One of the sessions at the VRM workshop in San Francisco last week focused on Requests for Proposals or RFPs.

The idea is pretty straightforward. A buyer creates an RFP for something she wants to buy, sends it out to the market, gathers up sellers’ responses and makes a choice.

Sellers, knowing they are competing against each other for a ‘hot’ lead, may be incentivised to offer an extra special deal. Buyers also benefit from the fact that it is a hassle-free process – the offers coming streaming in straight to your digital ‘front door’ when you ask for them. This is especially so if the RFP process creates an anonymity shield which stops sellers from scraping the buyer’s contact details and spamming her.

One way of doing this is, for example, is to ask sellers to upload their responses to a temporary URL which only the buyer knows about. Once the buyer has made her choice, or after a certain time span, the URL can be closed down.

It sounds a like a neat idea and for a time I thought it would be one of the vanguards of buyer-centric commerce. The more I look at it however, the more I think it is still a good idea – but something that will only really work well once lots of other supporting bits of infrastructure and service are in place. (For more details on this see our White Paper on Added Value Buying Services) In other words, aside from a few ‘pure’ applications it is a ‘later’ rather than ‘sooner’ development.

Here’s why. The immediate technical challenges of creating anonymous links between buyers and sellers are relatively solvable. At the moment, open source software expert Don Marti is leading the charge on this (http://zgp.org/~dmarti/business/upside-down-bg/).

Trouble is, even if we crack the technical messaging bits, there’s still a lot more we have to do to make RFPs really work. For example, we have to address the potential obstacles that exist at both ends of the process. Specifically:

- helping would-be buyers build a specification that’s clear and detailed enough for vendors to respond to
- a means of translating buyers’ expressions of desire into language that sellers can understand and respond to
- seller response processes that ‘understand’ RFP feeds well enough, and efficiently enough, to generate meaningful, useful responses.

These are not easy problems. They are very hard problems relating to language (the two sides understanding each other well enough to communicate), and value (the two sides getting enough value from the new process to think it worthwhile).

On language, the RFP problem is easy if the buyer can name an exact product title (e.g. down to bar code/electronic product code detail) – a ‘language’ that fits directly into the seller’s systems. But this probably accounts for 0.01% of real buyer requests, most of which include an element of search, discovery and uncertainty.

The other 99.99% of buyer requests will be much vaguer, along a spectrum e.g. I want to buy:

- a digital camera
- a digital camera in this price bracket
- a digital camera with these sorts of features in this price bracket (but I’m not really sure what these features are, or how important they are to me)
- a digital camera of this brand with these features in this price bracket (though I haven’t thought about which of these features are ‘must haves’, ‘nice to haves’, and so on
- a digital camera of this brand and model with these features in this price bracket.
- only this brand with a choice from these particular model variants, with these clearly specficied features.

Under an RFP system, sellers not only have to understand and respond relevantly to this spectrum in a way that generates easy-to-understand and easy-to-compare information that is useful to the buyer, they first of all have to understand what the buyer is ‘getting at’. For example:

- is the buyer describing features using exactly the same language as those described by seller in his product catalogue? [e.g. What if the buyer says he wants a 'fast' computer, or 'an easy to use' camera?] As soon as the seller needs a human being to read and understand the buyer’s description the RFP process may become far more expensive, not cheaper, than existing systems. On the other hand, if we rely simply on machine recognition of key words we will generate more spam than value, even if unwittingly.
- what if the buyer’s specifications don’t fit the market? (i.e. she can’t get all her desired features within her stated price bracket?) How does the seller respond to this? By simply spamming her with all available options? How does the seller help the buyer understand what these trade offs mean, and their pros and cons? As soon as the process goes beyond ‘a single shot’ of buyer RFP/seller offer (as soon as it requires ‘a conversation’) RFP style messaging processes don’t work very well.

This raises many issues of cost and value for both sides: ‘am I convinced that using an RFP is really the most cost-effective way for me to go to market?’

These are not just finicky details. Without a lot of surrounding services and processes to help buyers and sellers at both ends, pure RFPs which focus only on better Internet-based messaging between buyers and sellers are only likely to create a workable win-win with a vanishingly small proportion of transactions.

On top of this, as Bart Stevens (www.ichoosr.com) points out, there’s another barrier of user trust to overcome. Many consumers are so jaded be clever ‘bait and switch’ marketing ploys that seem honest and good value in the beginning only to have a sting in their tail, that they are wary of taking up genuinely new buyer-centric opportunities even when they do emerge.

It’s not only seller-centric marketers who are interested in behaviour change!

