Right Side Up

Here’s the invite. Interesting venue – SAP HQ in silicon valley.

You can register at EventBrite, here:

http://vrmwestcoast2009.eventbrite.com/

It’s free.

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Iain Henderson Project VRM

As far as I know, ‘What Would Google Do?’ by Jeff Jarvis is the first book to talk about VRM. When I started reading, I was excited. Jarvis was telling it like it is – clarifying and explaining the vast changes now under way.

His critique of old-style corporate mindsets is spot on. “Listen to the rhetoric of corporate value,” he writes. “Companies own customers, control distribution, make exclusive deals, lock out competitors, keep trade secrets.”

All these points of ownership and control are now exploding, he points out. The new rule is “Give the people control and we will use it. Don’t and you will lose us”. Value lies not so much in the product or service companies sell, but in the tools they provide for individuals to use, he explains.

This is not just semantics. It’s a real shift. It’s about providing individuals with platforms that enable them to build their own value; that “help users create products, businesses, communities and networks of their own”. These words – enable, help, build and create – are important. In this new world, the individual is no longer just a ‘consumer’ or a ‘customer’ of the corporation. He and she is an active, creative, equal partner in the process of wealth creation.

Fantastic stuff, and it’s really helpful to have it explained so clearly.

The more I read, however, the more concerned I got. What is the alternative to yesterday’s centralized, controlling business?

Well, it turns out that Jarvis has only one, one-size-fits-all answer. Here’s how he describes the rules of the new networked ‘link’ economy. “First, you must produce unique content … Second, you must open up so Google and the world can find your content … Third, when you get links and audience, it is up to you to exploit them, usually through advertising.”

Oh dear. Jarvis’ previous career was in ad-supported content publishing and guess what? Despite frantic, breathless huffing and puffing about how revolutionary and different the new world is, it turns out to be almost exactly the same as the old one – all about ad-supported content publishing. The only thing that’s different is that this time the ads are delivered a different way (via Google) and the content is (sometimes) produced by different people.

Jarvis then applies this vision basic one-size-fits-all vision to everything he touches.

For example, he cites the Cluetrain Manifesto countless times in the support of his arguments. But (Doc, please tell me if I’m wrong) I thought the whole point of the Cluetrain Manifesto was that if you are having a proper conversation both sides are in a much better position to navigate their way to value without advertising.

By the end of the book I was seething with irritation. Right now, there is a particular form of hype coming out of silicon valley – let’s call Hype 2.0 – that is singularly unhelpful. Jarvis’ hype gets three things wrong. They are intimately connected.

First, he has an ‘either/or’ attitude towards atoms versus bits. Time and again, he is sneeringly dismissive of the real world of material goods, and of services provided using material infrastructure. “Stuff is just so last century. Nobody wants to handle stuff any more,” he declares. “Many industries are saddled with slowness because they are trapped by atoms and complexity.” “Manufacturing is expensive, vulnerable to commodity pricing, labour-intensive, weighed down by gigantic benefit costs, and competitive. That’s the tyranny of atoms.” And so on.

Fact is, we are material beings living in a material world. I’m sure Jarvis would be the first to complain if he could only drink Googlejuice with his breakfast; if he couldn’t catch a plane to his next speaking engagement and sleep in a comfortable bed with nice cotton sheets in a safe, secure hotel afterwards; and if he didn’t have a boring old atoms-based computer to access the Internet.

This is not just about rhetoric. It’s about economics: the real opportunity in what’s going on right now is not the ‘either/or’ of atoms or bits but the ‘and’: how better use of information can help us strip away waste in material production and distribution, attack its complexities, improve its value and so on.

This links to the second flaw in Jarvis’ argument. For him, the new world is all about ‘content’. The opportunities individuals now have to create their own, new content. Opportunities to co-create content via communities. Opportunities to share content. Opportunties to search for and find the content you want.

These are all fantastic things. But they are less than half the story. They ignore other uses of information: for example, the critical role it plays in organisation and coordination.

There’s a saying in the boring old material supply chains that Jarvis dismisses as “so last century” that “uncertainty is the mother of inventory”. In other words, if you don’t have the right information about who wants what, when and where, then you are ‘saddled’ (to use Jarvis’s term) with guesswork and just-in-case operations.

