September 2010

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Back in the 1920s my grandparents, Erick and Caroline Oman, took their four kids on the family’s one and only trip west from their home in Napoleon, North Dakota, which is about as far out in the prairrie as you can get. When the Rockies came in sight, Grandpa turned to Grandma and said, “See, Mama: It’s just like home, only different and more of it.”

That’s the only quote I know that survives from a grandfather who was gone before I was born. Right now I’m in Baltimore with my grandkids, telling old family stories. Fun stuff.

The escape key

I love this from Dave:

The why of it: I want to create, out of RSS, something like Twitter, but not locked up on one company’s servers. Call me an opensorcerer or a rastafarian, but I like networks that aren’t controlled by one company. Esp not a tech company.

Doing what needs to be done. Yesss.

Here’s some what I’m looking for right now. Any help is welcome.

Topic 1: Advertising

  1. Size of the advertising industry, both in the U.S. and worldwide.
  2. Sums of advertising of various types to which individuals are exposed every day.
  3. Breakouts and growth rates of advertising sectors. Online and mobile especially.
  4. Weaknesses and/or declines in advertising sectors.
  5. Hard numbers on click-through rates on various advertising types, and ratios to impressions. Trends as well.
  6. Successes and failures of coupons and other forms of promotion.
  7. Overhead in the production of advertising. (Paper, electricity, server cycles, etc.)
  8. Size of the whole marketing category, including salaries for marketers.

Topic 2: History

  1. Need amounts invested, through the dot-com era (1996-2000), in start-ups. Especially interested in break-outs by business models of those funded. Regional break-outs would be good too.
  2. Success rates of investments. I want more than stock and sale prices for the companies. If possible, I want totaled revenues for those companies, by sector if possible.

There’s more, but that’s enough for now. Thanks.

So , the Chatanooga power (and now high speed Internet) utility, is now offering Internet speeds up up to 1Gbps over fiber optic connections to homes. (A U.S. record, far as I know.) If you ignore EPB “triple play” offerings of TV and telephony alongside Internet connectivity and just go for the Internet connection, your prices are these (I’ve rounded up from the posted prices):

  • $58 for 30Mbps
  • $70 for 50Mbps
  • $140 for 100Mbps and $350 for 1Gbps.

Let’s assume you get one or more IP addresses with this, and no blocked ports. In other words, a full native Internet connection. Answer these:

  • Does that make you think about moving there?
  • If not, would you get it if you lived in Chatanooga?
  • And if your answer to that is yes, how would you recommend EPB improve its offering, either in its deployment or its characterization in marketing?

Just wondering.

Playing the organs

I’m at a fascinating luncheon talk by Al Roth at CRCS with the irresistable title, “Kidney Exchange.” This can’t help but call to mind “Anonymous Philanthopist Donates 200 Kidneys“, in . which I hope Al has in this talk or puts in his next one.

So I’m taking notes here. Lots of good fodder for the Markets chapter of the book I’m wrirting.,,

Market Design is Al’s summary and collection of works on that subject, including Kidney Exchange. See his “Efficient Kidney Exchange” paper In the American Economic Review. Market design is around patient-donor pairs (usually relatives), even though one half the pair will not be donating a kidney to the other half of the pair. The two surgeries: transplants and nephrectomies. The latter is the removal of a kidney.

NEAD: Non-simultaneous, Extended Altruistic-Donor Chain. These can add up. Al shows how ten transplants came out of one donor starting the chain. In cost/benefit terms, this is also good. This is now cited in both the New England Journal of Medicine and People magazine.

There are currently ~86,000 people on the waiting list now. There is a question on the floor about calculations based on 100% of Americans on the donors list. Nor feasible, but one wonders if a much larger percentage could be recruited. Al calls these “non-directed donors.”

Wondering what kind of matches we might classify with personal RFPs. (Al is talking here about pairwise ones, because that’s how kidney donorship works.) Other considerations: “Markets must be thick, uncongested and safe.” Need to look at the long and short side of a market. Also matching efficiencies

Interesting point: relationships between hospitals and surgeons are a context. Also that we are starting to see pairs withheld, meaning that a hospital or two may not inform other hospitals about donor candidates. Arcanum: strategyproof industry rational (IR) mechanism.

(I’m surprised that all this stuff, most of which is new to me, does not hurt my brain.)

When creating the large exchange, respect the small exchanges that operated independenly before. “Mechanisms that give priority to internally matachable pairs have good incentive and efficiency properties in large markets. Theorem for k=2 (pairwise exchange), full participation is an E (the Greek letter epsilon) equilibrium for E(n) = 0(1/n).

“It could be that some regulation in order.” e.g., “If you participate, you must show us all our patients.”

Why do we have laws against simply buying and selling kidneys? The same reason we have the Ontario Dwarf Tossing Prevention Ban Act of 2003. The answer is, because it’s repugnant.(At least to lawmakers.) X may not be repugnant, but X+$ is repugnant — n some conditions, anyway, such when selling kidneys. Or kids. (Hmm… kidney sounds like a diminutive term for a kid. Or a kid part.)

Three repugnancies: Objectification, Coercion and Slippery Slope. (Hmm, don’t we have that in lots of business settings already? Such as excessive gathering user data online?)

The Web is not television, and I would like online advertisers and publications to stop treating the Web like it is. Interruptive ads such as this one at Salon…

… are meant to get 100% click-through rates, I suppose. But in too many cases — namely mine, repeatedly — they get 100% of multiple clicks that fail to go through. I don’t know why clicking on the X next to “Close and enter Salon” doesn’t work for me (on three different browsers), but it doesn’t, and that causes me to be very annoyed, mostly at Salon.

I got to that blanked-out Salon page by following this Jay Rosen tweet. Earlier today I ran across the same thing when I followed this Phil Windley tweet to this page at Freeman. There I was greeted with the same kind of interruption, this time a self-promo for the pub’s email newsletter. Clicking on that X got me through, but I didn’t like having to do that, and frankly don’t remember what I read, because I arrived annoyed. (And I’m new to that pub, which makes the interruption even more rude.)

Here’s what I believe: It doesn’t matter how much money interruptive ads make for publications on the Web. They sap the readers’ tolerance and good will, and any unnecessary amount of that is too high a price to pay. (Videos? Okay, we’re used to that on TV. But serious text-based pubs like Salon and Freeman should chill.)

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Back on July 31 I posted The Data Bubble in response to the first of The Wall Street Journal‘s landmark series of articles and Web postings on the topic of unwelcome (and, to their targets, mostly unknown) user tracking.

A couple days ago I began to get concerned about how much time had passed since the last posting, on August 12. So I tweeted, Hey @whattheyknow, is your Wall Street Journal series done? If not, when are we going to see more entries? Last I saw was >1 month ago.

Then yesterday @WhatTheyKnow tweeted back, @dsearls: Ask and ye shall receive: http://on.wsj.com/9DTpdP. Nice!

The piece is titled On the Web, Children Face Intensive Tracking, by Steve Stecklow, and it’s a good one indeed. To start,

The Journal examined 50 sites popular with U.S. teens and children to see what tracking tools they installed on a test computer. As a group, the sites placed 4,123 “cookies,” “beacons” and other pieces of tracking technology. That is 30% more than were found in an analysis of the 50 most popular U.S. sites overall, which are generally aimed at adults.

The most prolific site: Snazzyspace.com, which helps teens customize their social-networking pages, installed 248 tracking tools. Its operator described the site as a “hobby” and said the tracking tools come from advertisers.

Should we call cookies for kids “candy”? Hey, why not?

Once again we see the beginning of the end of fettered user tracking. Such as right here:

Many kids’ sites are heavily dependent on advertising, which likely explains the presence of so many tracking tools. Research has shown children influence hundreds of billions of dollars in annual family purchases.

Google Inc. placed the most tracking files overall on the 50 sites examined. A Google spokesman said “a small proportion” of the files may be used to determine computer users’ interests. He also said Google doesn’t include “topics solely of interest to children” in its profiles.

Still, Google’s Ads Preferences page displays what Google has determined about web users’ interests. There, Google accurately identified a dozen pastimes of 10-year-old Jenna Maas—including pets, photography, “virtual worlds” and “online goodies” such as little animated graphics to decorate a website.

“It is a real eye opener,” said Jenna’s mother, Kate Maas, a schoolteacher in Charleston, S.C., viewing that data.

Jenna, now in fifth grade, said: “I don’t like everyone knowing what I’m doing and stuff.”

