EIC 2012 Keynote: Free Customers: The New Platform

Move to our next presenter, who is doc cells from the Burman center. And you have you haven't got the, okay. You have used this mic. Just that mic, if that's Okay. I have the mic on my head. You've got it on Head. Okay. You can hear me already. I can hear myself echoing. Excellent. Excellent. Excellent. So then there's a click here. Think I've had a little bit of time again, so I can, you can yes. Up in one of these. Okay. Very good. And this is it.

Okay, good. So this is my claim that free customers are the new platform. And that begs a question. What's the old platform.

The, the old platform is captive customers and that had in fact has been the value system of business, almost for the duration. In fact, in many ways, it's been the value system of civilizations. We've been trying to capture people, capture markets in a very similar kind of way. And in fact, even the idea of a platform to some degree has been as a place where we contain customers as a place where we own customers, the language of business. If you listen to ourselves, talk about business.

Very often, we talk about targeting customers, acquiring customers, managing them, controlling them, locking them in. This is the language of slavery and of agriculture. It's not just the language of business. We borrow the language of slavery to talk about business. That's been normative for a long time. It's been normative ever since industry one, the industrial revolution, 150, 180 years ago.

So, so the, the, the interesting thing here is that over the last 30 or 40 years, we've been moving in the direction of my claim here that free customers are going to be the new platform. And there are three major milestones that have taken place before the fourth one, which is this state comes about. So business working, hold this back, next click. There we go.

1982, give or take with the IBM PC. The personal computer basically became imagined the personal company almost powers that belonged only to large organizations, the power to not only compute the power to do fancy mathematics, the power to write the power to organize suddenly was ours. It didn't belong only to the large anymore. This is old news by now, but in fact, it was extremely dramatic at the time and it, we're not going back. We're not gonna lose that power. That power became ours, but it was only the first step. The second in 1995 was the internet. As we know it.

Now, the Internet's architecture basically that's is peer to peer it's end to end the description of it by the fathers of the internet, the people who invented it used this term end to end. Craig Burton over here has a really good way of describing that as a giant three-dimensional hollow sphere, a giant zero in which all of the ends are at zero distance from all the other ends. And the internet was designed as something nobody could own, everybody could use and anybody could improve. And it was out of anybody's control. The basic protocols of the internet don't belong to any company.

They don't belong to any one government and governments can try as much as they want and companies can try as much as they want to control it, but they can't. It's out of their control. It is the cat's out of the bag. The horse is out of the barn. They can't control it, but at the same time, as we got a peer-to-peer architecture in which the cost is well is basically zero. The cost of the, of T C P I P of the, of the, of the nets peer-to-peer system wants to be zero. And that cost is gonna head in that direction.

But at the same time, we invented something where we adopted something called client server and client servers, just a, is a, is a, a fine architecture, as far as it goes. The problem is it's not peer tope. Client server is submissive dominant as Craig put it to me a few weeks ago, we chose the term client server because slave master didn't sound very good. And we've had that now for 17 years. It's important to think of the internet. Something 17 years old is barely old enough to drive at this point. It's young, we're still in that system, but we're stuck with peer to peer for now.

Talk about that a little bit more shortly. And the third thing is the smartphone with the smartphone, which was invented essentially by apple and by Google in 2007. That's when apps started pouring onto smartphones.

In my, in our pockets, we have the advantages of the personal computer compute power that is ours and communications in our pockets. And they are ours. Our cell phones, even though we're tethered to phone companies, even though we might be inside apples or somebody else's silo, to some degree, they are fundamentally ours. They are extensions of ourselves. They are a power that we have, but we're still a bit stuck. We're still stuck with this client server calf cow model. So if you look at it this way, picture I took in France a couple years ago. It's like this.