In fact, without the right information about the who, what, when and where of demand everything you do – production, distribution, communication – has to fall back on wasteful guesswork and ‘just-in-case’. And at least half – probably much, much more – of the potential value of the web is its ability to help us deal with these ‘tyrannies’ of waste. What Jarvis misunderstands is that these are not “tyrannies of atoms” as he calls them – they are tyrannies of poor information.

This leads to his third flaw. In his obsession with ‘content’ and cool new things that involve content such as communities and co-creation, Jarvis misses the point of VRM.

Wave 1 of the information revolution resulted in an explosion of ‘top down’ flows of information: cable, satellite, publishing on the web, etc. These were the first fruits of digitalisation.

Wave 2 made sideways or peer-to-peer information sharing possible. And thanks to Google, it gave us new tools to help us navigate our way through the tidal wave of top down, published content to find what we wanted. Wave 2 is very ‘content’-focused. It’s what Jarvis focuses on.

It’s Wave 3 however, where the real fruits of the information revolution finally pass into the hands of individuals. Under Wave 3 individuals will be able to build their own databases – to manage information on their own terms for their own purposes – and to use this information to articulate their own needs, preferences, priorities and so on to the marketplace. Wave 3 reverses commerce from ‘top down’ to ‘bottom up’ and right side up. Yes, this third wave has important content elements (as with atoms and bits, it’s not either/or) but it’s just as much about personal analytics, organisation, coordination and logistics.

The next economic revolution lies exactly in the three bits Jarvis overlooks: the importance of the connection between atoms and bits, the fact the web is not just about content and advertising, and that it is not just about peer-to-peer information sharing – it’s  also enabling personal information management and volunteered personal information.

The real potential of VRM and buyer-centricity will be unleashed when we bring these three elements together, as we would bring chemicals together to create an explosive reaction.

Alan Mitchell

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AlanMitchell 'The Information Age', Books, Project VRM

“The retail financial services industry in the UK is a dead man on holiday.” This was the first sentence of a report we wrote four years ago (sitting-ducks-final-2005).

We ended up not publishing it, however, for two reasons.

First, we couldn’t really find a positive message for the industry. That first sentence was … well … our conclusion!

Second, we couldn’t see any obvious ways out. All we could see was an industry stuck down a dead end and unlikely to get out.

We weren’t talking about the effects of credit bubbles and derivative casinos. We were talking about the industry’s core relationship with its customers. Our argument was simple.

1) The market for retail financial services (current accounts, loans, savings, credit cards etc) is intensely competitive. But for historical reasons, industry players compete with each other not over who can provide the best value products or services but over who is most efficient at exploiting their customers’ ignorance and inertia. It’s competitive alright. But it’s toxic, perverse competition.

Once you are stuck down this hole, it’s incredibly difficult to get out. For example, if you try to put the past behind you and start trying to prove yourself honest and trustworthy nobody believes you. Instead, they just assume you’re spinning another web to trap them, only this time a bit more subtly disguised. So even if you try to become a good guy, you still get punished.

2) The market is also trapped by its structure. It runs on cross-subsidies. For example, people who pay off their credit card bills in full every month get an immensely valuable service (interest free credit, convenient payments worldwide) for free. The costs of providing this incredible value are more than paid for by people who pay extortionate interest rates on outstanding balances, who are levied fines for late payments, etc.

Such Rob-Peter-to-pay-Paul business models have two effects. First, the people you are robbing hate you. But if you try to offer them a better deal, your income/profits go down, so there’s not much incentive to do that. Second, you can only afford to stop robbing Peter if you stop paying Paul. Yet if you remove Paul’s subsidies he’ll hate you even more, confronting you with an avalanche of outrage. So, much better to stick with the status quo.

Together these two factors – exploiting ignorance and inertia coupled with Rob-Peter-to-pay-Paul business models – generate the trap of the ‘Free!’ Here, there’s even more irony. Current accounts, credit cards and so on are incredibly expensive to provide, but we get them ‘free’ (as a lure), which means we take them for granted and don’t recognise just how valuable they are. Then, when the institution tries to claw back some of the costs of providing these services via various back-door, underhand means, we are outraged by the dishonest, rip-off nature of its practices. Net result: the institution fails to get the credit it deserves, and gets hated instead.

On top of this, the fact that these basic infrastructure services are provided free means that it is almost impossible for new competitors to muscle in. This, in turn, blocks the one force for change that the industry really needs: genuinely new and different competition.