A Google spokesman said its preference lists are “based on anonymous browser activity. We don’t know if it’s one user or four using a particular browser, or who those users are.” He said users can adjust the privacy settings on their browser or use the Ads Preferences page to limit data collection.

I went and checked my own Ads Preferences page (http://www.google.com/ads/preferences) and found that I had opted out of Google’s interest-based advertising sometime in the past. I barely remember doing that, but I’m not surprised I did. On the whole I think most people would opt to turn that kind of stuff off, just to get a small measure of shelter amidst the advertising blizzard that the commercial Web has become.

Finding Google’s opt-out control box without a flashlight, however, is a bit of a chore. Worse, Google is just one company. The average user has to deal with dozens or hundreds of other (forgive me) cookie monsters, each with its own opt-out/in control boxes (or lack of them). And I suspect that most of those others are far less disclosing about their practices (and respectful of users) than Google is.

(But I have no research to back that up—yet. If anybody does, please let me have it. There’s a whole chapter in a book I’m writing that’s all about this kind of stuff.)

Meanwhile, says the Journal,

Parents hoping to let their kids use the Internet, while protecting them from snooping, are in a bind. That’s because many sites put the onus on visitors to figure out how data companies use the information they collect.

Exactly. And what are we to do? Depend on the site owners and their partners? Not in the absence of help, that’s for sure. The Journal again:

Gaiaonline.com—where teens hang out together in a virtual world—says in its privacy policy that it “cannot control the activities” of other companies that install tracking files on its users’ computers. It suggests that users consult the privacy policies of 11 different companies.

In a statement, gaiaonline.com said, “It is standard industry practice that advertisers and ad networks are bound by their own privacy policy, which is why we recommend that our users review those.” The Journal’s examination found that gaiaonline.com installed 131 tracking files from third parties, such as ad networks.

An executive at a company that installed several of those 131 files, eXelate Media Ltd., said in an email that his firm wasn’t collecting or selling teen-related data. “We currently are not specifically capturing or promoting any ‘teen’ oriented segments for marketing purposes,” wrote Mark S. Zagorski, eXelate’s chief revenue officer.

But the Journal found that eXelate was offering data for sale on 5.9 million people it described as “Age: 13-17.” In a later interview, Mr. Zagorski confirmed eXelate was selling teen data. He said it was a small part of its business and didn’t include personal details such as names.

BlueKai Inc., which auctions data on Internet users, also said it wasn’t offering for sale data on minors. “We are not selling data on kids,” chief executive Omar Tawakol wrote in an email. “Let there be no doubt on what we do.”

However, another data-collecting company, Lotame Solutions Inc., told the Journal that it was selling what it labeled “teeny bopper” data on kids age 13 to 19 via BlueKai’s auctions. “If you log into BlueKai, you’ll see ‘teeny boppers’ available for sale,” said Eric L. Porres, Lotame’s chief marketing officer.

Mr. Tawakol of BlueKai later confirmed the “teeny bopper” data had been for sale on BlueKai’s exchange but no one had ever bought it. He said as a result of the Journal’s inquiries, BlueKai had removed it.

The FTC is reviewing the only federal law that limits data collection about kids, the Children’s Online Privacy Protection Act, or Coppa. That law requires sites aimed at children under 13 to obtain parental permission before collecting, using or disclosing a child’s “personal information” such as name, home or email address, and phone and Social Security number. The law also applies to general-audience sites that knowingly collect personal information from kids.

So we have pots and kettles calling each other black while copping out of responsibility in any case—and then, naturally, turning toward government for help.

My own advice: let’s not be so fast with that. Let’s continue to expose bad practices, but let’s also fix the problem on the users’ end. Because what we really need here are tools by which individuals (including parents) can issue their own global preferences, their own terms of engagement,  their own controls, and their own ends of relationships with companies that serve them.

These tools need to be be based on open standards, code and protocols, and independent of any seller. Where they require trusted intermediaries, those parties should be substitutable, so individuals are not locked in again.

And guess what? We’re working on those. Here’s what I wrote last month in Cooperation vs. Coercion:

What we need now is for vendors to discover that free customers are more valuable than captive ones. For that we need to equip customers with better ways to enjoy and express their freedom, including ways of engaging that work consistently for many vendors, rather than in as many different ways ways as there are vendors — which is the “system” (that isn’t) we have now.

There are lots of VRM development efforts working on both the customer and vendor sides of this challenge. In this post I want to draw attention to the symbols that represent those two sides, which we call r-buttons, two of which appear [in the example below]. Yours is the left one. The vendor’s is the right one. They face each other like magnets, and are open on the facing ends.

These are designed to support what Steve Gillmor calls gestures, which he started talking about back in 2005 or so. I paid some respect to gestures (though I didn’t yet understand what he meant) in The Intention Economy, a piece I wrote for Linux Journal in 2006. (That same title is also the one for book I’m writing for Harvard Business Press. The subtitle is What happens when customers get real power.) On the sell side, in a browser environment, the vendor puts some RDFa in its HTML that says “We welcome free customers.” That can mean many things, but the most important is this: Free customers bring their own means of engagement. It also means they bring their own terms of engagement.

Being open to free customers doesn’t mean that a vendor has to accept the customer’s terms. It does mean that the vendor doesn’t believe it has to provide all those terms itself, through the currently defaulted contracts of adhesion that most of us click “accept” for, almost daily. We have those because from the dawn of e-commerce sellers have assumed that they alone have full responsibility for relationships with customers. Maybe now that dawn has passed, we can get some daylight on other ways of getting along in a free and open marketplace.

The gesture shown here —

— is the vendor (in this case the public radio station KQED, which I’m just using as an example here) expressing openness to the user, through that RDFa code in its HTML. Without that code, the right-side r-button would be gray. The red color on the left side shows that the user has his or her own code for engagement, ready to go. (I unpack some of this stuff here.)

Putting in that RDFa would be trivial for a CRM system. Or even for a CMS (content management system). Next step: (I have Craig Burton leading me on this… he’s on the phone with me right now…) RESTful APIs for customer data. Check slide 69 here. Also slides 98 and 99. And 122, 124, 133 and 153.

If I’m not mistaken, a little bit of RDFa can populate a pop-down menu on the site’s side that might look like this:

All the lower stuff is typical “here are our social links” jive. The important new one is that item at the top. It’s the new place for “legal” (the symbol is one side of a “scale of justice”) but it doesn’t say “these are our non-negotiable terms of service (or privacy policies, or other contracts of adhesion). Just by appearing there it says “We’re open to what you bring to the table. Click here to see how.” This in turn opens the door to a whole new way for buyers and sellers to relate: one that doesn’t need to start with the buyer (or the user) just “accepting” terms he or she doesn’t bother to read because they give all advantages to the seller and are not negotiable. Instead it is an open door like one in a store. Much can be implicit, casual and free of obligation. No new law is required here. Just new practice. This worked for Creative Commons (which neither offered nor required new copyright law), and it can work for r-commerce (a term I just made up). As with Creative Commons, what happens behind that symbol can be machine, lawyer or human-readable. You don’t have to click on it. If your policy as a buyer is that you don’t want to to be tracked by advertisers, you can specify that, and the site can hear and respond to it. The system is, as Renee Lloyd puts it, the difference between a handcuff and a handshake.

Giving customers means for showing up in the marketplace with their own terms of engagement is a core job right now for VRM. Being ready to deal with customers who bring their own terms is equally important for CRM. What I wrote here goes into some of the progress being made for both. Much more is going on as well. (I’m writing about this stuff because these are the development projects I’m involved with personally. There are many others.)

You can check out some of those others here.

Bonus link: Tracking the Companies that Track You Online. That’s a Fresh Air interview by Dave Davies of Julia Angwin, senior technology editor of The Wall Street Journal and the lead reporter on the What They Know series.

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Ten years ago this month, on the morning after I gave this speech in Lucerne, my wife and I were walking through the restaurant at our hotel across the lake when a friendly American gentleman having breakfast buttonholed me to say he liked what I said in my talk. I thanked him and asked if he’d be at the conference again that day. He said yes, and that it would be nice to talk later.

Turns out he was the first speaker that morning. His name was , and he was the CEO of Wal-Mart. Later at lunch, which consisted of boxed food you could take out to tables by the lake, he came over to the table where my wife and I were sitting and asked if he could join us. I said sure, and we got to talking. One of the questions I asked him was why K-Mart had failed while Wal-Mart succeeded. He compressed his reply to one word: coupons. K-Mart had hooked its customers on coupons and couldn’t get them un-hooked. This tended to produce too many of the wrong kinds of customers, buying for the wrong reasons. Way too much of K-Mart’s overhead went into printing what was in essence a kind of currency — one that reduced the value of both the merchandise and the motives for buying it. By contrast Wal-Mart kept to old Sam Walton’s original guidelines, which minimized advertising and promotion, and simply promising “everyday low prices.” This saved money and helped build loyalty.