When we go browsing, we get the milk of HTML and JavaScript and so forth. And these things called cookies and cookies are, are, they're invented by a guy named Luman Tuli at, at Netscape. And 1994 really came into use in 1995. There were convenience for the CA for the cow. There were convenience for the servers where they could remember what's called state. They remember where you were the last time you came, they remember what was in your shopping cart. They remember your login and your password for you. Things like that. That's what a, a cookie ideally did in the first place.

It was simply a convenience that remembered state, but what's happened since then, is that in the same way that absolute power corrupts and absolute power corrupts, absolutely liberties have been taken with what cookies can do and their relatives like flash cookies and beacons and other things up to hundreds of files are put into our browsers by the supply side, by these servers as we're going about the web. So they can keep track of us and build up big data, this big power asymmetry on the supply side, making the calves essentially.

I mean, the cows rather bigger all the time and more capable of following us around all for our own good. They're gonna take, give us exactly the ads that we want and so forth. This is what Google and Facebook do. And we can get angry at Google and Facebook for taking liberties with our privacy. But fundamentally the problem is architectural. They don't have any other way to work. That's how they have to work because that's the system they inherited. So what do they, what do they do? So we're in a state right now where what we're doing is being followed around all the time.

You know, these little animals kind of that cookies in the, in a, in a kind of dog form are busy sniffing us. What is he interested in? What has he been browsing? What has he been doing? And reporting back to headquarters, a whole bunch of stuff, so they can make better guesswork about what we might want. This is an extraordinarily inefficient system. It's incredibly inefficient, you know, for every a hundred ads or two or three or 500, a thousand ads.

We see, we might click on one once and we do it usually as a mistake. You know, advertising works to some degree and it funds an awful lot of free stuff on the web, but it's not an adequate system. We are not the platforms for that. They are the platforms for that. And that's an architectural problem. So if we go back and look at markets, as they were designed to be the idea of a free market is one in which demand and supply are not only symmetrical, they have equal power and they can drive each other in both directions.

And if the, this, these symbols sort of suggest that we have two magnets, they're normally attracted to each other. The reason I arrange them as demand and supply is because James denim, Stewart, who was the first to utter supply and demand actually said it the other way around in 1766 in the first document, the first track that came out of the Scottish enlightenment and was one of the founding documents of economics.

He said, demand and supply, not supply and demand. He saw demand as something that drove supply and supply as something that satisfied demand. When Adam Smith wrote the wealth of nations, 10 years later, a country of denim Stewarts, he took the same position that there's a natural symmetry between demand and supply. But as industry one, the industrial revolution, we started doing all of our work as business people on the supply side. And we've been stuck there except for these pieces of progress that have taken place over the last 30 years or so.

So if we look at the demand side, what do we need in order to make the market work better? What we need are tools that make us both independent and better able to engage. It's not like we're gonna have a big revolt and we're gonna go fight the big awful forces.

No, we're gonna want a better way to relate with tools that allow us to both be independent, not living on anybody's platform, but also better able to engage in the marketplace. A good model for that as a, as something we all know and experience is the automobile. The automobile doesn't have a, any commercial company's platform. When you go to calf land over here, you don't, they're not just a, a BMW parking lot where you can only park a BMW there. The parking lot is not a platform. You don't need a platform for that. Cars don't have that. They are tools of independence.

We can substitute a car, use some other one. They all give us independence. We can put whatever we want in the trunk. We know how to drive one. The whole economy that we have that's built around automobiles is built based on the notion that a free customer is in fact, a platform. When you see a shopping center, grow at an intersection out by some highways that is free customers operating as platforms. We don't have that on the net yet. We've wanted it for 17 years. We don't have it yet. So how do we do it? So we do it with development on the demand side.

So I've been involved for the last six years with something called project. VRM at the Berkman center at Harvard university. And VRM stands for vendor relationship management. It's the customer side, counterpart of customer relationship management. A lot of you are familiar with this.

