!)

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Napster to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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