Lee’s lesson comes to mind when I read  at the . It’s too hard to compress the story, so here it is:

There’s a fascinating essay on Facebook just now from the owner of the lovely , about how Groupon nearly bankrupted her business.

The coffeeshop proprietor, Jessie Burke, was shocked at how much money the daily deals site charged to run the promotion. Groupon sold consumers a $13 Posie’s credit for $6, and then sought to keep the entire $6. Eventually, Posie’s and Groupon agreed on a 50% cut: Groupon would get $3 and Posie’s would get $3. Groupon’s $3 was almost pure profit,  but the cafe had to use its remaining $3 to cover the costs of $13 worth of cookies and coffee.

Is it any surprise the promotion was a smash? Over 1,000 customers used the promotion, but the cost imposed by those customers resulted in disastrous losses:

After three months of Groupons coming through the door, I started to see the results really hurting us financially. There came a time when we literally couldn’t not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign. We literally had to take $8,000 out of our personal savings to cover payroll and rent that month. It was sickening, especially after our sales had been rising.

The losses would have been worthwhile if the Groupon customers had become loyal, profitable patrons but many only cared about a discount, not about what made the cafe special:

Over the six months that the Groupon is valid, we met many, many wonderful new customers, and were so happy to have them join the Posies family. At the same time we met many, many terrible Groupon customers… customers that didn’t follow the Groupon rules and used multiple Groupons for single transactions, and argued with you about it with disgusted looks on their faces or who tipped based on what they owed.

And here is Jessie Burke’s original post on the matter, at Posie’s blog.

To be fair, the bad customers were neither “Groupons” (as Jessie calls them) nor “Groupon customers” (since they didn’t buy anything from Groupon — in fact Posie’s was the real Groupon customer). They were coupon shoppers. Promotion hunters. Nothing wrong with that, of course. Most of us play that role some of the time. The problem for Posie’s is one of the oldest in retailing: promotions are good for causing traffic, but lousy for causing loyalty. And making constant promotion part of your business changes your business, literally by cheapening it.

What’s clear about Posie’s is that it’s a business built on human contact, on conversation and relationship. Not just on transactions — and least of all on discounted ones.

Relationship is personal. Even at the biggest companies, success and failure ride on personal behavior, and personal connections. “Trust breaks down first over money,” David Hodskins (my business partner of many years and a very wise dude) observes. Throwing coupons into a personal relationships, especially business ones, is a recipe for trouble.

Since the dawn of the Industrial Age, businesses large and small have also looked at individual relationships with customers as a kind of cost — one that can be reduced or eliminated, often by avoiding or de-humanizing conversations with customers. Promotions like Posie’s with Groupon are just one example of how cheapening gimmicks can actually damage a business that depends on personal relationships between a company’s people and its customers. There are many more examples, especially at larger companies, which too often turn customer support conversations into reverse : making humans sound like machines.

Making relationships work has always been both the foundation and the frontier of business. Ideally, technology should help relationships. And to some degree it does. Telephony and other “social” technologies certainly do help us stay in touch. But there are many other technologies, and uses — including some in the “social” space — that prevent or pervert relationships.

Earlier today, when I went looking for Bermuda tweeters, I went down the list of nearly (and now more than) 500 followers of @BDASun (the Bermuda Sun newspaper). A large percentage of followers are just there to promote something. On a day like today, when a hurricane is bearing down on that tiny country, you can tell the wheat from the chaff. The wheat is dealing with the hurricane (or stays quietly hunkered down). The chaff just promotes.

This has me wondering how much of “social media” today is devoted to being social in the old-fashioned literal sense, and how much is about marketing and promotion. Because I think there is a huge split between the two: a split as sharp as the one between Posie’s good and bad customers.

Igor vs. Bermuda

Hurricane Igor

It’s a safe bet that most people don’t know where Bermuda is. Here’s the answer: In the middle of the ocean, close to nothing. It’s not like the Bahamas, or the islands of the Caribbean, which are arranged in chains, or near to a continent. Instead Bermuda pokes above the Atlantic eight hundred fifty miles straight east of Charleston and the same distance south of Halifax. Its nearest neighbor is Cape Hatteras, still close to seven hundred miles away. So there is no land nearby to protect Bermuda, or to which its residents can run for safety.

Bermuda is also tiny, with a land mass is 20.6 square miles. That’s about 4.5 miles square. You could fit two Bermudas in one San Francisco, with room to spare. Its highest point is Town Hill, at about 250 feet above sea level.

Hurricanes usually circle around Bermuda, attacking Caribbean islands or land along the the Gulf or the Atlantic Coast of the U.S. But Hurricane Igor is different. Hurricane Igor is aimed for Bermuda. (Here’s a great looping animation from the National Hurricane Center, showing Igor’s path. And here’s another, with layers you can turn on and off.)

Since what remains of U.S. mainstream media generally don’t give a shit about the rest of the world — especially when the subject is hurricanes (see this Onion story for more on that) — Bermuda remains downgraded as an Area of Interest. Until, of course, it’s obliterated. You know, like Haiti or New Orleans.

But Bermuda is still there, and it does have media, including tweeters and bloggers. (Well, it’s kinda short on bloggers. Look up Bermuda bloggers on Google or Bing and the top results are pretty depressing. At least there’s Global Voices: Bermuda, where I just learned about Bermuda Blog. And there are others I’m sure to hear about, soon as this is posted.)

There’s the Bermua Sun (@BDASun), The Royal Gazette, BermudaNews (@bermudanews.com), Bermuda Online, .bm emergency tweeters (@edenrichardson, @BermudaDCoffice, @smexpress, @Blonde_In_Bda, @CollieBuddz, @FairmontHam, @JImCantore, @letonnerre @shaeyd @jessicanrowe, @amonteleone, @piecesofsleep…) And, of course, everything that shows up in a search for #bermuda, #igor or both.

I can’t find a single radio or TV station in Bermuda that streams on the Web, other than ZBMradio, which doesn’t seem to be working (at that link, which goes to the stream). But here are the Twitter search results for streaming bermuda.

The last major hurricane to strike Bermuda was Fabian, in 2003. That one killed eight and caused $355 million (2010 USD) in damage. Not bad, considering peak sustained winds of 145mph. (See Roland’s comment, below.)

Meanwhile, heres the action plan, via the BDA Sun. I’ll add more below as news comes in.

Several pieces worth noting.

From back in February, The Smarter You Are, the Less You Click, in ReadWriteWeb. It begins,

If the latest numbers from online ad network Chitika are anything to go by, then we may well be on our way to the world of Idiocracy. According to the study, which compared click through rates to college education, the less educated your audience, the more likely they are to click through on an advertisement.

While this may be good news for some, it certainly seems to spell doom for supporting intelligent content through advertising.

From almost ten years back, Andrew Odlyzko’s Content is not king. Way ahead of its time, even if current winds continue to blow against his vectors. Andrew concludes,

General connectivity is likely to lead to demands for symmetrical links on the Internet. Hence fiber to the home may be needed sooner than is generally expected.

Whether content is king or not has direct relevance for the question of whether the Internet will continue to be an open network, or whether it will be balkanized. If content were to dominate, then the Internet would be primarily a broadcast network. With value proportional to the number of users, there would be few inherent advantages to an open network. The sum of the values of several completely or partially separate networks would be the same as of a unified network. On the other hand, if point-to-point communications were to dominate, and if Metcalfe’s Law were to hold, there would be strong economic incentives to a unified network without barriers. This is considered more fully in Section 4 of [Odlyzko3]. The general conclusion there is that even though Metcalfe’s Law is not fully valid, the incentives to maintain an open network are likely to be very strong. This will be largely because content is not king, and effective point-to-point communication will demand easy interconnection.

An extreme form of the “content is king” position, but one that is shared by many people, and not just in the content industry, was expressed recently by the head of a major music producer and distributor:

“What would the Internet be without “content?” It would be a valueless collection of silent machines with gray screens. It would be the electronic equivalent of a marine desert – lovely elements, nice colors, no life. It would be nothing.” [Bronfman]The author of this claim is facing the possible collapse of his business model. Therefore it is natural for him to believe this claim, and to demand (in the rest of the speech [Bronfman]) that the Internet be designed to allow content producers to continue their current mode of operation. However, while one can admire the poetic language of this claim, all the evidence of this paper shows the claim itself is wrong. Content has never been king, it is not king now, and is unlikely to ever be king. The Internet has done quite well without content, and can continue to flourish without it. Content will have a place on the Internet, possibly a substantial place. However, its place will likely be subordinate to that of business and personal communication.

