Or perhaps everyone's mourning for the latest Dead Kennedy?
In an effort to increase the bitcount this month above the level of
statistical insignificance, here's number 2 of Thomas Petzinger Jrs "The
Petzinger Report". 'Money, customers and other anachronisms' is an
interesting preamble over the disappearance of the customer on the web.
His point is well taken but seems to primarily apply to
business-to-business transactions, and he's really just highlighting the
emergence of <buzzword>affiliate marketing</buzzword> programs.
Kieron.
-=-
The Petzinger Report #2
July 22, 1999
Subscribers: 632
Dear friends,
Welcome back to the Petzinger Report, an irregular and irreverent look
at technology, economics, entrepreneurialism, and the ego-crushing truth
that systems evolve greater intelligence than we can ever design into
them.
This newsletter is free, the way things ought to be on the Internet.
And I mean free. I have shooed out the copyright bugs. You'll find no
terms of use here. This is nobody's property. The Internet is history's
biggest conversation. Who wants to charge admission? So by all means,
forward these screeds as far and wide as you find them worthy.
In this issue:
1. Money, customers and other anachronisms
2. Quotology: Lewis Thomas
3. Shameless self-promotion: TNP on NPR and WBUR
4. Cache of the day: Journal of the Hyperlinked Organization
5. How to subscribe and unsubscribe
1. Money, customers, and other anachronisms
------------------------------------------------
Whew, it's wicked out there. New technologies coming out of left field.
New competitors emerging all over the globe. A new workforce that nobody
knows how to deal with.
But even those sweeping and destabilizing changes pale next to a shift
much larger in scope and effect, even if it's more difficult to see.
Commerce is being gradually and surely de-monetized. And in closely
entwined development, the concept of the customer is slowly
disappearing.
Let me say right away that money's not about to disappear from the
planet. Next to the half-life of money, a uranium fuel rod looks like a
stogie packed with Sunday supplements. Neither are we about to abandon
"customer" from the language.
But as concepts and constructs in economic life, money and customers
have already begun shrinking in significance and are destined to
continue doing so. The reason is that we're in the throes of a secular
trend that favors value creation over money aggregation and
relationships over transactions.
If you need a translation for the lug nut you call a marketing vp, try
this: Profiteering pigs are dead in the new economy.
Please indulge me a 30-second glissando across the entire history of
economic man, throughout which we find the concept of the customer
inextricably bound up with the meaning of money. Until there was money,
there was no such thing as a customer. It wasn't swapping tools for fish
that turned a Polynesian islander from a trader into a customer. It was
swapping tools for something _intangible._ Money, to be sure, usually
had a modest utilitarian purposegold, for instance, could be hammered
into nose rings, false teeth or satellite solar arrays--but money became
the foundation of economic life precisely because it had symbolic more
than practical value. Today most of the money in the world isn't even
made of paper, much less metal. It exists as binary digits. No wonder
the central banks of the world are heaving their gold reserves into a
collapsing market. Who needs gold when money sheds the slightest
pretense of being anything but data? Say good-bye to gold. Gold is
history. If you want currency backed by something tangible, sign up for
5,000 frequent flier miles on a new Visa card.
Yet, gosh, what a tool money was. The value of anything tangible,
outside of a few precious art works, maybe, and the health of a
childcould be expressed as money, or so the economists informed us.
That's why God gave us lawyers and accountants: to prevent underweighing
and overcharging, to make sure that every exchange of tangible things
for intangible money was perfectly balanced, perfectly reciprocal. But
this is a conceit of economists, accountants and lawyers, as everyday
commercial life reveals. Because it can be turned into anything, money
represents dreams unfulfilled, and unrequited dreams, at any price, are
worth more than dreams realized. We all realize this intuitively. A
buyer asks a seller to give up a mere thing; a seller asks a buyer to
give up hopes and possibilities. For the same reason, it's more costly
for sellers to recruit buyers than for buyers to recruit sellers:
Sellers can exchange their stuff for only one thing (money), while
buyers can exchange their money for anything. That's why, in the real
world of purportedly balanced transactions, sellers invariably defer to
buyers--why we say "the customer is king" and "the customer is always
right."
