Comcast Exec: We Need To Change Customer Behavior, Not Our Business Model

from the good-luck,-buddy dept

Brooks writes "Speaking at a cable broadcaster's summit, Steve Burke, Comcast's COO, said: "An entire generation is growing up, if we don't figure out how to change that behavior so it respects copyright and subscription revenue on the part of distributors, we're going to wake up and see cord cutting." How's that for cart before the horse?

His ultimate goal -- to maintain or increase revenue for Comcast -- makes perfect sense, and is positively what a cable COO should be focused on. From there on out, though, he's off in the weeds. How about offering this new generation new and innovative services that are worth paying for? That's challenging, of course... but how challenging will it be to change the next generation's behavior "to respect subscription revenue." Yikes.

How many consumers, in any market, are focused on "respecting" vendors' revenue streams? How, exactly, does he propose to effect this sea change? And why not just develop products that consumers will willingly pay for, rather than trying to change consumer behavior in such a fundamental way?"

The quotes really are quite stunning. Burke basically seems to be saying the focus needs to be on figuring out ways to get consumers to change, rather than changing to match what customers want. A business model based on going against what consumers want doesn't seem likely to last that long.

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Myth Debunking: Fans Just Want Everything For Free

from the except-when-they-don't dept

The debate between Ben Sheffner and William Patry continues over at Patry's blog, and Sheffner has an interesting piece where he argues (delicately) that sometimes the customer isn't right. He admits upfront that this is a tricky position to defend, and he starts out with a more nuanced view as to why that is, but then he gets to this:

So everyone wants the product -- but too many don't want to pay for it. Hell, I don't want to pay for it. I would love it if I could get all the movies and music I want for free. And I would love it if I could get all the BMWs, houses in the hills, and meals at Urasawa I want for free as well. But of course I realize I can't. Just about everyone is with me on the BMWs and houses part. But too many think that movies and music should be free, and don't see anything wrong with taking them. I'm willing to say they're wrong.

Everyone understands why they can't have all the physical goods they want for free. But they have a much harder time understanding that with intangible goods like movies and music. IP is just harder to understand, and to explain, than physical property. We need theories to undergird it, special laws to define it, and special classes at law school to learn how to fight over it -- not to mention eight-volume treatises to tell us what the law actually is. So when people commit copyright infringement, they may think they're causing no harm -- but they are. They're undermining a system that enables those big, bad companies that everyone loves to hate, to finance the movies and albums that we all love.

This is a myth. It's a popular myth, and I'm quite sure that Sheffner and lots of folks on both sides of the debate think its entirely accurate. But it's a myth. The nature of a good economic transaction is one in which both parties are better off after the exchange. That means the people "paying" don't mind paying. They're happy to pay because they believe that what they have received is better than the cost it took to acquire it. But basic economics plays into the situation here: if the same thing can be made available by others in a better way, it's only natural for people to ask why they should have to pay.

But if you want real proof that there's a lot more at work than the idea that consumers just want everything for free and think that if it's not free they should just take it, look no further than the countless examples we've shown of people paying lots of money to support those providers who don't treat their fans as criminals, who don't try to prevent what the technology allows and who actually work to connect with those fans and give them a true reason to buy.

Everyone wants a good deal, and a fair deal, but people are more than willing to pay if it makes economic sense. Whether consciously or not, there are an awful lot of people who inherently recognize that the economics don't make sense when a good is infinitely available. As much as people have trouble understanding explicit economic concepts like supply and demand, instinctively many do, in fact, understand the very nature of abundance and what it means for pricing. It's not some nefarious story of a bunch of immoral "thieves" wanting stuff for free. It's an inherent understanding of competitive markets.

On top of that, Sheffner takes the position that paying for these things is necessary, because not paying for them "undermines the system," he is once again being misleading. It may undermine one particular way that the system works, but the false statement is implicit in his argument: that this is the only way of funding such creation. That is demonstrably false, as we've shown time and time again. I have no doubt that Sheffner is sincere in his argument, but it's based on a false premise that because the system used to work one way, back before technology changed the basic economics it relied on, that somehow we should all suffer by limiting what the technology allows and by ignoring basic economics.

It would be nice if it were possible, but I cannot find a single example of a modern society being able to successfully hold back or ignore what technology allows when it comes to economics.