From GBN: The Evolving Internet: Driving Forces, Uncertainties and Scenarios to 2025. Specifically,

One scenario describes a familiar roadmap in which the Internet continues on its trajectory of unbridled expansion and product and service innovation. The other three challenge that future, and in the process illuminate various risks and opportunities that lie ahead for both business leaders and policy makers. These scenarios are:

Fluid Frontiers: The Internet is pervasive and technology makes connectivity and devices more and more affordable.

Insecure Growth: Users—individuals and business alike—are scared away from intensive reliance on the Internet as cyber-attacks and security lapses proliferate.

Short of the Promise: Prolonged economic stagnation and protectionism slow the Internet’s spread and potential.

Bursting at the Seams: The ubiquitous Internet is a true success story…until capacity bottlenecks create a gap between big expectations and a more modest reality of Internet use.

I had more on this list, but somehow the post got truncated, and I’m too busy now to find Humpty’s parts. So this will have to do.

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The meaning of the term “Chinese wall” is clear. It’s a virtual partition meant to keep potentially conflicted interests apart. What’s not clear, at least to me, is where the term came from. This post at WhatIs.com quotes Wikipedia, this way:

Chinese wall is usually said to be a reference to the Great Wall of China, erected over 2000 years ago to protect inhabitants from invaders. However, other theories exist. In a Wikipedia entry, for example, the author argues that the term probably derives from a diplomatic contrivance of the Late Imperial period in China: “…if a junior mandarin saw a senior mandarin on the road he was expected to bow and present his compliments. In Beijing this tended to happen quite a lot and so traffic was frequently blocked. Instead mandarins came up with a method of pretending they did not see each other on the road by the clever placing of a retainer with an umbrella. Because they did not “see” each other, they were not obliged to stop.”

Meanwhile Wikipedia’s Chinese wall article now lacks that passage, so that’s a dead end. I recall “Chinese wall” meaning a thin one: You can hear what’s happening on the other side, but can pretend not to notice. Still, not good enough. So I’m hoping one of you can point me to a source I can cite in the book I’m writing.

And if you’re wondering why I’m posting less these days, it’s because my nose is on the book’s grindstone.

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Just ran across my first regular column for . It was published in in June, 1999, and written three months earlier, about when went up. Here’s a passage that stands out:

We’re still less than halfway through the shift from personal to social computing. Most households do not have PCs, and most that do are not connected to the Net. According to design critic and user advocate Don Norman, the two basic reasons for this are: computers are too complicated for many people, and the Net still lacks a plug-and-run infrastructure. He lays out a short-form prognosis in the title of his latest book, The Invisible Computer: Why Good Products Can Fail, the Personal Computer Is So Complex, and Information Appliances Are the Solution.

People are social. Telephony is equally social, because it lets people converse over simple appliances (incomprehensible cell phones and PBXes notwithstanding). Computing is social too, but only for a minority. There is still no computing appliance that’s as social as the telephone. Will Linux deliver it?

I suggest that the first social computing appliance—let’s call it the first SC—will cost less than $400, look friendlier than an iMac, get on the Internet with the ease of a phone call, and produce Microsoft Office-compatible files for those who want to use simple productivity applications.

Not great prophesy, but … interesting, anyway.

‘s @WhatTheyKnow tweet stream is still going strong, but we haven’t seen anything new in the series since Google Agonizes on Privacy as Ad World Vaults Ahead, on August 10. That was “fifth in a series” that had many more than five items in it. Dunno whassup with that, but my favorite follow-ups so far are from Don Marti, whose two posts on the matter are Framing discussions of web privacy and Privacy tweaks for browsers? Both put the onus on the user, rather than the websites.

Interesting angle. Go dig it.

Howard Stern‘s contract with Sirius XM is up at the end of the year, and it was good to hear on the show this week that the full retirement option is off the table. That was one of five options Howard said he was considering. Says the Stern site (on a wrapup of Thursday’s show),

Howard said he had a ’5 point plan’ for the show after his Sirius XM contract expires in December: “I know what the future is.” Howard explained: “One of the points is if we decide to stay here…again, if we decide to stay here.” The other 4 points are the other 4 options–one of which (retirement) has already been taken off the table, but until then: “For four months I’m a company man.”

Before I go into my own prediction, I want to give props to Rob Eshman’s Serious Stern blog, in particular to Ten Reasons Howard Stern’s Retirement Will Hurt the World. Here’s the one I’ll focus on:

9. There will be no one else to save satellite radio.

Unless they find the Moshiach and give him a channel, shalom Sirius.  And I say that as someone who like a friggin’ genius bought stock at—I don’t want to say what I bought it at.  I hope Mel Karmazin will figure out a way to transform the company, but under the current model, it really needs a big personality.  No one has an audience as loyal as Howard’s. Done. Period.

Earlier this week, Howard recalled and compared his meetings with XM and Sirius back when both were courting him. These meetings went down while the curtain slowly closed on Howard’s long tenure in terrestrial radio. XM bragged about having more subscribers, having more repeaters on the ground, yada yada, while Sirius asked him what it would take, and then took it. Once on Sirius, Howard rocketed the company past XM in the satellite radio marketplace, and Sirius eventually bought XM. To sum it up, Howard was the star satellite radio needed to establish itself as a medium.

Now Internet radio needs the same thing. It’s time for Howard to make his move. But it doesn’t have to be entirely away from Sirius XM. The two can be bridged. In fact, they need to be — at least for Sirius XM to survive in the long run.

Right now nearly everything you can get on Sirius XM you can get on the Internet, or on what’s left of terrestrial radio, most of which is also on the Net as well. Stations identify with “WFFF and WFFF.com,” the way they used to say “WFFF AM and FM.”  True, “tuning” on the Net is mostly a chore, but the stuff is there, in far more abundance than on Sirius XM’s channels. That company’s stock is under a dollar, and the market’s faith is not positive. But then, Wall Street doesn’t have a clue about Howard. Or it has the wrong clues. For example, finance blogger Relmor Demitrius considers Howard’s importance, and comes to this:

Conclusion. OEM sales exposed the product to many consumers.  They like XM just as much as they like Sirius, but some (less than 5%) are willing to pay for access to Howard, and probably only half of those 5% only for Howard.  Those that have XM haven’t made significant efforts to move over to Sirius, or cancel XM when their free trial ran out, and install a Sirius exclusive radio.  I believe by the facts presented here that Howard is well worth his salary and should be paid accordingly, as well as offering him on smart phone applications and any overseas content offerings.  But is he the end all savior of satellite radio?  Absolutely not.  Satellite radio would be here with or without him.  Company is stronger with him, but would survive just fine without him.  In fact, the cost difference is so minimal, it would be in tune to having a bad year, or a storm hitting your oil well that month.  A small hiccup that would easily be erased with time due to the overwhelming popularity of the product itself and the now vast options of content offered by both companies.  The revenue generated and saving of the 100 million of his contract would simply give reason to spend it elsewhere, and sign other talent to compensate.  Like any company that losses an asset and has to repurchase another one.  Howard’s popularity is no longer so huge that him leaving the platform would harm it in any way medium or long term.  The facts are quite clear on this.  Sirius XM added more than 1 million customers this year alone.  That would offset losing Howard Stern right there.  Their growth would probably cover any cancellations and they wouldn’t miss a beat.  The company that hired Stern 5 years ago is vastly different in 2010.

This is all framed inside satellite radio, which is floundering. What it misses is what will happen when Howard moves to the Net with his own subscription service. Howard will make Internet radio matter, just like he made satellite radio matter. He won’t do it alone, but it will happen a whole lot faster because he’s there.

Right now most Internet radio is free. And that’s fine. In fact, it’s good, and important. But not all radio will be free, just like not all television is free, and not all newspapers and magazines are free. Some broadcasting, like public radio and television, you can pay for voluntarily. But that won’t work for Howard. He’ll want to charge for the goods, and he’ll want to legitimize the business model, just like he did with satellite radio. Count on it.

Stop for a moment and go read The Web is Dead. Long Live the Internet. in Wired. It’s this month’s cover story. The bottom line is this: Internet usage through apps and subscriptions is going up, fast. We’re listening to radio through smartphones, iPads, laptops and other new devices. With the spread of Wi-Fi, 3G, 4G and other wireless connections, we will no longer be tethered to our houses or cars. We will move toward what Bob Frankston calls ambient connectivity. How we get there is less important than the bait that pulls us in that direction. Howard is great bait. That’s why he’ll go there. He fixed satellite radio. Internet radio is next.