3) Scale compounds this effect. If you have, say, four million customers and you can find a way to levy fines or fees worth, say, £50 on average per customer per year, then you have yourself an income of £200 million. All you have to do to earn this cash is to dip into their accounts, electronically. Now try earning the equivalent sum by offering customers better value, in a highly competitive market, given the constraints already set by points 1) and 2) above.

Such pressures mean that the chances of winning top-level corporate backing for any mould-breaking innovation are slim indeed.

Paralysed

For all these reasons (and a lot more, which we discuss in our paper – legacy systems, culture etc) it’s almost impossible for the incumbent players to reinvent themselves. Individual managers within the industry may want to do their best, be customer focused, serve the customer better, etc. But the forces surrounding them are just too powerful. It’s impossible to escape their inner logic.

Yet, at the same time, slowly but surely, the industry’s foundations are shifting. Consumers are becoming less ignorant. (Look at the success of Martin Lewis’ MoneySavingExpert.com). They are more likely to shop around, so inertia is less of a factor than it used to be. Increasing regulation is cramping banks’ ‘profit by fees and fines’ style. New technologies are changing cost structures and competitive dynamics.

Looking forward, we predicted that new competitors would emerge to compete with today’s incumbents in ways they could not respond to. More ‘buyer-centric’ business models would help individuals to:

• Manage their financial affairs better (i.e. make plans and administer and organise more efficiently). Because these services revolve around better processes and better use of knowledge and information rather than better products per se, existing players would find it hard to complete with them.

• Use their money better (i.e. by offering added value buying services)

• Go to market for financial products more efficiently (e.g. MoneySupermarket.com and its competitors)

Our conclusion, then, was that even as the industry failed to change, it would be beset by a growing number of small – apparently irrelevant – competitors picking away at one or other small detail of the giants’ edifice. Individually, none of them would achieve the existing incumbents’ scale or influence, so the incumbents would ignore them: ‘When it comes to competitive threats, it’s the gorillas that look just like me that I’m worried about, not those small fry!’

Yet the combined effect of these multiple different small innovations would be that slowly, surely, existing players’ profitability and credibility would get hollowed out, until one day, they would collapse.

When we said ‘slowly’ and ‘one day’ however, we meant it. Today’s big financial institutions are a bit like General Motors. General Motors was in decline for 25 years (a long enough period for you to have a complete and successful career within the company) and all the while it seemed immune to the forces of change in its industry. Until now, when suddenly it stares bankruptcy in the face.

In a nutshell, that was our prognosis for today’s financial services companies and brands. A long, slow, painful decline – played out so slowly in fact that you could be forgiven for believing that it wasn’t really crashing at all.

So why publish this analysis now – four years later? Because perhaps, just perhaps, the credit crunch has changed the landscape enough for the industry to place itself on a different trajectory.

If so, it’s worthwhile re-igniting the debate.

Alan Mitchell

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AlanMitchell Buyer centric services

Here’s an interesting presentation given to the Direct Marketing Association annual Privacy and Data Protection conference last week by Marc Dautlich of Olswang, the lawyers who are advising the Mydex CIC.

The whole deck is useful to those of us interested in privacy and data protection, but the concluding slide is of wider interest – Marc predicts that Volunteered Personal Information will become the dominant marketing paradigm by 2015. Let’s hope so…..

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Iain Henderson Data, Direct Marketing, Project VRM Direct Marketing, Direct Marketing Association, Privacy

I’ve just re-read this post on the meaning of the phrase ‘identify and meet customer needs’ – I realise that one part of the explanation was poor.

It’s this. Usually, sellers define customer needs in terms of what the seller happens to be selling. A bank looks at ‘customer needs’ and sees current accounts, loans, savings and so on. An ice-cream producer looks at the same person, and wants to know if they prefer strawberry to chocolate. In this way, sellers slice the individual into a million and one different products and services – yet none of these actually see the individual. All they are really seeing is a mirror-image reflection of their own operational priorities. When they look at ‘the customer’ what they see is a potential unit of demand for what they are in the business of making and selling.

There is nothing wrong with this, in itself. What is wrong, however, is to assume that the mantra ‘identify and meet customer needs’ therefore provides a full and complete answer to the problem of value creation (back to my post of a year ago).