Finally, way back when I was in high school, I worked at a bagel shop, which also sold other baked goods. The boss's position was that "the customer is always right" except for one particular issue: the customer could only get the next piece of coffee cake in order. We had this giant sheet cake coffee cake, and many customers didn't want "end pieces," and would ask for middle pieces instead. On more than one occasion, this resulted in angry customers stomping out -- and even once resulted in a fist fight between a customer and the owner's son. Over time, as more competition entered the neighborhood (a Dunkin' Donuts across the street, another bagel shop a block away), we lost a lot of business for our baked goods.

The point, which should be clear, is that you can say the customer is wrong all you want. But, in the end, the market will decide that the customer is right. Always. If you don't provide what the customer wants (a fair transaction) and others are able to do so, you will suffer.

The movie industry and the music industry both have had numerous opportunities to embrace what the technology allows -- and to craft new business models that would be massive money makers in doing so. They have chosen not to do so. They have said that the customer is wrong, and, as Sheffner notes, they have no problem saying so. The problem is that, whether legal or not, the competition is springing up left and right. Sheffner and his former colleagues can stand on whatever principles they want. The market doesn't care. The market only cares for those who serve the customers' needs. Plenty of others are doing so (both legally and illegally). Those who want to survive in business would be smart to take lessons from those who are succeeding and looking to implement smart business models around them. Those who want to insist that "the customer can be wrong" may feel good when they look in the mirror, but they're going to have to contend with a rapidly diminishing customer base.

The customer can be wrong, but focusing on that doesn't get them to pay you.

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SitePoint: Rather Than Freaking Out Over Piracy, We Decided To Adapt

from the good-for-them dept

AnonJr alerts us to the news that publisher/media firm SitePoint, has decided to do away with the passwords on the PDF versions of its books, noting that it seemed to only serve to piss off customers:

In the 18 months I have worked at SitePoint, barely a week has gone by where I have not received at least a couple of emails from customers questioning the logic behind our password protection policy. My response, based on the SitePoint philosophy, was always that we were taking an ethical (if largely symbolic) stance on the piracy issue. But how long could we maintain that line while simultaneously placing primacy on the customer experience, as all the while more and more requests to remove password protection poured in.

As a web development resource and learning centre, we know that we must embrace the state of flux -- not as a lofty ideal, but as a normative imperative. You can't claim to be all about the cutting edge when you're stubbornly clinging to old, outmoded processes -- especially when your own beloved customers are urging you to move on. And if we're not keeping pace with the constantly evolving face of web design and development, then we're neither a resource nor a learning centre -- we're a museum.

Kudos to another company recognizing that pissing off your best customers is hardly a way to run a business.

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Premier League's Fear Of The Internet A Case Study In What Not To Do

from the this-is-not-a-good-idea dept

While we have many problems with the way MLB.com conducts itself concerning its attempts to claim ownership of factual information, you can't deny that (separate from that), it's built up a nice business by really focusing on giving fans what they want in terms of online video. While the product has had technical problems, on the whole MLB.com continues to improve it, adding many unique and useful features, such that it's actually well worth purchasing. If you order the package to watch baseball games, it gives you all sorts of neat tools that can't be found elsewhere, and are great for tracking pretty much any game you want. There are still some problems -- including silly blackout zones (so it's tough to watch local teams) and blackout times when games are being shown on national TV, but on the whole MLB.com has done a pretty good job making the service worth buying.

Compare that to the Premier League in the UK. It's been nearly five years since the league first started freaking out about people watching unauthorized streams online. But rather than trying to serve those underserved customers, the Premier League has repeatedly lashed out at anyone who might possibly enable these games to be seen online. For example, it's sued YouTube apparently unaware that the company is protected by the safe harbors of the DMCA, and (if anyone) it should be going after those who actually upload the games. It's also suing Justin.tv in the same misguided fashion.

Amazingly, the league seems proud of the fact that it's going after these companies, rather than the appropriate targets. Jeff T alerts us to an article in the Guardian which is basically a case study in what not to do about these things. It hypes up how the Premier League purposely goes after the platform providers, as if that's a good thing. It also (bizarrely) claims that these anti-fan maneuvers are somehow a different and better response than the way the music industry responded to unauthorized file sharing. But that's not true. While it's not suing fans directly, it's still suing to stop fans from doing what they want to do. It's the same exact mistake.