What I hope is that he’ll do it independently, and not just through one of the carriers (say, Verizon, AT&T or Comcast). We should be able to download a Howard app for our Android, Symbian, or iOS (Apple iPhone or iPad) device and listen any way we like, anywhere we like. And pay a monthly fee for it.

Now here’s the opportunity for Sirius XM: we should be able to get Howard there too. That’s not just because it’s a good distribution deal, but because the fate of satellite radio is to serve as a repeater for Internet radio. Everything is being absorbed into the Net, including satellite radio. I’m sure Howard knows that. In fact, I’d be amazed if he doesn’t.

So far Sirius XM has done an awful job of embracing the Net. Getting Howard (or any Sirius XM channel) on a browser requires a zillion clicks and an authentication routine that makes going through customs and passport control look simple. The Sirius app for the iPhone is also useless (at least for me and countless others) without Howard (who has never been on it, and it’s never been clear why), and isn’t that great in any case.

But it can be done well. The integration of Internet, satellite — and even terrestrial radio — should be as seamless as possible. If Howard and his new partners get the right techies to help, they can kick ass. In fact, I’m betting that they’ll do exactly that.

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Ten years ago this month, I gave the opening keynote for the International Retail Conference of the Gottlieb Duttweiler Instutut, in Lucerne, Switzerland. The venue was the amazing Culture and Congress Centre, which had opened just two years earlier. Designed by the architect Jean Nouvel and esteemed for its acoustics, it was the most flattering jewell box into which the stone of my rough self has ever been placed as a speaker. My warm up act was a symphony orchestra. While they played I whispered to my wife, “Not one of those musicians has played a wrong note in years. How many seconds will pass before I flub a line?”

Less than ten, it turned out. But somehow that relaxed me, and the rest of the talk went without a hitch, even though many in the audience were wearing headphones, so they could hear me translated to another language, and their reactions (some nodding, some laughing, some shaking their heads) came several seconds after I said whatever it was they were reacting to. It was weird.

I had mostly forgotten the talk, and wasn’t even sure I had put it up online anywhere. But in fact I had, right here.  Since that’s inside a site that’s not indexed by search engines (my choice, so far back that I’ve only recently re-discovered that fact, explaining why nothing there ever shows up), and I don’t plan on fixing it soon (I’ve got other stuff there I really would rather not get indexed), I’ve decided to post the whole thing here in the blog. As one might expect, it was right about some things, wrong about others, set in a context that has long since changed, addressed to an audience that has mostly moved on, and with arcana that may in some cases no longer make sense. Yet I think it still says some worthwhile things that invite probing and discussion. So here goes:

Why Markets Will Once Again Consist of People
(and why this is good news for Retailing)

This speech was given on the Gala Evening/50th Anniversary Celebration of the Gottlieb Dutteiler Institute, in the Kultur- und Kongresszentrum Luzern – Konzertsaal, Lucerne, Switzerland.

The subheads were put there mostly to make it easy for me to keep my extemporizing close to the text, and to make live translation a little bit easier.

25 September, 2000

By Doc Searls


Opening

People ask me why The Cluetrain Manifesto has 95 Theses. The reason is that Martin Luther did our market testing for us. It seemed to work for him, so we figured it would work for us.

But lately I’ve been wondering why he chose 95. I think the answer is that he was really a retailer at heart.

I figure he had 100 theses, but then decided more people would buy it if he knocked off 5 theses and offered 95 as a discount. It was kind of a sale price. Worked pretty well.

The priest

Speaking of priests, I have a friend, an Irish priest who for many years did missionary work in East Africa. After he read The Cluetrain Manifesto, he called me up and said “I love your book. Especially that first thesis: markets are conversations. It’s brilliant.”

I was the original author of that thesis, so this was fun to hear. But the brilliance he praised was his, not mine.

Village market story

This became clear when he told me the story of a visiting friend he once took to a traditional African village market. His friend wanted to buy a rug displayed in one of the merchant’s stalls. With the priest serving as an interpreter, the customer asked for the price. When merchant responded, the customer said, “That’s too much,” and began to walk away.

The priest then explained to his friend that he had insulted the merchant. So they turned around and went back. The customer then indicated that he wanted to go ahead and buy the rug for the stated price. Now the merchant became upset.

The priest now told to his friend that he had insulted the merchant twice – first by refusing to discuss the value of the rug, and second by offering to pay full price. The customer was completely confused. Clearly he didn’t know how to buy a rug in this town.

Then the priest said to his friend, “What do you think the rug is worth?” The friend responded with a number, and a conversation between the three parties followed.

After a while the customer arrived at both an education about the rug and a price everybody agreed was fair.

The point: markets really are conversations

Now this, the priest told me, is an example of how markets really are conversations. In traditional markets like this one, the only way for a seller and a buyer to discover the true value of the seller’s goods is together – by talking about them and coming to an agreement.

In other words, all value is discovered inside a conversation.

This is why the idea of a fixed price set by a merchant is as silly as talking to oneself. It makes no sense. In traditional markets like this one, conversation starts with the merchant’s asking price. It doesn’t end there.

Tech exec conversation

A few days later I shared this story with a group of government technology executives. After my talk, one guy came up to me and offered another insight. He said that here in the industrial world we do negotiate prices, but only for the most expensive goods and services, such as automobiles, houses and large service contracts.

Then he added another observation. We can only negotiate when there’s a balance of power between supply and demand – when neither side has enough advantage to name the price and end the conversation.

We don’t have that situation in mass markets, including the retail world that is familiar to all of us. In that environment, the supply side has been in control for a very long time.

Learning more about prices

So I began to wonder: when did the idea of fixed prices, set by the supply side, take root and became standard?

Sure enough, in another conversation, I learned that the price tag was invented in the late 1800s in Philadelphia. The inventor was John Wanamaker, the man who opened the first department store in the U.S.

History of retailing

This increased my interest in the history of retailing. Since then I have learned that department stores were pioneers in the use of all kinds of technologies, including –

  • telegraph
  • electric lights
  • telephones
  • radio

Retailing was also the first industry to provide employee benefits, such as health care and paid vacation time.

It was also the first industry to take orders by telephone and to offer customer refunds.

In fact, the whole concept of “customer service” comes from the retailing industry.

Adding value to the conversation idea

You see, what’s happening here – for me, and for all these people I talked to – is that we all added meaning to this one idea – that markets are conversations.

What is it about this idea that attracts so much interest? Why does it make people think about the deeper ways that markets really work?

Finding the answers is a discovery process – something that we do together, as I’ve just shown.

I want to continue that process here, tonight.

The four clues

To start, I will share four insights – let’s call them clues – that have come out of conversations we’ve had since The Cluetrain Manifesto came out in January. I choose these because I think each is especially relevant to retailing.

The first clue is that metaphors matter. If conversation is the best metaphor for markets, what’s wrong with the other ones, and why?

The second clue is that the companies we least expected to get our clues are the ones that seem to be doing the most with them. This is a very relevant surprise.

The third clue is that the Internet, like a real market, is a place, not just a medium.

The fourth clue is that there really is not a new economy. Instead there is a new dynamic in the investment economy, where a river of money flowing from venture capitalists into new companies. This is extremely distracting, and I’ll tell you why.

Finally I will talk about how all four of these clues bring us to the subject of this speech: that markets consist of people – and why this is good news for retailing.

Language warning

A brief warning. I am going to be talking about language here. Unfortunately, I am fluent only in English.

  • Ich habe drei Jahren auf Deutch im Shule lehrt, aber… I took two of them twice – and I gave them all back when I was done.
  • I have worked in France, but not long enough to learn any more French than it takes to apologize for mangling that beautiful language. Pardon moi pour vous derenger. Je nes comprend pas le Francais.
  • I also know a tiny bit of Spanish – though far less than my own three-year-old son.

So forgive my lack of multilingual skills.

I trust that what I tell you will still be relevant, not because technology is forcing far too much English into better languages, but because all expression arises from unconscious sources. And those sources are what I’m here to talk about.

Clue #1

My first clue is that metaphors matter.

In English we have an expression: “in terms of.” In fact, we are always speaking in terms of one metaphor or another. Metaphors supply the words we use when we talk about a subject. When we speak in terms of a metaphor, we bring in a box of words from that metaphor, and speak in terms we find in that box.