Anyway, my conclusion is that:
- the real ‘value add’ here probably does not lie in the messaging/contact aspects of the RFP process but in the specification building process – helping buyers articulate demand in such a way that it fully and accurately fits what they want, in a way that streamlines rather than complicates seller processes.
- while at first sight RFPs look like an easy ‘low hanging fruit’ for VRM, I suspect they will end up being one of the hardest – and last – nuts to crack; the ‘artificial intelligence’ of VRM if you like, where, only after thirty years of failing to solve this ‘simple’ problem do we actually realise how complex it really is. (We tend to underestimate just how complex buying processes are because, currently, most of the complexity is handled inside buyers’ heads. The complexity only becomes apparent when we try to automate it.)

But that’s not to say cracking the communication protocols is a bad idea.

Alan Mitchell

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AlanMitchell Buyer centric services, Project VRM

Fascinating discussion over dinner last night with Drummond Reed, Bill Washburn and my colleagues Iain Henderson and William Heath from our personal data venture Mydex (www.Mydex.org).

We had just flown in to San Francisco for the VRM meeting, so were jet lagged and hardly sparkling. But Bill made the comment that the real potential of the internet was not being realised because of a pervading lack of trust. This is interesting because previously, trust-issues have not created barriers to our ability to realise the full potential of new technologies.

Metallurgy, steam power and electricity transformed the world in many ways, but the general rule of thumb was, in good old entrepeneurial capitalist style, ‘do anything you like with it, so long as you don’t break the law.

Computing technologies started out much the same, transferring that ‘do what you can!’ motto from matter and energy to information. So, in the industrial age we did lots of fantastic new stuff with matter and energy, and then we had an information age where we started doing lots of fantastic new stuff with information. With the internet however, this no holds-barred approach to information creates problems – because I don’t necessarily want you to start doing fantastic new stuff with my information if it’s fantastic for you and awful for me.

The power of trust

When the key issue is no longer just the technology, but the relationships surrounding that technology, you have a different type of problem. You need a parallel set of innovations in ‘social technologies’ – new ways of bringing people together to create new and better outcomes.

Perhaps the last time we had a problem of a similar scale was with the growth of trade. The more trade you do, the clumsier and more constraining barter becomes. You need something to oil the wheels. The ‘obvious’ answer is money, but for many years it was not an obvious answer at all.

Money requires a huge leap of faith. You give somebody something of real value, and in return, they give you a worthless token. The only way you can then retrieve the value you have given away is by persuading someone else to part with something of real value in exchange for your worthless token.

It’s absolutely crazy, once you stop to think about it. But as long as people fail to make this gesture of trust, the prevailing lack of trust acted as a brake on the economic potential of the trading system. And to build the trust that was necessary, a whole set of new rules, institutions, practices, safeguards, social rituals and relationships, norms and expectations, divisions of labour and so on had to be developed.

As Drummond pointed out, one of these institutions is banking, which is an entire global industry built on ‘meta-trust’. First, you make a leap of trust in accepting money in exchange for real value. T hen you make a second leap of trust by giving it to somebody else to look after! With no real recourse if they decide not to give it back! Craziness piled on top of craziness. So, once again, we had to develop a whole new set of rules, regulations, practices, institutions etc to deal with this trust problem – and we’re still struggling with how to do it, as the credit crunch shows.

Bill’s point was that we’re now facing the same sort of problem with the sharing of personal information on the Net.

The old assumptions about ‘if you can, do anything you like with it within the law’ may work brilliantly with new inventions like electrical machinery. But it creates a nightmare of mistrust and lost economic potential when it comes to personal information. And that’s basically what’s happened with the last 50 years of centralised corporate data gathering: the underlying assumption in the corporate world was ‘if we can gather information about you, the customer, it’s ours to what we like with’. Just imagine if banks said that to us in relation to our money!

The next leap

That’s what Mydex in particular, and VRM more generally is about. It’s about creating the new ‘social technologies’ of trust to allow personal information to be shared the way we share money. If all the right conditions are there – if it’s a mutually acceptable exchange in conditions of mutual trust – we hand over money to somebody else without a thought – and by doing so we contribute our little bit to the larger public good of economic activity. We help unleash its potential. But if those conditions are not present, then our immediate attitude is ‘No Way!’. And the economy’s potential is constrained.

So what are the right conditions – the rules, institutions, practices, safeguards, social rituals and relationships, norms and expectations, divisions of labour – necessary to unleash the potential of personal information sharing in a networked world?

That’s a huge question which we need to tackle as a society. But our bet is that one necessary building block is to create the distinction with personal information that banks did with money.