In fact, people in Europe in general are more familiar with VRM than in the us. KuppingerCole has kindly been following this closely for the, for that period of time. So these are just some of the companies and projects that are working on the demand side to start making individuals independent actors in the marketplace. Some of them are open source projects. Some of them are commercial projects. A lot of them have to do with personal data stores, also called lockers and vaults. I don't want to go into all of them. Some of them are, have to do with trust frameworks.

Some are in, in different countries. There's there's Austria or South Africa. That's trust fabric several in the us. But the important thing is they're working on the demand side. So I wanna give an example of how these might work as we go into the near future in a really common ordinary market category, which is rental cars, rental cars are inherently generic. All of the car rental agencies look and act about the same they're commodities. They have services. They're almost completely substitutable. They differentiate mostly on price.

They all line up at the airport, one after the other, and you can go from one counter to another, and there's not a whole lot of difference between them. So if you look at that, here's a, in terms of first, second and third party, which are the most common terms we use. When we talk about actors in the marketplace, the first party is the customer. That's you? Okay? You wanna rent a car? And the second party is the vendor. And if you wanna rent the car, you're gonna be looking at these companies. There are many more, but that's all I have room for on the slide, but they're gonna be in there.

And in the old days, you would go call these guys up. And in the slightly newer days on the web, you would look them up. And then actually people on the right on the supply side came up with a workaround. Once they knew that customers were going to be comparing prices and all that, they invented these other companies, which are third parties, Travelocity, orbits, kayak, Expedia, orbits in fact was invented by the airlines. But essentially there they're, they work for the convenience of the seller and they make money from the seller.

They make a commission on this, on the sale of goods and services. They're not really driven by you. They're driven by the imperatives and the organizational structure of these rental car agencies of the hotels, the hospitality places. And of course the airlines. So what if we want to solve the problems in this marketplace, which by the way, is a topic in the New York times, right now, there's a series going on there. If we wanna solve this from the demand side, if we wanna solve this from the individual side, we'd have fourth parties. And that's what we're calling them.

There's a, all the companies you saw before on the prior slide, most of 'em, I put here as well, and these are services for the most part, they have, they're where you store your personal data or accumulate your personal data. It's where you assert your terms of service. You can assert terms of service. You can say things like don't track me and giving back my data when we're done. And here's how you can use my personal information. That's the kind of thing that the kind of businesses these guys are in at the same time, there are open source projects.

The, the locker project is done by Jeremy Miller who invented Jabber and the XMPP protocol kinetics, which is Phil Wiley's company fills right over here, has a language called KL, which allows you to program. What happens with live events on the web, outside of any one company's silo. You don't have to go into a silo, but it deals with these silos. It deals with their APIs. It deals with their policies and the rest of it. So they can transcend the silos without necessarily obsoleting them at first.

But my point here though, is that what we're doing with this is by equipping the demand side to deal with the supply side in a much more rational and open and productive way is, is restoring not only a kind of order to the marketplace that we haven't really had for a very long time, but opening up all kinds of new business opportunities.

If it, if you look at the left and the right side here on the, on the, on the right side, which is the cell side for the last we're really, since Google invented the advertising business, we know now on the web, we've had what we might call an attention economy. One where they're looking for our attention. They're gonna throw ads in front of us. They're gonna follow us. They're gonna build up this asymmetrical pile of, of data, which we call big data in many cases and do better and better and better guesswork about what we might want.

They're gonna make it more personal and all that an enormous amount of energy is going into this right now. But again, it's inadequate, but that's the attention economy, the economy we're going to see emerge by equipping the demand side to do a better job of driving supply is what I call the intention economy. And that's the title of a book that I just wrote based on the work that's already going on. And it's early in this process, but is based on this work it's coming out from Harvard business review, press on may. First.

I invite you to order from Amazon now, cuz it'll get here in a few days before May 1st, but that's what we're gonna have. We're going have an, an economy based on the intention of customers and that is going to be the platform what each of us wanna do in the marketplace. And I thank you for your time. Thank you very much. Thank You.