To demonstrate what I mean, I’ll start by asking a question about life. When we talk about life, what metaphor do we talk in terms of? In other words, what box of words do we use when we talk about life? Again, the answer is not obvious, because it’s almost totally unconscious.

In a word, the answer is travel. When we think and speak about life, we are inside a big box of travel words.

Birth is arrival. Death is departure. Choices are crossroads. Goals are horizons. Careers are paths. Ambitious people move ahead, or move into the fast lane. Lazy people fall behind. Confused people get lost in the woods. Drunkards fall off the wagon. Saintly people follow the straight and narrow path. Sinners stray.

The travel metaphor – this concept that life is a journey –is so deep, so common, so unconscious and so powerful that we almost never think about it. Yet it is nearly impossible to speak about life without using our handy box of travel words.

One more example. Let’s look at the main metaphor for time, which is money. We budget, spend, waste, lose, gain and invest time. We literally think of time in terms of money.

Metaphors for business

Now: let’s look at business. What’s our favorite metaphor for business? What do we think about business in terms of?

There’s war, of course. And sports. We speak of other companies in our business as competitors. We battle them for territory that we try to penetrate, defend, capture, dominate or control. But war and sports are obvious metaphors – we are conscious of them. What’s the biggest unconscious metaphor for business?

In a word, shipping. We often think and speak about business in shipping terms. We call our goods content that we package and move through a distribution system that we also call a channel.

We often talk about delivering products and services that we address to consumers or end users. Both those consumers and end users are positioned at the far ends of the shipping system we call business.

Marketing also uses shipping language when it talks about addressing, sending and delivering messages through media which are also conceived and described in transport terms.

How long have we been talking about business in shipping terms?

The age of industry

The answer is about 200 years – ever since Industry won the Industrial Revolution.

Starting about two hundred years ago, when we began to build the great textile, mining, manufacturing and transportation industries, we also built an enormous distance between production on one hand and consumption on the other.

We spanned this distance with “value chains,” most of which fanned out from a small number of producers to a large number of consumers. And we began to use that label – consumers – for the first time.

Every business had a place somewhere along one of these chains, where it would “add value” to goods the way parts are added to a car on an assembly line.

This distance between production and consumption – and the power enjoyed by producers over consumers – made it easy to think of markets not as places full of real human beings, but as distant abstractions.

Abstractions for markets

Today, two hundred years after the Industrial Revolution, we use the term “market” to mean five completely different kinds of things, none of which derive from what markets were in the first place. Lets go over the list –

1) Markets are product categories. We speak of automobiles, cosmetics and home electronics as “markets.”

2) Markets are geographical areas such as Stuttgart, Philadelphia and China. It’s amazing to me that in the U.S. we can talk about “penetrating” the Chinese “market.” As if we were throwing spears at a map, rather than selling goods to a quarter of the world’s population.

3) Markets are demographic populations. Men, 25-44. Middle-class women. Volvo drivers. Wine conoisseurs. We call each of these “markets” too.

4) Market is a synonym for demand. This is what we mean when we say there is a “market” for Italian wines, parabolic skis, or impolite books like The Cluetrain Manifesto.

5) Market is also a verb we use to label the pushing of goods from supply to demand. This verb “market” is the root word for the noun marketing. Not surprisingly, marketing is concerned almost entirely with the first four abstractions I just talked about

Ancient markets

Now let’s go back and look at the original meaning of markets.

The first markets were places in the middle of town. People gathered in the marketplace to make culture and do business. These places were the hearts of their cultures. Civilization began in the marketplace. Philosophy, mathematics and democracy are all Greek words born in the agora – the Greek marketplace.

In markets like the agora, all the economic relationships we know so well – supply and demand, production and consumption, vendor and customer – were a handshake apart. In these market places, people who sold goods usually also made them.

Names

In fact, people were often named after what they made, or sold. Many of our surnames are fossil remnants of the roles our ancestors played in their marketplaces. Names like Smith, Hunter, Shoemaker, Farmer, Weaver, Tanner, Butcher…. Lehrer, Jäger, Weber, Schuhmacher, Drucker, Händler… Fermier, Marchand.

The noun “market” – which differs little in German, French, Italian and Spanish – derives from the Latin word mercere, which means to buy. In the Roman marketplace, there were no “consumers,” only customers, who came there to shop. Even today in America we call malls “shopping centers.” Not “selling centers.”

Restoring the handshake

In The Cluetrain Manifesto we said the Industrial Age was a long interruption in our understanding of markets as places where people gather to sell their goods, to shop, to talk, and to enjoy public culture.

The Internet ends that interruption by putting everybody within one handshake of everybody else. First sources and final customers are now one mouse click apart.

The Internet restores an even balance of power between supply and demand.

Consumers are customers again. They are people with names, faces, tastes and rich personal histories.

Retailers have known this since Day One, but many companies farther back in the old value chains are beginning to witness this for the first time.

Smart markets

What they witness is markets – conversations – that are becoming smarter and more powerful by informing themselves. And those markets consist of everybody who wants to contribute to the conversation..

Clue #2

This brings me to our second clue. What kinds of companies want to talk about the issues Cluetrain brought up?

Would it be the dot-com start-ups, which were supposed to be changing the world, and putting these big old industrial companies out of business?

No, it was the big old industrial companies. Those were the ones looking hardest for clues. Companies with names like Procter & Gamble, Coca-Cola, Omnicom, Johnson & Johnson, Citicorp, Conoco, Rohm & Haas, Prudential, IBM and Migros.

The Coke example

Recently I’ve been talking with an executive with Coca-Cola who has the unlikely title of Chief Innovation Officer. In fact, the two of us were recently scheduled to serve on a panel where he would explain how Cluetrain is transforming his company.

Before this event was scheduled, I didn’t know Coca-Cola was subject to any kind of outside influence. They seemed to be more a force of nature than a company in the usual sense. The formula for Coke seemed to be on the periodic table of elements.

Why could the #1 brand in the entire world find guidance in a book that attacks the whole concept of branding?

I found that the answer is simple: Coca-Cola knows it can’t tell customers what they want any more.

However, Coca-Cola also knows it has a long-standing relationship with its customers – because it has led the conversation about soft drinks for more than one hundred years. That’s an advantage.

Procter & Gamble

Not long after the Cluetrain book came out, one of my co-authors, David Weinberger, got a call from Procter & Gamble. They wanted him to talk about Cluetrain with them at their headquarters in Cincinnati.

We were amazed. Procter & Gamble was the company that invented branding – a concept it borrowed from the cattle industry more than seventy years ago.

It quickly became clear that P&G was at least starting to get the clues. They knew branding wasn’t what it used to be. They knew this was no longer a world where one company could put one kind of soap in seven different boxes and sing about the difference.

Today, just four months later, P&G has a new CEO and – at least in some cases – an approach to rolling out new products that starts with the Internet.

We see this with a new hair styling product called Physique. In the past, Procter & Gamble might have spent 90% of its new product promotion budget on television advertising. For Physique they’re spending 30% on TV and the rest on the Web. The Web site says “Welcome to the Physique Stylezone: select your country. Underneath that it says, in French, choisessez votre pays. It’s an international campaign.

In the United States alone, more than half a million people (nearly all women) have signed up – on the Web – for free samples and membership in the Physique Club.

The campaign was developed by Saatchi & Saatchi, a global advertising agency headed by Kevin Roberts – a gentleman from New Zealand. Recently Mr. Roberts bragged about Physique’s results. He said, “The average time people spend on the Web site is 11 minutes… We’ve got the consumers. We’re talking to them, they’re talking to us.”

The retailing advantage

So here we have two of the top marketing companies in the world – Coke and Procter & Gamble – that are not only discovering that markets how conversations, but putting that idea to use, perhaps for the first time.

This is easier said than done. Jack Welch, the legendary CEO of General Electric, has a Net-based internal campaign called “destroy your business.” It isn’t much of an exaggeration. These are fundamental changes.

But some businesses will have less to destroy than others, because they already know what it means to be in conversation with their customers.

This is why I believe that the industry with the biggest conversational advantage is retailing. For retailers, customers are real. There is a limit to how much a retailer can treat a customer as an abstraction. For a retailer, a customer is more than a consumer, a seat, an eyeball, or an end user. Customers are real people.

As retailers, we know customers by name. They shop in our stores, eat in our restaurants, trust us with their credit cards and return to shop again because they know who we are too. In fact, they probably know us better than we know them.

This is no small matter. This is a huge advantage. But what is the relevance of the Internet to that advantage.

