Business

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)

25 September, 2000

By Doc Searls

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.