Right Side Up

In his book Net Worth, John Hagel effectively broke open the concept of buyer-centricity. Fascinated by the emerging power of information and its potential to reduce the costs of matching and connecting, he explored the concept of what he called an ‘infomediary’.

Infomediaries, he said, will become ‘the consumer’s advocate, or agent’. It was this idea that first set me on the road of buyer-centricity, the book Right Side Up, and so on.

But recently, John has begun to muddy the waters, talking about a new fangled concept called ‘the customer-centric brand’. If you enjoy the feeling of dizzying confusion seeping into your brain, have a read of his article on ‘Restoring the Power of Brands’ on his web site (http://www.johnhagel.com/view20050612.shtml).

John is not alone with the core problem. He continues to see the emerging opportunity in terms of ‘marketing’. The thing about ‘marketing’ is that, as soon as you adopt a marketing perspective you are adopting the perspective, priorities and interests of the seller, not the buyer. Marketers are always employed by particular companies to help them sell their particular wares; to be the seller’s advocate. They are never employed by consumers to help the consumer go to market; to be ‘the consumer’s advocate, or agent’.

There is nothing wrong with this. They’re just different jobs for different people. But what it does mean is that John’s number one test for a so-called customer centric brand – that it be ‘product agnostic’, offering ‘the products and services of other companies, even competitors’ – can never be credibly undertaken by marketers working for particular sellers. That is not what their company employs them to do.

Understanding the difference between ‘customer-centricity’ – which is something sellers worry about – and buyer-centricity is key to seeing the buyer centric business opportunity.

For those interested, I have expanded on this as a comment to John’s blog (http://edgeperspectives.typepad.com/edge_perspectives/2005/07/restoring_the_p.html#comment-19976591).

Alan Mitchell

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AlanMitchell Buyer centric services

If the cost of producing product variations falls, it’s likely that the supply of product variation will increase (as long as falling costs in one area are not counterbalanced by rising costs in other areas, such as distribution).

If the cost of both product variation and distribution falls, successful supply of product variation is likely to increase, as long as buyers can navigate their way to, and through, this increased variation.

The first of these trends – reduced cost of product variation – has been in evidence for some time. Witness the growing array of different types of motor vehicle, for example.

But the second two – distribution and navigation (information about products and distribution) – are currently being turned inside out and upside down by the Internet. If your product is 100% digital, the cost of storing and distributing it is trending rapidly towards zero. And thanks to the likes of Google, recommendation engines and so on, buyers can find and access an ever increasing range of offerings at very low cost. Result: we have a choice explosion.

This is the basic thesis behind a new hit business book The Long Tail. Unfortunately, in reality, it’s a complete muddle. Author Chris Anderson has conjured up a theory of everything from a theory of a few things, and in doing so he misses the real significance of what is happening.

The few bits where Anderson is right relate to the world of digital entertainment content. As the costs of finding and accessing music, videos and so on collapse, people are increasingly exploring ‘the long tail’ of non-blockbuster hits to find stuff they really like. Great stuff. Fantastic!

But as Anderson has to admit (before going on to claim that there are long tails everywhere and that they will define 21^st economics) is that this only really applies to 100% pure digital products and services. As soon as you are start dealing with atoms rather than bits (and that includes any service requiring the presence of a human being), the costs of distribution intervene to make the supply of endless variety much more costly.

Astonishingly, Anderson also completely ignores the unique and defining feature of the markets and products he is talking about: they are all about novelty and variation. We don’t want to sit down and watch the same movie every night, read the same book or listen to exactly the same music track every day. The joy of these product areas lies in the discovery and experience of new things. Value comes from the endless supply of novelty, which is why the ‘back list’ (or long tail) of content grows longer every day.

However, the same logic of novelty does not apply to baked beans, coffee, beds, motor cars, or DVD players. It may be nice to have some variety here, but the value these products offer doesn’t lie in their novelty. It lies in other aspects of their functionality. That’s why the ‘long tail’ is so much shorter in these categories.

Anderson also completely ignores those markets and product categories where a key dynamic is towards standardisation – because compatibility and interoperability are key to value delivery. These markets, where ‘the standard’ is the platform for everything, tend to be ‘winner take all’ markets: the opposite of ‘long tails’.

So the long tail is a theory of the 21^st century economy so long as you set aside any product or service involving material, tangible atoms or people-based service, where novelty is not the key to value, and where standards and interoperability are not critical. (In the case of music and video, we are in the midst of new standards wars for the devices upon which the long tail of digital content is to be played.)

The sad thing is that amidst all this muddle, Anderson touches on, and then slides away from, what really is new and important for the 21^st century economy. He has some very good chapters on the limits imposed by traditional fixed location shops on choice and the exercise of choice; and on how the Internet is enabling us to access and use information for the purposes of value navigation (finding the stuff that is valuable to us); and on the economic benefits of producing to signals of demand rather relyong on today’s predominantly push models. On-demand models eliminate huge amounts of waste in the form of potential demand not met, overproduction, and other mismatches of supply to demand (the wrong inventory being in the wrong place, for example).