This brings me to my third clue

Clue #3

The Internet, like a market, is a place, not just a medium. We go to it, not just through it.

When the Internet came along, it was easy to see it as yet another mass medium – as a vehicle (there’s another shipping term) for delivering messages to consumers.

Mulitple metaphpors

Like a newspaper, the Web has pages that we write or author or publish.

Like telephone directories, which are also publications, it gives us ways to look up stores, services, and each other.

Like radio and television we can “deliver content” in the form of audio and video files and streams.

Sometimes we also use theatrical metaphors at the same time. That’s what Web page designers do when they talk about delivering an experience to an audience.

Places

Now let’s look at this the other way around. To us – to people sitting at their computers – the Internet is more like the telephone than any other medium.

Like the telephone, the Internet is profoundly personal. When we are on the phone, we are in a personal, private space, which is why telephones are a lousy medium for commercial messages.

The messages we want on the Net aren’t the ones that “deliver an experience.” They are the ones that come by email, from people we know.

In other words, what matters most is what we hear from each other. What matters most is conversation.

Even our Web pages have a private, personal quality about them. That’s why we call our main pages “home.”

Home is a place.

By that same metaphor, we also speak about that place as a site that we put up on the Net and call a location. We also call that location an address.

The virtues

Now: who built this place? It’s interesting that the Net was not built by or for business. It was built by computer programmers, who did it not just for themselves, but for all of us. A perfect example is the World Wide Web, which was invented here in Switzerland by Tim Berners-Lee: an Englishman who had little interest in business at all.

What was it that made this place so appealing? What were the core virtues that these programmers built into the Net when they created it. There were three:

  1. Nobody owns it
  2. Everybody can use it
  3. Anybody can improve it

You won’t hear those virtues advertised by any of the big technology suppliers. If it were up to them, the Net would never have happened. All of them would have wanted to own it, to restrict access to it, and to improve it only by themselves.

But it didn’t happen that way. Because nobody owns it, everybody can use it, and anybody can improve it, the Net is much like a commons, a plaza, a town square, for the whole world.

This is our world. We have help from the technology suppliers, but they cannot command the way we build it out.

Back in 1955, Gottlieb Duttweiler said “What is happening is the higher valuation of the man in the street as a power in business life, and more, important, as a human being.

By more than forty years, he anticipated a remarkable development:

The most important market place in the history of civilization is designed to value the man on the street. The individual human being.

The new world

One of the greatest thinkers on the subject of the Internet is my friend Craig Burton, who was responsible for much of the success enjoyed by a networking company called Novell, in the 80s. Craig Burton’s thinking has always been many years ahead of his time.

Recently he described the Internet as a sphere, like a bubble, that constantly expands as more people are added to it.

In fact, he suggests we think of the Net as a bubble comprised entirely of people, all looking inward and all visible to each other across the empty space in the middle.

At the speed of light, the distance between any two points – any two people – is zero. And it’s true: in practical terms, it takes me no longer to send an email to Prague than to a co-worker in the next room. A Web page in Milan usually comes up just as fast in my browser as one from Miami, Singapore, or an office down the street.

Craig Burton says the Internet is the first world we have created entirely on our own, as a species. In fact, he believes that the Net is the biggest social, cultural and scientific transformation since the Renaissance, and that it is just beginning.

In this new world, our most fundamental resource is each other – and the conversations by which together we know more than we can know alone.

Clue #4

The fourth clue is that there is no “new” economy. There is only a well-funded distraction from the real economy, which is the economy of conversation we call the marketplace – an economy that has been with us for thousands of years.

To illustrate the problem, let me tell you one final story.

Not long ago I was at a party in San Francisco. There I talked with a young man who was already a veteran of several start-ups. When I asked him what his new company did, he said “we’re an arms merchant to the portals industry.” I had no idea what he meant.

But he answered every one of my questions with more buzzwords. They were “networking eyeball paradigms,” “portalizing B2B solutions,” “scaling strategic synergies” and so on. Finally I asked a rude question: how are sales?

He said, “They’re great. We just closed our second round of financing.”

Two kinds of markets

Suddenly it became clear to me that every company has two kinds of markets: one for its goods and services and one for itself. In other words, it is in two conversations: one with its community of customers, and the other with its community of investors.

In Silicon Valley, we have confused the second one with the first. We have made a “new” economy out of selling huge promises to investors, rather than goods and services to customers.

The best wisdom on this subject comes from Stewart Brand, who says form follows funding.

One reason nobody owns the Net is that it was originally funded by governments and universities. But this is not a well-funded story.

The best-funded story is the one being told by every company whose category begins with an E or whose name ends in a.com or .co.

Nearly every one of those companies was funded by venture capital.

Now, venture capital is not a bad thing. In fact, it is a very good thing. But it is also a very influential and distracting thing, which is why I want to talk about it.

Looking at size

Let’s look at the size of this distraction.

Last year venture capitalists invested around fourteen billion dollars in Silicon Valley alone. This year they are headed toward investing twice that much. The amount of money we’re talking about here is staggering. I have been told that more than half the countries in the world have a smaller gross domestic product.

This money continues to flow like a river. Even when demand for dot-com stocks began to falter early this year, this money river continued to flow through new dot-com start-ups – not only in Silicon Valley, but around the world. Last week Bertelsmann set up a billion-dollar venture capital fund.

Burning money

Where is this money going?

Much of it goes into building staffs, offices and developing technology. But a huge percentage of it goes into marketing, mostly through advertising in every media you can name.

This both attracts and funds enormous amounts of media attention. Magazine displays in the U.S. are being crushed under the weight of fat new business publications. Their very existence testifies to a “new” economy at work. It’s a lot of smoke, suggesting a very big fire.

But what’s burning is money. We don’t have a new economy here. We have a flood of combustible money – a kind of petrol – that is made to be burned.

Dot-com start-ups are very different kinds of businesses from the ones we’ve been building for thousands of years. They don’t have “overhead” or “expenses” in the usual sense. They have “burn rates.” And burn is exactly the term that they use. In this economy – if you can call it that – spending is a good thing. Burning is a good thing.

Perspective

But again, it’s a distracting thing, because most of the time it talks about itself. For a long time, it also disparaged traditional businesses.

So: how can we keep from being distracted by these huge fires and all their smoke?

With some perspective.

The new conversation – about burning money and huge payoffs when these companies go public – is only a few years old.

The old conversation – about vendors and customers selling and buying goods and services – is as old as civilization itself.

In fact, it is civilization.

And we are not in civilization just for the money.

This is what we are learning from companies like Procter & Gamble, Johnson & Johnson, Nortel Networks and. The surprise – and it shouldn’t be one – is that people don’t work at these companies just for the money.

I am amazed at how many people I meet at these companies are not interested in getting rich at dot-com start-ups. Instead they are looking deeply at why they want to work where they do.

I believe we are finding that these companies have souls. They have human purposes that transcend mere economics. These purposes have little to do with short-term opportunities, and nothing to do with cashing out or starting another business.

I believe retailing has more soul than of any other industry. I say this because retailing is deeply involved in culture itself: the culture of the marketplace. Retailing was here for thousands of years before the industrial age. And it will be here for thousands of years afterwards.

Retailers are not just here to sell. They are here to serve.

Gottlieb Duttweiler said, “The constant will to serve has something irresistible about it – conveying mysterious powers over one’s fellow human beings and making interrelationships visible which would otherwise remain hidden.”

He would have loved the Internet.

Conclusion

Clearly, he loved people. Because he also said, “Whoever forgets that people are the dominating factor in business and politics and thinks only in old-style dollars and francs has got his calculation wrong.”

Herr Duttweiler had it right. Retailing is about people. Markets are about people. The Internet is about people.

For Herr Duttweiler, it took extraordinary insight and courage to state this principle so simply when there was no Internet, deep in that long interruption we call the Industrial Age.

What he said was no less true then than it is today. But today a new age has begun: one that belongs to Herr Duttweiler’s dominating factor: people. Now customers and retailers together can finally agree that this is our world, these are our markets, and we are going to make them together – for ourselves, and for each other.

What can we do to improve this new world that nobody owns, everybody can use, and anybody can improve?’

I look forward to hearing the answer – from you.

Thank you very much.

It’s been a week since VRM+CRM 2010, and there have been many conversations on private channels (emails, face-to-face, phone-to-phone, face-to-faces), all “processing,” as they say. Meanwhile we also have some very interesting postings to chew on. (Note: This is cross-posted here.)

First, Bill Wendell‘s RealEstateCafe wiki has a nice outline of sessions at the workshop. Better than our own, so far, I might add. Great notes behind his many links, and an excellent resource.