Crucially, it ignores three things.

First, it ignores the processes individuals have to go through to achieve a desired outcome. Take something we are all familiar with: ‘feed the family dinner tonight’. If you made a list of just the top-line steps an individual needs to go through to achieve this desired outcome, it might look like this:

1) Assess occasion
2) Assess family members’ preferences, dietary needs
3) Decide menu
4) Find recipes
5) List necessary ingredients
6) Check against stock in kitchen
7) Make shopping list
8] Plan shopping trip (‘before or after picking kids up from school?’)
9) Travel to store/s
10) Fine items/substitutes
11) Queue
12) Pay
13) Carry to and load car
14) Travel home
15) Unload car
16) Carry shopping to kitchen
17) Unpack
18) Prepare meal ingredients
19) Dispose of meal/waste/packaging
20) Assemble ingredients
21) Cook
22) Lay table
23) Eat!
24) Clear table
25) Wash dishes
26) Dry
27) Put away
28) Dispose of waste/leftovers

Now put yourself into the shoes of say, the brand manager of Heinz Baked Beans. As a brand manager you have an awful lot to worry about. You are worried about the quality of your beans and of your tomato sauce; salt levels, sugar levels, whether your product tastes better than the competition, the packaging (‘perhaps an easy-open can!’) its design, its advertising, its price, whether it should be on promotion, which retailers it is stocked in, and so on, and so on.

All of these are important. Brand managers are very busy people. And all these considerations are relevant in some way to the family member delivering a meal. But how many of those top-line 28 process steps is our baked beans brand manager really focused on, or interested in? In reality, his job is to improve the economics of his brand, not the economics of his customers. He’s doing his best to identify and meet his customers’ needs as he defines them, as a means to this end.

In fact, one of the insights of the buyer-centric perspective on value is that most – probably the vast majority of ‘consumer needs’ remain unmet – because they fall outside of seller-centric definitions of ‘value’ and ‘need’. Typically, these unmet needs are needs that cannot be packaged into a product that ‘consumers’ can buy and consume – they are process needs relating to those issues of planning, organising, coordinating, administering, logistics, processing etc highlighted by the list of 28 steps. This is true not only in the ‘feed the family’ scenario but across the board: financial services, health, travel, communications and so on.

The second thing the seller-centric perspective on ‘identifying and meeting customer needs’ ignores is the need for the customer to make a better decision. When faced with the baked beans fixture at the supermarket, the last thing the brand manager wants to say to the shopper (for example) is “hey, a word in your ear. The own label beans are just as good quality with the same great taste. I know, because they are made in our factory. But the own label version is 25 per cent cheaper”. In other words, the last thing most sellers want to do is help customers meet their need to make better purchasing decisions. If brand managers did that, customers might end up choosing somebody else’s product, and we can’t have that, can we?

The third thing this approach to identifying and meeting customer needs ignores is the customer’s metrics. Every step of that ‘feed the family’ process requires an investment of a range of different personal assets. It takes time and attention to think about what little Johnnie likes and needs for his dinner. (‘Damn! He had that yesterday!’) It takes time, effort and money travelling to and from stores, traipsing through supermarket aisles, loading and unloading the shopping etc. But none of these metrics are taken into account by the Baked Beans brand manager, or the supermarket marketing manager. How long would supermarket checkout queues be if supermarkets had to pay us for the time we waste standing in them?

This is important because, if we think about it a bit deeper, many of our biggest needs as individuals don’t relate to the features and attributes of products or services (those salt and sugar levels, for example). They actually relate to features and attributes of our lives – particularly, how well we manage our precious personal resources: our time, our energy, our attention, our emotional commitment as well as our money. Defining peoples’ needs in terms of the metrics of their personal assets is very different to defining needs in terms of product attributes.

So, to return to my original post. I made the point that that the mantra ‘identify and meet customer’ needs seems to be ‘complete, practical and morally right’. But actually the way it is often interpreted is often ridiculously incomplete (addressing only a tiny sliver of individuals’ real needs), is therefore not all that practical after all. Also, it’s often morally questionable at the same time (because of sellers’ quest to influence rather than inform individuals’ decisions).

Now. That’s the easy bit. The critique. The really hard part is working out ways to address the ‘value gaps’ generated by seller-centricity. What are the types of service, business model, relationship and measurement system that really do help individuals improve their economics?

