Adjusting Business to a Networked World

In response to The Trillion Dollar Market, which adds a few paragraphs to Gain of Facebook (below), which responded to How Facebook Could Create a Revolution, Do Good, and Make Billions, by Bernard Lunn in ReadWriteWeb, Nate Ritter raised some questions that I’d like to answer in detail. We begin…

…one question that needs to be solved is that if both suppliers and demanders are getting value out of the transaction why is it the suppliers are always fronting the money to make the connection?

The short answer is that we’ve done it that way ever since Industry won the Industrial Revolution. The long answer is that customer choice in the prevailing industrial system is provided by sellers. This includes telling customers what their choices are. We call this “marketing”.

At the level of simple customer choice, the industrial system is no different than it was when sellers operated out of carts and stalls at village crossroads. Such is the nature of straightforward retailing. But in our industrial system, sellers sit out at the last link of many value chains. Exchanging goods and services for money is a small part of that system. The final transaction is just the far end a process that moves from source to sale through a series of complex stages in which individual customers have little if any direct say. At the end of those stages the customer’s choice is to buy or not to buy. The customer’s job is to consume, and not to do much more than that. It’s not a bad system, but it’s one that’s open to countless improvements in a world where everybody is approximately zero distance from everybody else. That world is the Internet.

The Net makes it easy — or should make it easy — for customers to advertise their demand. That is, to find and drive supply. To a very limited degree, the supply side helps this with CRM (Customer Relationship Management) systems, but those systems are all silo’d and allow very limited input from customers themselves. Put crudely, they have ways of making you talk. And a very limited set of allowable words and phrases. If this weren’t already broken enough, many are also poorly designed or maintained.  Think about what all of us go through when we need customer service or tech support. Why should you have to give a series of call center people your account and phone numbers, even after you’ve already punched them in, time and again? These systems are lame because they put all responsibility for maintaining a “relationship” on the sell side. They exclude most forms of customer input because they don’t want more variables than they can easily “manage”. That excludes countless clues about what the market is up to, in addition to countless sums of money left on tables they can’t see through the CRM blinders they wear.

To be clear, I’m not saying CRM is inherently bad here. But it’s no closer to what we need than AOL and Compuserve were to the Internet. Or than mainframes were to PCs.

What VRM proposes is shifting appropriate relationship responsibility to customers, for the simple reason that the customer is, for many purposes, the best point of integration for his or her own data — and the best point of origination for what can be done with it.

For example, a customer’s VRM system should be able to say, globally, “I want receipts emailed to me. Here is my email address. You can do business with me if you don’t share that address with anybody, and if you don’t send me unwanted emails. Sign here (digitally) if you agree to these terms.” Yes, that may sound scary to sellers, but guess what? The customer-control horse left the seller’s barn as soon as the Internet came along. All that precious customer data that sellers think they own is a tiny fraction of what they can gain from customers in a relationship where both sides are open to whatever the other brings to the table. In other words, one in which the seller does not speak of “acquiring”, “managing”, “controlling”, “owning” or “locking in” customers as if they were slaves.

What VRM offers are better ways for sellers and buyers to relate — on terms of equal power and range of options. Yes, we’ll need open and standard protocols, data types and methodologies. Not to mention agreements that the customer (and not just the seller) asserts. We’re working on all that stuff.

Next item…

I have a feeling the culture of consumerism dissuades consumers from believing they are giving up anything (or devalues the money they are giving away for the product/service). For example, the belief that everything is free that is on the web. That’s an inherent problem that has to be solved before there will be an market that starts with the consumers. The “market’ necessitates a trade of value, and if one side is inherently told that what they want is free, then why would they give up money to trade for it?

First, what we call “consumerism” should be re-labeled “producerism”, because it’s a phenomenon driven by production. As Thorstein Veblen put it long ago (and I used to put it before discovering Veblen said it first), invention is the mother of necessity. Consumers participate, of course, but they don’t drive it. The production side does.

Of course, I’m speaking on the general scale, and of course there are definitely products and services that exist because people wanted them to. And of course they do well in charging for something because the demographic believes it’s worth the trade. But that’s not a change of the macro market. And although it’s nice and warm and fuzzy, the reality is that on a large scale people are simply being conditioned to take things for free. They don’t want to trade value for value.

When Napster came along, and suddenly everybody’s CD collection was free for the taking, “everything is free” became a mantra. Nobody, it seemed, would ever pay for music again. Why would they, when all of it is free, and one’s chances of getting caught and nailed by the RIAA and its running dogs was so small? Then Apple created the iPod and iTunes and the iTunes store, and started charging 99¢ for medium-fi music that didn’t work on more than five “authorized” devices. And people ate it up. Suddenly music had two price points: $.00 for illegal music and $.99 for legal but crippled music. How big is the latter business? Said here two years ago that Apple had already sold 2.5 billion songs. And how much has the former non-business driven the whole music industry in a new direction? Why cry about how disruptive the Internet is, and how much it devalues every old business it touches*, when it’s an expanding planet-sized environment on which countless new businesses can be built — and built to do far more, and make money from (and for) many more people, and companies, than the old ones?