Next, there is Katherine Warman Kerns’s Making Sense of Things (which follows her HuffPo piece, Will VRMCRM2010 disrupt ambiguity?). Here Katherine puts on some hats we both shared as veterans of the advertising and media businesses, and does some great thinking out loud about better ways for marketing energy to be spent than CRM, online advertising and FSIs (I believe these are Free Standing Inserts). An excerpt:

What if that 3% in CRM, the 1% in FSI’s, and the less than 1% online are the same heavy TV watchers with nothing better to do?You’d think there would be a lot of investment in innovation to develop “something better”, but innovators are getting mixed signals from advertisers.  Most businesses still advertise  in order to convince retailers and/or Wall Street that they are supporting the brand.

Few outsiders understand that advertising has become a business to business marketing tactic more than a business to “consumer” tactic. Instead of paying attention to advertising spending trends -  dropping from 40.6 % of the total media/marketing industry in 1975 to 17.2% in 2009 . . . . . .  the Venture world pays attention to the proportional amount spent on different tactics: “what this chart (provided by GOOGLE’s Hal Varian) says is that over that past decade Internet has gone from nothing to 5% of all the ad spend in the US”.  As I point out in my comment on this post, “At 5% of 17.2% that puts internet advertising at less than 1% of total media/marketing revenues. “

Ignoring this fundamental change in the market, an amazing amount of money is wasted on investing in incremental change.  For example, the race is on (reportedly, over $40 Billion a year) to upgrade CRM technology to improve predictive accuracy so that 3% will go up.

I’m all for continuous improvement process . . .  but, when the starting point is single digit success and that success may not even be among the desirable demographic who leaves the house, doesn’t it make sense to spend some of that money developing Plan B?

Hey if everyone on the team is aiming for the same corner of the goal with a single digit success rate, doesn’t it make sense to develop the skill to go after the remaining 90%+ of the goal?Until something better comes along, a market leader, P&G is quietly investing in the “new media” segment, “custom digital publishing”, to reach their target with less waste and to identify “thought leaders” to engage in their leading edge open innovation process.  Two examples are beinggirl.com and the partnership with NBCU to produce lifegoesstrong.com.

A new technology movement is creating a possibility to offer something even better: making it possible to shift the paradigm from improving Business to Customer communications to improving Customer to Business communicationInstead of wasting money on better ways to interrupt customers with messages, the customers are enabled to tell business when and what they want information. Project Vendor Relationship Management is the thought leadership evangelizing this premise and encouraging technology development.  On August 26-27, a workshop calledVRMCRM2010 introduced many of these technologies to VRM fans and receptive CRM professionals.

Media has an opportunity to use this technology to give all participants “The Freedom to be Ourselves”.   Instead of self-censuring because of uncertainty over what, with whom, or when their participation will be available for exploitation in “cyberspace”, participants may manage the release of identity, content, and information “in context”.   AND this control can be mutual – for  the “formerly known as audience”, the “formerly known as creative content producers”**, and the “formerly known as advertisers”.

Mutual benefit has the potential to breakdown the siloes which are barriers to collaborate on innovation.  Indeed, VRMCRM- like technologies offer a blank canvas of possibilities for media and marketing innovation to  disrupt ambiguity.

Next, Dan Miller’s In Spite of Investment in “Social CRM”, Enterprises are Still not Paying Attention. Dan, who led the CRM panel at the workshop, sees CRM and social CRM as a train wreck in progress:

…current solutions that are based in CRM and social CRM capture and conduct analysis on a broad set of customer generated data and metadata. Companies think they are doing a better job of paying attention but, whether they admit it to themselves or not, they continue to use their resources to analyze activity, target messages and promotions and influence future activity. That’s not listening or engaging in a meaningful conversation.

VRM involves a totally different engagement model. “Users” (be they shoppers, searchers, mobile subscribers or “other”) initiate conversations with their selected vendors through a trusted resource or advocate. They can compare notes with other shoppers/customers and, while they may be loyal to a brand, they are more loyal to themselves and their peers. In the ideal, the power shifts to the shopper in ways that will disintermediate traditional channels (like the contact center) and influencers (meaning commercials and advertisements).

The train wreck is not the result of there being too many names for the social CRM phenomenon, it is that CRM and VRM are on a collision course whereby one side seeks to grant more power to buyers while the other seeks to retain nearly all the power by pretending to do a better job of listening.

On the other hand, Denis Pombriant sees social CRM as having some promise for VRM, and writes about that in VRM’s Missing Ingredient, also posted as VRM and CRM Meet. An excerpt:

The great thing about social CRM is that it lets the genie out of the bottle.  It introduces randomness and uncertainty to the puzzle and that’s largely a good thing.  You can’t program a customer relationship, there are too many permutations and customers do things you just can’t always predict.

My big takeaway from the conference is the wisdom of crowds, the idea that since you can’t predict, take a deep breath and stop trying.  Instead, just ask the customer and, if you do it right, you’ll get amazing insights.  It struck me that the wisdom of crowds is, perhaps, one thing that VRM could incorporate with great success.

Mitch Lieberman (@mjayliebs) put up a nice summary of #vrmcrm2010 tweets through September 1. Here’s the current Twitter search for the tag.

Even though the workshop was well-attended by CRM folks (and some of their customers), I was struck by how widely varied that business actually is. The distinction between CRM and sCRM is but one of very many.

In fact I had already been schooled on this by my old friend Larry Augustin, whom I got to know well back when he was a major force in the Linux community, and now runs SugarCRM. You can’t have a $15 billion (give or take… I still haven’t seen any numbers since 2008) business without a great deal of variation in what is sold to whom, and how it is used.

And, of course, relating to customers is not the sole province of CRM itself. I would bet that most customer-supporting corporate Twitter entities (e.g. @BigCoCares) began as individual efforts within their companies, completely outside those companies’ CRM systems, including call centers. These as a class now qualify as sCRM, I suppose. But in any case, it’s complicated.

So is VRM, of course. It starts from the individual, but can go in many directions after that. Here are a few of my own take-aways, all arguable, of course:

  1. You can’t get to VRM from CRM, or even sCRM, any more than you can get to personal from social. But VRM needs to engage both. And both need to engage VRM.
  2. You can’t get to VRM from advertising, either. Trying to make VRM from advertising is like trying to make green from red. The closest you’ll get is brown.
  3. We have code, and were able to show some off (or at least talk about it), and that was great. Adam Marcus’ talk on r-buttons, while delayed by equipment failings (not his — the classroom’s built-in projection system on Day One was flaky), showed how users and site owners could signal their intentions toward each other with symbols that actually worked. Renee Lloyd unpacked the (very friendly) legal side of that too. Iain Henderson gave a nice forecast of the Personal Data Store (PDS) trials that MyDex will be running in the UK shortly. Phil Windley vetted the work Kynetx is doing with the Kynetx Rules Language (KRL). It also amazed me that, even when the workshop was over, many people stayed late, on a Friday, to see Craig Burton give a quick demonstration of KRL at work. (See the photo series that starts here.) Joe Andrieu didn’t show his code at work, but gave a great talk on how search is more than queries. I could go on, but to sum up: this was a watershed moment for the VRM community.
  4. It’s still early. Maybe very early. At the end of the workshop I was asked the What’s Next question. My reply was that it’s great to see a fleet of planes airborne after watching them head down the runway for three years — and that they’re all heading in different directions. Also, they’re not the only planes. Beyond that the future is what we make it, and we’ve still got a lot of making to do.
  5. VRM+CRM is a live topic. There was much talk afterward of next steps with workshops, conferences and other kinds of gatherings, in addition to a list for people wanting to follow up with focused conversation. Stay tuned for more on all that.
  6. VRM is not just the counterpart of CRM. There are VRM efforts, such as The Mine! Project, that address one-to-one relating outside the scope both of identity systems (from which some VRM efforts originated) and of CRM. These also matter a great deal, and are very close to the heart of VRM’s mission.
  7. GRM has mojo going. Two years ago, Britt Blaser was the only GRM guy at that VRM workshop, and had trouble drawing a crowd. This time he brought his own crowd, and drew a bigger one. Very encouraging.
  8. I’m still not entirely sure what ProjectVRM should become as it spins out of the Berkman Center. I want it to be lightweight and useful. I’ll be involved, obviously; and we’ll always have a kinship connection with Berkman. Specifics beyond that are forthcoming, probably in the next three weeks.

I’ll think of others, but I’m out of time right now. Please add your own. And thanks again to everybody who participated. It was a great workshop.

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