But let's say it's 1999 and you're Time Inc. You own some of the
best-known media properties in the world: Sports Illustrated, People
magazine, &c. You want to leverage those properties. So you approach
Yahoo!, say, or American Online. You propose to provide content to them.
They propose to promote your brand. And as you sit down to the
bargaining table to sort out the economics of all this, you throw up
your hands and ask, "Are we paying you or are you paying us?" That's how
these negotiations go, as Dan Okrent, Time's new media chief, recently
explained it at a conference where we both spoke.
"Who's paying whom?" Asking a question like that signals that maybe
nobody needs to pay anything to anybody. Lots of value is created, but
nobody's "paying" for it. It just happens because two (or more) business
partners create something together.
Or let's say you're Tim Askew, president of a commodity chemical
business called US Aluminate (http: www.usalco.com). You own a giant,
old factory made of red brick near the docks in Baltimore. The building
is three times bigger than you need. It's full of cavernous, empty space
you hope to grow into but that is of zero use to you right now. Nature
abhors a vacuum, right? So you call up your major supplier and offer to
let him dump about million pounds of raw material--a heaping mound of
white aluminaright into that empty space. Your supplier gets free
storage, from which he can serve not just you but many other customers
in the area. And you pay for delivery when the stuff enters your
refining process instead of when it leaves his.
"Our policy is to treat our suppliers as well as our customers," says
Tim Askew, president of U.S. Aluminate. The reason is excruciatingly
obvious: Vendors play as much role as customers in the fortunes of any
firm.
I'm not talking about the periodically faddish idea of corporate
barter. As traditionally practiced, barter is just another form of
transaction, another a way of lurching from deal to deal while trying to
balance precisely the interests of buyers and sellers. No, I'm talking
about firms helping one another to create value when they can't begin to
account for the nickels and dimes in the deal and may not even bother
trying. In these situations, relationships triumph over transactions.
Money drastically diminishes as a factor in the deal. And the identity
of the customer"Are we paying you or are you paying us?"--becomes fuzzy.
The very concept of the customer begins to disappear.
If this sounds ridiculous, look no further than the greatest
value-creating venue in the world today: Silicon Valley. Every major
firm there is a node in a complex network in which a huge fraction of
the value creation could never be accounted for in monetary terms.
Should Intel pay for Microsoft to optimize operating systems in a way
that makes Intel chips ubiquitous? Or should Microsoft pay Intel to
design chips that make Microsoft operating systems ubiquitous? The
fastest growing segment (Web servers) of the world's fastest growing
industry (software) is built on an operating system (Linux) that anyone
can download for free.
Or look at the supply chain. Companies of all sizes are cooperating not
to push costs on each other but to drive costs out of the system
altogether. Who is the customer when Procter & Gamble tells Wal-Mart how
many cases of Pampers Wal-Mart needs? Who is the customer when General
Motors conducts a quality inspection of the firms that supply its
suppliers?
The concept of the customer is becoming less relevant even in household
commerce. When I provide detailed information about my taste in reading
to Amazon or my taste in food to my local grocery chain, I become a
supplier as well as a customer. I'm still paying money for those books
and chicken breasts, to be sure, but significantly less money because of
the value I'm creating for my supplier. As the flow of information
increases, the quantity of money decreases.
(An aside: Economists are scratching their heads over the lack of "wage
pressures" in the U.S. economy. Nobody can figure out why workers aren't
the greedy bastards they used to be. Hello! Why would anyone go on
strike to get a big raise when information technology is driving the
price of everything into the dirt? In the surging affluence of Western
society, people are choking on material possessions, crap packed to the
rafters. Malnutrition? The biggest problem in the diet of the poor is
_too many_ calories! It's as if we've all climbed a half-step higher on
Maslow's hierarchy of needs. More and more we crave self-actualization.
We seek spiritual fulfillment. Once you've paid off the student loans
and tanked up the 401(k), money becomes _really boring,_ even if you
remain conditioned to continue accumulating it. While becoming the
richest man in the world, John Jacob Astor remarked that "Money brings
me nothing but a certain dull anxiety." Or as James Baldwin once said of
sex, "You thought of nothing else if you didn't have it, and thought of
other things if you did." End of aside.)