You hand your money over to a bank for safekeeping. But that does not mean the bank can do anything it likes with it. You may give the bank permission to do some things with it, such as lend it out to other people. But if so, they have to pay you interest for it. You share in the benefit of sharing its value.

Personal data banks like Mydex create the same distinction. You use the personal data store to keep your information in a safe place that’s also easy to access. Mydex also allows this information to be shared, but only in ways that you choose, agree to, and get some benefit from.

Personal data stores are certainly not the whole solution to the dilemma Bill raised. But I’m pretty sure they’re a part of it.

Alan Mitchell

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AlanMitchell 'The Information Age', Project VRM

Interesting discussions on the VRM steering group prompted by Doc Searls’ blogs about ‘fourth party services’ (http://blogs.law.harvard.edu/vrm/2009/04/12/vrm-and-the-four-party-system/).

The bottom line is that I think the concept of ‘user-driven’ services as espoused by Joe Andrieu (e.g. (http://blog.joeandrieu.com/2008/07/12/towards-user-driven-search/) is risky for two reasons.

First, it muddies the waters around VRM’s unique and special contribution:  its focus on creating services that work on the side of the individual.

Second, it narrows the VRM agenda, to focus too much on mechanisms of user control, and not enough on even bigger challenges such as the design of new business models.

More detail, for those who are interested…

As far as I can see, ‘fourth party services’ are pretty much the same as the Personal Information Management Services we’ve talked about on this blog for some time (http://www.rightsideup.net/?page_id=58)

The debate itself stems from a growing a realisation that there are at least two ‘levels’ of VRM.

The first level simply gives individuals software based tools, like mobile phone apps, that the individual can use how and when they want.

The second level is when a specialist service or business provides extra infrastructure, functionality or services that help individuals do things they couldn’t do if they were left to themselves with their ‘apps’.

Doc Searls has termed this second layer of services which are acting for or on behalf of the individual as  ‘fourth party’ services. There are others however, such as Joe Andrieu, who have started talking about ‘user driven services’ (http://blog.joeandrieu.com/ )

As I understand ‘user driven’ it means a service which is shaped – or ‘driven’ – to a greater or lesser extent by the user’s direct input. As Joe explains in one of his emails:

“User driven services are a category that, for me, is as much a direction of innovation  as anything else.  YouTube is more user driven than Cable TV. Blogs are more  user  driven than newspapers.

Every major Internet breakthrough has been by companies being more user    driven in some way. Amazon. Google. eBay. Facebook. Twitter. The web  and the net itself.”

On the other hand, as Joe stresses in the same email, ‘fourth party’ services are much more focused:

“Fourth Party services, in contrast, have a very tightly focused meaning:
fourth parties operate on behalf of you, the individual.  2nd parties
and third parties, e.g., Apple and various iPhone developers, have no
expectation or obligation of acting in your best interest.  However,
your personal datastore does. Your lawyer does.  That’s the distinction:
a fiduciary responsibility to the individual user.”

If we are interested in developing buyer-centric or ‘VRM’ services, which route should we follow: ‘user-driven’ or ‘fourth party’?

The agency concept

The fourth party or buyer-centric service anchors itself on the side of the individual. That’s what defines it and distinguishes it from all other business models and services –  it works for and on behalf of the individual. It is on the individual’s side, acting as the individual’s agent (as I first talked about in my book Right Side Up many years ago).

For me, this is the fundamental intellectual – and practical – departure point. If you don’t get to this starting point you can never ‘get’ VRM or buyer-centricity. And if you don’t keep it as your anchor, you will get lost and confused in no time at all.

For many people however, this starting point is also their sticking point. They just can’t see it. They think we are talking about some sort of altruistic pressure group or charity – not a proper business.

This is odd because none of us have any trouble with big companies paying agents to work for them. In fact, there are so many agencies, consultants, advisors, contractors and so on working for big companies that sometimes it seems they’re the biggest business sector of all. Everyone knows what these agents do. They are employed by BigCo if and in so far as they are successful in furthering BigCo’s interests, as specified by BigCo of course.

The buyer-centric or fourth party service is no different: it earns its keep as long as, and in so far as, it acts for and on behalf of the individual in his or her dealings with other parties – such as all those BigCos with all their agents.

Perhaps one of the reasons people find it so hard to ‘get’ this is because it is so new. To work, it requires innovation on many fronts: technology, service and user-experience, business model, definitions of value, metrics of success, legal, contractual and regulatory issues, and so on.