My point: it’s early. The Net is a giant zero between everything and everybody. It takes distance, connectivity and the costs of storage and distribution all toward zero. There is still plenty of money to be made at the commodity level (just ask Nick Carr, or Amazon), but that’s one more reason why the Giant Zero is a great place to build all kinds of new businesses. And why it’s still very, very early in what Craig Burton calls the “terraforming” of the Net’s new world.

The point of my two postings (in the first sentence up top) is that there is much more money to be made, in this Giant Zero world, in helping demand find and drive supply, than in helping supply find and drive demand. And that this will be much better for the supply side than the old system, where suppliers have to do it all.

I wish it weren’t that way. Perhaps some day it won’t be. But we have to start changing the message that we’re sending out there, or even better than pushing a message, finding the areas where people are indicating they’re willing to pay for a product to be created. Harder done than said.

True. But we’ve already started. If one looks at markets (or, more precisely, economies) as places where parties signal each other, we’re already well underway. Nate himself did a heroic job of putting Twitter on the map as a great signaling system on the Live Web during real-world emergencies. In his case it was the San Diego Fire. It’s conceivable that what the market learned in that experience helped save my own house during the two recent fires in Santa Barbara.

Last winter I used Twitter successfully to signal our family’s interest in a good restaurant during a layover at O’Hare. This was way less significant than what Nate did during a huge fire, but no less eye-opening for me.

Still, tweeting — microblogging — is just one early step in a direction where lies an endless variety of signals that can move from demand to supply. Creating open, standard and simple pro forma ways of doing that is what VRM is about.

* Tom Foremski is right when he says The Internet Devalues Everything It Touches, Anything That Can Be Digitized. But you have to read Tom’s points deeply to get the full implications. Losing the old will be painful. But there is far more value to be found in the new. For example, in fourth parties.

6 Comments

  1. Ok, I love all the points you’ve made. And yes, I see many of them work well. As a counter point to the music example, my belief is that the legality + accessibility of the music is what gave Apple their 2.5B sales. But if you compare an accessible free (and legal) song to an accessible $0.99 legal song (being the same song), we’ll obviously take the free one. If we take that example and compare it to the example that many people (including me) give with journalism, we as the general public are much happier to get the information for free and not pay a dime.

    The problem is in the conditioning. We’re taught that free is always better than paid content with all other things being equal. The problem is that we have to learn the hard way that if we don’t give our money (or some other thing of value) to those who supply us with what we want, that in the end, we’ll more often than not end up without that product/service at all at the quality we once were used to. Free is unsustainable.

    Otherwise, I love where we’re going. I love the cutting edge and that you and other smart people are thinking of how we can flip this whole thing on it’s head. This is the true beginning of the end of the Industrial Revolution. Until the majority of the market moves there, we haven’t changed (regardless of the new term some people give our current age: “Information Age” and whatnot).

    Thanks for the brilliant writings and thoughtfulness Doc. I’ve always been a fan of yours, and I’m excited that you’ve seen some value in a few things I’ve done, as unintentional as those things might have been.

    Cheers.

  2. Thank you for the great post Doc.

  3. Yeah Doc but only to a point.

    With the social sites now driving the search engines you can see where they are going, most of them into the hands of the big ad providers. This will enevitaby then drive mobile access to these sites at a rapid pace. This needs to happen for those investors to get the returns they require…and so we will then have access to those sites where ever we may be thus driving revenue.

    Love the posts Doc
    thanks

  4. I really think twitter is all about search, and that VRM is where Twitter is going to develop its value both for companies and for users in general.

    Google Adwords is really a system for aggregating leads.

    I now use twitter search more than I do Google, mainly because I have twhirl turned on all day and I’m watching my automated searches pop up throughout the day. Mainly I ignore the searches, but sometimes I don’t. I also scanned through the searches on a daily basis.

    I can use twitter search to find leads. And those leads are probably just as qualified as any google adwords leads. The issue for twitter is: How can the tool aggregate leads in the same way Google adwords does? The issue for the marketer is how do you respond to customers through social media.

    Now that I’m writing this I am also realizing that Twitter search will probably teach a generation of marketers how to do in depth engagement, just as Google Adwords taught a generation of marketers about the ROI.

    I might be writing about leads and putting this from the perspective of the company, but really twitter search is all about giving power to the customer to manage their relationship with brands and companies, when thinking about VRM.

    I hope you are working with the folks at Twitter in helping to develop their search engine, because its key for their company, and I believe VRM.

  5. Doc,

    that fourth party is all a bit heavy really. i get the gist but it takes a while to sink in!

    Point is, i think people get VRM – or at least those that count do.

    Isn’t it better to spend your time finding the right project to get it started on somewhere? You are probably onto it somewhere already but i have an idea that i will be coming back to you on soon…

    Meanwhile the pricing thing is interesting. free, fremium etc – the Anderson/gladwell debate. I wonder if we will go below zero. yep. below zero. to a place where you get paid for changing your behaviour to save the earth’s resources. “A penny spent on prevention is better than the fivepence spent on the cure” – or something similar!

    VRM can sort this platform that puts a value, NOT on consumption, but on saving.

    It’s coming i reckon and when it does it will change so much and i think that your VRM concept is just the ticket.

    trouble is though, which vehicle do you as an individual trust enough to look after your information? for me, its either me, or my community.

    Will be in touch.

    Keep up the good work, but keep the posts a bit shorter eh?

    :-)

  6. Thanks, MIke. I think I do need shorter, more frequent posts.

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