So, who is the customer when the product is free? Netscape created a
few billion dollars of hard value by giving away its basic browser,
which established a marketplace standard, which permitted it to collect
rent from other sources. In this case the user (you) provided value to
Netscape while simultaneously receiving value from Netscape. Flat-rate
pricing has a similar de-monetizing effect. Once I've paid my flat fee
of $29.95, I receive all the Internet access I can stand in a month from
MindSpring; you could say I'm paying a penny or two per minute for
service, but you could just as well say I'm paying $29.95 for MindSpring
to carry me as a customer for the first minute and thereafter receiving
everything for nothing. Either way, money is cementing a
relationship--but decoupling itself from consumption.
Pundits and policy makers are clueless about the effects of these
de-monetized commercial dealings. No wonder, because all their
measurements are expressed as units of money. Unless some dough changes
hands, even the biggest commercial developments are trees falling in the
forest, unobserved quanta stuck in the never-never land between wave and
particle. The data mavens at Commerce have no idea that U.S. Aluminate
is providing free rent for a million pounds of refined bauxite or that I
just downloaded RealAudio 3.0 for nothing. They're blind to the value
created when Yahoo! adds a new Web site listing or when Mapquest shaves
0.6 miles off my trip. When the Labor Department calculates the Consumer
Price Index it has no idea that its own Web pages are being dished out
on free source code or that a building contractor in Bowie, Md., decided
to eat a change order because he wanted to preserve the goodwill of his
clientand that more and more of the economy is being transacted on such
a basis. When Dr. Greenspan and the poo-bahs at the Fed deliberate over
the "irrational exhuberance" of the stock market, how much weight do you
suppose they're giving to the fact that the marginal cost of a
transaction in a world of e-commerce has essentially dropped to zero?
More de-monetization.
One major industry is sleeping through this transformation as soundly
as the economic establishment. That's the health care industry, of
course, which vainly continues operating as if a discrete buyer and
seller existed around every procedure. So tell me, who is the customer
when I see my doctor nowadays? Is it me or my insurer (or the taxpayer,
if I'm of age)? When the doctor prescribes medication, who is my vendor?
Is it the physician, the HMO, Thrift Drugs or Pfizer? And by the way,
who's the customer when the Pfizer sales rep takes my physician out for
a hockey game and a two-inch Porterhouse at Ruth's Chris? "Follow the
money," you say? In health care, the flow of money says nothing about
who is serving whom.
One of the smartest healthcare thinkers I know, Richard Reece M.D.
(RReece1500@aol.com), editor of Physician Practice Options, says health
care can save itself only by bundling fees around "episodes of care." A
"global fee" for coronary disease, say, would include payments to the
cardiologist, lab, surgeon, anesthesiologist, hospital, rehab center,
and so on. Among the many huge benefits that global fees confer to
patients and providers alike, "Just conversing about how to put together
a bill among the global fee teams cuts costs -- generally in the 15%
range," Dick says. Eliminating incidents of pricing reduces costs and
increase profits. More de-monetization.
Yes, we'll always have money and we'll always have customers, but both
will be less importantand that signals some pretty interesting
strategies for people in business.
One, derive revenue from relationships instead of transactions. At a
time when the marginal cost of many transactions approaches zero, don't
mortgage long-term relationships for one-shot revenue. As Peter Drucker
once said, "Long-term results cannot be achieved by piling short-term
results on short-term results."
Two, bundle prices instead of breaking them out. I want a consultant
who builds his travel costs into his fee. Gimme a lawyer who works
strictly on retainer. Why can't State Farm Insurance roll my auto, life
and home policies into a single product? Even my "umbrella" policy is a
separate policy. Some umbrella.
Three, become the customer of your customer. Try to obtain something of
value from everyone you sell to _besides revenue:_ Information about
buying habits, help in developing new products, leads and referrals to
other customers. You pay taxes on revenue. You don't pay taxes on value
(except in Europe, where you pay taxes on everything.)
Fourth, become a vendor to your vendor. Take _him_ to lunch for a
change. Look for ways to give _him_ something more than revenue.