In my view, the only way we can keep all these innovation projects working hand-in-hand and in sync is if they keep the starting point of ‘for and on behalf of the individual’– this litmus test of purpose – absolutely clear.

Unfortunately, that’s precisely what the ‘user-driven’ concept loses. By shifting the focus from relationship and purpose (e.g. services that work for the individual) to mechanisms (does it happen to be ‘driven’ by the user or not?), the user-driven concept weighs anchor and (to mix metaphors horribly) lets the balloon float free – to be taken in whatever direction the wind of ‘user control’ might take it.

Now. You could argue – as Joe might – that if it is user-driven then it must, by definition, be acting for and on behalf of the individual. I’m not sure. A bank ATM is a ‘user-driven’ service, to some degree. It’s ‘more user-driven’ than the bank counter and the teller – and it’s this spectrum of ‘user-drivenness’ that Joe seems interested in.

But the ATM is there mainly to outsource costs from the bank to the customer. User self-service is a big thing for companies wanting to offload costs on to customers. These companies could embrace the concept of ‘user-drivenness’ quite happily. And without our moorings relating to ‘for and on behalf of the individual’ we can’t distinguish between the two.

It’s also true, however, that the concept of an agent acting for and on behalf of the individual also has its blurry edges. There are, for example, many ways of acting for and on behalf of individuals: political and social campaigning, legal representation, and so on. You could say your lawyer is your ‘agent’. You could say somebody you pay to clean your house or your shoes is your agent too, because they are acting on your instructions.

Marginal or central?

The interesting thing about all these forms of agency is that they lie outside the commercial mainstream. They are either ‘non-commercial’ (e.g. political and social campaigning), or if they are commercial they exist only on the margins.

Lawyers for example, flourish on the back of information asymmetries. They are experts and you depend on this expertise. And they charge you accordingly, so you only employ a lawyer when you are desperate.

The maid cleaning your house lies at the opposite extreme of information processing. Here, it’s mainly manual labour which no one has ever been able to automate. This is the economic equivalent of balloon squeezing. You might push the work from one person to another but the volume of work – the air inside the balloon – remains unchanged. No new efficiencies have been created.

The interesting thing about this is that the lawyer and the maid exist at the extremes of information processing cost/difficulty.

The real breakthrough of buyer-centric or fourth party services is not just the agency concept but how and where this concept is applied – in the heartlands of the economy: commercial activity.

For them to do this, they need to create new types of business which use information in new ways. These are businesses that make their money out of ‘consumer empowerment’ or, in the case of public services, citizen empowerment; services that put the power of information in the hands of individuals to help them do what they want to do more effectively and more efficiently.

To make this happen, most buyer-centric or fourth party services will indeed need to be ‘user driven’. For example, it goes without saying that an agency relationship cannot work if the client (in our case, the individual) cannot specify what he wants to achieve, monitor the work of the agent, and so on. We need clever information technologies to make it possible to do this in ways that are easy to use, on a mass scale. This is a massive innovation challenge in its own right, but it’s just one consequence of the core agent concept.

So, to sum up:

Joe advocates the ‘user-driven’ concept on the grounds that it is ‘a direction of innovation’.

Yes, it is one possible direction of innovation. But actually, the scope of innovation it envisages is quite narrow – basically, the mechanisms/services that enable the user to drive the service.

The buyer-centric/fourth party vision on the other hand requires at least three different levels of innovation. For it to work, we need:
•    Clever new tools, software and so on that help individuals gather, store, slice and dice, analyse, share and deploy the information they need to do the things they want to do. (This, in itself, is effectively a whole new industry)
•    Innovative new business models to make these new technologies happen. (What are the revenue streams for the service, what are the economic incentives for the business and the people it deals with?)
•    Innovative ‘social technologies’: i.e. the rules, practices, relationships and safeguards that generate the trust these businesses must have if they are to prosper.

For VRM to flourish, we need all three ‘dimensions’ of innovation.

VRM’s defining contribution is the notion of using information – and developing information services – that work on the side of the individual. The potential scope and benefits of this idea, for both individuals and organisations, is unthinkably huge.

We blur this focus at our peril!

Alan Mitchell

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AlanMitchell Buyer centric services, Project VRM

Here’s my theory on what happens when the subject of VRM/ buyer-centricity is raised in a CRM context.

Hopefully we can work on improving our VRM sales pitch at the VRM workshop in Mountain View later this week.

Anyone with suggestions as to how we can better tell the story and who won’t be at the meeting this week then please chip in with comments and we’ll make sure they get taken onboard.

Iain

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Iain Henderson Project VRM