But these have nothing to do with the long tail. What they have a lot to do with, however, is the one decisive shift that Anderson circles around but never pinpoints: the way the power of information is being placed into the hands of individuals. This has two aspects.

1) Increasingly, individuals have the easy-to-access and easy-to-use comprehensive, trustworthy, information that they need to navigate towards the value they want. This is in contrast to the deliberately limited information that retailers make available in store, and the deliberately biased information that producers provide about their products.

2) Parallel to this increasing access to genuinely useful information (rather than information provided by third parties as a means to their own ends), is individuals’ growing ability to ‘input’ their own information into the process: their own signals of demand, desires, specifications and so on.

This is a tectonic shift at the very heart of our economy, because it reverses the order in which things are done and the power relations which define this order.

Yesterday, the economically critical tasks of matching and connecting – matching supply to demand, and connecting buyers to sellers – was organised around physical production and distribution and it was organised by producers and distributors. It placed power in the hands of the supplier.

Today, thanks to many of the things Anderson talks about, the economically critical tasks of matching and connecting are happening first in the sphere of information, and only then in the sphere of production and distribution. New first-port-of-call services are increasingly connecting information from and about buyers with information about products and services before the processes of distribution and production kick in. (See the BCCF white paper on Added Value Buying Services www.rightsideup.net/AVBS.htm).

This new sequence of events – information first, not afterwards – is not only amazingly more efficient, it also involves a power shift, because the critical actor here is not the producer or distributor but the lead information user: the buyer. The decisive element is not the existence of ‘a long tail’ but the dynamics and process of supply organised around units of demand (individuals), rather than individuals being organised around units of supply (products and shops).

In his book, Anderson criticises today’s Hollywood style ‘hit culture’. “Setting out to make a hit is not exactly the same as setting out to make a good movie,” he writes. There are things you do and you don’t do in the quest to draw in millions of paying viewers, he points out. You have lots of thrills and spills. A happy ending. And so on.

The same goes for writing books. Setting out to write a hit business book is not the same as setting out to write a good one. The Long Tail has some fascinating facts and figures, which are used to back a bold claim, which is surrounded by loads of breathless hyperbole. All so exciting. Anderson has written a hit.

Alan Mitchell

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A former colleague of mine phoned me to ask me about eBay: “what do you think? The greatest thing since sliced bread? Or what?”

That got me reflecting on innovation, and the crucial difference between ‘obvious opportunities’ and ‘obvious difficulties’.

In any era of rapid technological advances, people naturally focus on the obvious opportunities. When the internal combustion engine appeared on the scene, for example, lots of people got very excited by the idea of replacing horses by engines – and hundreds of companies were set up to do just this.

What most of them avoided, however, was an obvious difficulty – of making horseless carriages that were affordable to the ordinary working man. (At the time, the cheapest motor car sold for around £300,000 by modern standards).

This obvious difficulty of affordability was – well – damned difficult to solve. So not many people wanted to tackle it. And not many investors wanted to fund their attempts to tackle it.

Yet the people who made the real breakthroughs – people like Henry Ford and Alfred Sloan – were the ones who tackled, and overcame, the obvious difficulties. And those who focused on the obvious opportunities faded into obscurity.

As far as I can see, eBay is a business built on exploiting an obvious opportunity: the opportunity offered by the Internet to lower transaction and interactions costs and thereby open up opportunities for smaller sellers to reach larger audiences. That’s great, so far as it goes. Like replacing the horse with an engine.

But the obvious difficulty of the Internet age is not how to reduce transaction costs. Anybody can do that (and a lot of other sites are now doing it much better than eBay). The obvious difficulty is how to help people find and use the information that’s really relevant and useful to them. That’s a really tough one. The closer you look at it, the harder it seems to get.

The answer to this obvious difficulty lies at the heart of the next big commercial breakthrough: person-centric commerce. And eBay has studiously avoided it.

To this degree, eBay as a business model is already passed its sell-by date. Sure, it’s got plenty of momentum because it’s very famous and top of mind for many users. But having addressed the obvious opportunity of reduced transaction costs, it hasn’t got anywhere to go. That’s why its flailing around, adding all sorts of activities on to its ‘core’ business: PayPal, Skype, internet search/advertising services, price comparison services and the like. eBay CEO Meg Whitman talks up the need for businesses to ‘focus’. But in reality she is doing the exact opposite.

Meanwhile, a few brave souls beaver away at the modern age’s obvious difficulty: how to turn a tidal wave of information that threatens to overwhelm us into the rich, finely-grained, empowering resource it should be?

I’m confident that we’re beginning to crack this one. If we succeed, eBay will become an evolutionary irrelevance.

Alan Mitchell

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AlanMitchell Buyer centric services