Alan Mitchell

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AlanMitchell Buyer centric services, Marketing

Terminology is always a real challenge for anyone trying to open up a new area. By definition, if it’s new, people haven’t invented words for it yet. And if we resort to old or familiar words, then invariably we cause more confusion than clarity.

We’ve had this problem with ‘buyer-centricity’. I’m still not happy with the term, but I haven’t been able to come up with anything better yet. I coined it to create a sharp distinction to ‘seller-centricity’ which looks at the world from the seller’s eyes and revolves around achieving the seller’s goals.

So, for example, sellers measure success in ‘seller-centric’ terms. i.e. ‘what it costs me to go-to-market and sell my stuff, how much stuff I manage to sell, what my margin is’, etc. That’s all fine and dandy, but it doesn’t look at the world from the buyer’s point of view.

Buyer-centricity puts the selling agenda to one side to focus on helping buyers achieve their go-to-market goals, and measuring success accordingly. While success for the seller might mean ‘selling more at a higher margin’, success for the buyer might be ‘getting a quality product or service that’s perfectly appropriate to my current needs/priorities at a good price, without having to invest huge amounts of time and effort researching, choosing etc’. (I’ve deliberately made this definition of success long to highlight how complex it can be, and to underline the point that for the buyer, success relates both to what he buys and the process of buying it.)

If we think about buyer-centric services then, they serve a different party, using (probably) very different methods, pursuing very different goals and using different measures of success. Buyer-centricity is the chalk to seller-centric cheese.

Two things immediately jump out.

First, most people’s kneejerk reaction to this is “It will never work. There is no market for it. Consumers will never pay for services that help them shop.” I believe the exact opposite is true. I believe this is potentially the biggest market in the world, because everyone wants help in making and implementing better decisions – and there are countless of ways of doing this. The potential for innovation is enormous.

Second, many people (especially if they are steeped in seller-centric assumptions) recoil from the notion of buyer-centric services because the implications seem adversarial: “if there is a service helping the individual navigate to the best possible value, that will undermine our goals of selling more at a higher margin!”

Let’s set aside the fact that when sellers try to extract higher margins from buyers, or use their attention or information for their own purposes, they may also be acting adversarially. The issue here is whether ‘buyer-centricity’ is a win-win programme that can actually help sellers too, or a win-lose adversarial war.

Some hotspots of conflict are inevitable, to be sure. But it’s becoming clear (to me, at least) that the potential win-wins are huge. That’s because, in the process of researching and making decisions, individuals generate huge amounts of new information about the who, what, when, why and where of demand – information that’s gold-dust to sellers; information that has the potential to help them eliminate huge amounts of guesswork and waste from their operations and to focus their resources on doing things that really do add value.

The point is, it’s only now becoming possible to capture this information, and to share it in ways that are secure, scalable and based on water-tight, legally enforceable win-win terms and conditions. With Iain Henderson, I’m working on a research report on this theme right now. The Community Interest Company Mydex is pioneering a lot of the related technologies (and a lot more). Project VRM is also working to a similar agenda.

Just one more thing. If buyer-centricity looks at the world from the individual’s point of view when going-to-market, then logically speaking, it is just one part of an even bigger project. Let’s call it ‘person-centric commerce’ where we step back and ask, ‘how would we organise things if our goal was to improve the economics of this individual or that household?’ (as distinct to those same-old same-old goals of improving the economics of this or that organisation). What needs to be done to help individuals manage their lives better so that they can improve their metrics (whether it’s time, money, use of attention, energy, whatever)?

When we look at economic activity from this person-centric point of view, even more exciting opportunities emerge. There’s a huge sub-set of activities revolving around ‘citizen-centric services’ in the public sector, for example. (For more on this theme of person-centric service, see our discussion paper on Personal Information Management Services.)

There is no point being coy here. This agenda is ABSOLUTELY HUMUNGOUS; unthinkably, ridiculously ambitious. It reaches into every aspect of our society. It has the potential to turn our commercial world up side down – or to be more precise, right side up – and to do so in a win-win way. Therefore, it has to be a collective, networked activity. In other words, the more the merrier!

Alan Mitchell

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AlanMitchell Buyer centric services

I’ve just blogged about this issue here.

Alan Mitchell

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AlanMitchell Uncategorized