Fifth, embrace value-creating opportunities with business partners even
if the value can't be measured. And if it can be measured, don't neglect
opportunities that benefit the other guy more than you. Demanding
perfect equality in every deal is either 1.) childish, 2.) lawyerly or
3.) anal-retentive. So rid your negotiating table of brats, barristers
and bean counters.
And lastly, brace yourself for a time when the meaning of money and the
concept of the customer seem like the relics of a former economy, the
way we now think of "diminishing returns" and "pounds per square inch."
We'll still employ these anachronisms, for sure, but they won't be the
tools we wield in building the things of greatest value.
2. Quotology: Lewis Thomas
-------------------------------
"The real amazement, if you wish to be amazed, is this process: You
start out as a single cell derived from the coupling of sperm and egg;
this divides in two, then four, then eight, and so on, and at a certain
stage there emerges a single cell which has as all its progeny the human
brain. The mere existence of such a cell should be one of the great
astonishments of earth. People ought to be walking around all day, all
through their working hours in endless wonderment, talking of nothing
except that cell."
--Lewis Thomas M.D., 1913-1993
3. Shameless self-promotion: TNP on NPR and WBUR
-----------------------------------------------------
Last Monday National Public Radio's "Morning Edition" broadcast a
lengthy feature on the new economy theme in my book _The New Pioneers:
The Men and Women Who Are Transforming the Workplace and Marketplace."_
The piece features interviews not just with your humbled author but with
two of my favorite subjects: Jerry "The Seal Man" Whitlock, who has
built a bustling business selling seals and gaskets via the Web from his
spare bedroom, and Richard Ost, whose Philadelphia Pharmacy leaped to
stratospheric heights by integrating itself into the surrounding
community.
You can hear the Morning Edition feature via RealAudio at the following
link:
http://www.npr.org/ramfiles/me/19990719.me.14.ram
And if you live in Boston and have nothing better to doif I lived in
Boston I promise I would have something better to doI'm scheduled to
appear on WBUR's "The Connection" with Chris Lydon on Monday, July 26
from 10-11 a.m. EDT. Unless I'm bumped by the news, you can tune in live
from anywhere via the Web by pasting the following link into your
browser:
http://wbur.org/connection/con_33.html
Hecklers welcome, of course.
4. Cache of the day: Journal of the Hyperlinked Organization
-----------------------------------------------------------------
Speaking of Boston, an outrageous genius thereabouts named David
Weinberger publishes a Web-zine called The Journal of the Hyperlinked
Organization, which you can see at
Don't be put off by this snoozer of a name. JOHO is filled with
gonzo-style front-line reporting and outlandish bromides that somehow
manage to make everything clear in our Webby world. To wit, from David's
essay "The Longing:"
"No one ordered the Web built. No one owns it. No one is responsible
for fixing it. There's no one to call when something goes wrong. There's
no automated phone support for the Web. No one gives you permission to
get onto the Web or to post materials onto the Web. If you don't like
what you see, there's no one to complain to. No one's page carries more
inherent weight than anyone else's. No one can certify that what you've
said is right. No one protects you from being an asshole in public.
"Architecturally, the Web is decentralized. Politically, the Web is
profoundly unmanaged."
(Read the whole piece at http://www.hyperorg.com/misc/thelonging.html)
Or check out this, from David's essay "Business and Time:"
"The rhythm of our work life will move from punctuated equilibrium --
narratives with dramatic scenes at the end -- to constant effervescence
(with just a hint of lemon). The wits and the bon vivants -- and,
therefore, the lightweights and the gadflies -- will flourish. Chatter
beats speeches. Repartee trumps tragedies. Nimbleness creams
Schwarzeneggerian heroism. The lunkheads perish in the cold. The
mayflies swarm, flit, swarm some more.
"Communities, yes. But communities in the flavors of herds, flocks, and
swarms... The buzzing of flies replaces the precise click of cogs.
"Time is changing. Duck."
(See http://www.hyperorg.com/backissues/joho-dec9-98-special.html)
5. How to subscribe and unsubscribe
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Hasta la vista,
tom
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