Rather than recognizing the simple fact that the reason fans watch these streams online is because the Premier League has failed to offer it up themselves, the Premier League seems to relish the fact that it makes it more difficult for fans to see its product. The article talks about the "Saturday blackouts" on video designed to get more fans to go to matches, without recognizing that such blackouts have been shown to be pointless. There used to be rules for baseball in the US that games that weren't sold out wouldn't be shown on TV, but eventually people realized that people weren't watching on TV as a substitute for going to the game, but because they love their favorite team and want to watch them however possible. The more they can watch them on TV, the more interested they are in seeing live games.

Jeff, who sent this story in, makes the point quite clearly, by noting that he watches poor quality streams of Premier League matches in Canada because the League refuses to make most of their matches available to watch online. Rather than going after the companies that run platforms that enable such things, there's a really simple solution: offer high quality online webcasts yourself, and actually serve the fans. But that seems far beyond the Premier League's strategic thinking.

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EMI's CEO Admits Company 'Lost Touch' But Doesn't Seem To Know How To Fix It

from the perhaps-by-not-suing-everyone dept

Well, this is rather incredible. EMI was one of the major labels that, for a brief period of time, seemed like it might actually have figured stuff out. You see, it got taken over by some folks from outside the recording industry, and they talked about how they needed to pay attention to experiments like Radiohead's and learn how to better respond to customer desires like that. That was two years ago. The company was also the first of the major labels to dump DRM. It then pulled back on its support for the RIAA and IFPI (after threatening to withdraw completely), saying that the strategy of suing fans was a dead end. On top of all that, it hired some Silicon Valley techies. For a while, we actually thought EMI might be the most interesting of the major record labels to follow.

But... old habits die really hard, apparently. The company has been suing pretty much every innovative startup that comes along, often targeting execs personally in attempts to bankrupt them. Sometimes it's been going after hobbyists or investors beyond just the actual companies. Often times, the company seems to be negotiating with innovators on the one hand, while filing unexpected lawsuits at the same time. One of the key techies it hired, Doug Merrill from Google, left after less than a year. More recently, the company refused to agree to more reasonable (but still high) streaming rates to get music back on YouTube in the UK.

Basically, it appears that EMI said it wanted to do something new, but couldn't resist doing everything it could to snuff out innovation. It takes more than words to actually convince both consumers and musicians that you're really adapting. Is it any wonder that people aren't fans? EMI's CEO is now admitting that the company "lost touch" with consumers:

"Music is in demand and the demand is growing all the time, but we've clearly lost touch with our consumers. I passionately believe that if we listen to our consumers, this gap will become our opportunity."

Ok, so start listening! STOP SUING INNOVATORS. Stop suing executives and investors in those innovators. Stop using lawsuits as a negotiation tactic. Start focusing on giving fans what they want. Start focusing on enabling new business models that work for artists. Stop thinking about getting a transaction on every piece of music played, but start looking at ways to use the music to create additional products people want to buy. Stop trying to limit users and limit musicians. Enable them both. Also, over a year ago, Topspin's Ian Rogers wrote a brilliant open letter to EMI execs suggesting a rather smart way it could leverage its existing artist relationships. It doesn't seem like EMI listened at all.

If EMI wants help in listening, why not contact some of us who have been presenting solutions and showing what works? We're not that hard to reach, and I'm sure plenty of folks in our community would be more than willing to provide some incredibly useful suggestions.

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Even More eMusic Features Disabled?

from the anti-fan-is-not-a-good-thing dept

This is really unfortunate. eMusic used to be a great example of how treating customers right and with respect and trust could win over more customers -- but in the last month or so, it seems like the company is throwing all that out the window and pissing off customers left and right. Beyond the big price increase at the same time as signing its first major record label (bad PR to announce both together), the company has censored critics and removed the feature that let you redownload songs you'd purchased before, at your convenience. However, now we're hearing that there were a bunch of other features that were removed as well. An anonymous reader notes:

"July 1 was the first day in the Sony era over at eMusic. Despite published interviews with eMusic executives, FAQs on the eMusic web site and messages from eMusic employees on the eMusic forums attempting to clarify the new pricing structure, there were quite a few surprises. Some of the changes I've noticed (or read about in the forums) include:

• Certain tracks can only be downloaded with "paid" credits, not the free credits eMusic hands out for trial memberships.
• Individual track downloads disabled for tracks longer than 10 minutes - you must download the entire album
• Certain (popular) sub-10-minute tracks disabled for individual download
• No downloading individual discs in multi-disc sets
• Most new albums use 12-credit album pricing (very few reports of 6 or 9 credit album pricing)
• Many (a significant portion in the classical section at least) albums with fewer than 12 tracks cost 12 credits
• Many albums previously available on eMusic have been re-priced (in some cases, tracks available for 1 credit on June 30 now require 12 credits)

IMO, the fact that eMusic did such a poor job communicating these important changes suggests that they deliberately withheld (or downplayed) this information, possibly to keep from fueling the outrage generated from last month's Sony/pricing announcement."

This seems like an increasing disaster. Hopefully some of these changes are mistakes, rather than permanent. But the way this whole situation has been handled is going to make a terrific case study in how not to do PR. eMusic has turned from a company that customers really loved into one that many seem to hate... and it's happened in an incredibly short time frame. That's really unfortunate.

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Yet Another Study: 'Pirates' Are Actually Industry's Best Customers

from the again-and-again-and-again dept

We've already seen a bunch of nearly identical studies, but it's worth pointing out that there's yet another study coming out this week that says that those involved in file sharing also tend to be the best customers of the entertainment industry. Now, it's worth taking the study with at least some grains of salt, given that it was funded by Vuze, a company trying to sell licensed videos via BitTorrent and has had trouble getting content companies to sign on. However, given how many other studies have said the same thing, can we finally put to rest the idea that those who file share "aren't customers" as many in the entertainment industry insist? They do tend to be customers, and frequent ones as multiple studies have now shown. The issue is just that they also file share, meaning many file share, in part, to find out what's worth buying. So the focus should be (once again) on giving them reasons to buy rather than trying to stomp out file sharing.

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Just Because You Offer A Free Service, It Doesn't Mean Your Users Aren't Customers

from the blurring-the-lines dept

The world of Twitter got its collective knickers in a twist earlier this week when the company made a change to the settings of its service. The particular change was pretty small, but seemed to disproportionately effect "power users" and early adopters, so, of course, the uproar over it was pretty intense, and Twitter changed the change. The details of the change aren't all that important, but like with the response to Facebook's recent TOS change, it's dragged out some rather interesting opinions. A personal favorite of mine is the response to the backlash that since users aren't paying anything for these services, they have no right to complain. Apparently users should "pay up" so they have the right "to voice [their] displeasure as a customer rather than as a user" -- and this coming from a guy who writes a blog about open-source software. It's one thing for a business to ignore complaints that don't come from customers or potential customers, but in the case of free services, to imply that users' opinions don't count because they're not ponying up any cash is fairly ridiculous. Most free services rely on their users to create revenue in other ways, such as by providing traffic to monetize; alienation of users that results in a downturn in traffic, and in turn, ad revenue, has exactly the same effect as losing paying customers' repeat business. The distinction between "customer" and "user" is, in many cases, becoming increasingly irrelevant. And never mind that in many instances, such as with Twitter and Facebook, it's impossible for users to become paying customers. It's hard to imagine that either company thinks it's okay to ignore its users simply because they don't pay.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Stardock CEO: Focus On Your Customers; Don't Worry About Pirates

from the exactly dept

Given our earlier posts about Stardock's new game, Demigod, and how the company was dealing with the fact that there were plenty of unauthorized copies, this shouldn't be a surprise at all: The company's CEO has taken to his forums to make it clear that, while no one likes unauthorized copies, his job is not to worry about "pirates," but to focus on pleasing his customers. And on that front, the game has been a huge success. In his post, he points out that even if the game had been a failure, he wouldn't be blaming it on pirates, but on the company's own mistakes -- but, of course, the game hasn't been a failure. It's been selling like crazy.

This isn't new or surprising. It's what Stardock has always said. And it's the same sort of attitude that others who have found success with content these days have had, as well. It's never pleasant to find someone is copying content/software/whatever you've made, but you can't worry about them. It's a waste of time and effort. People will always make unauthorized copies, and any effort to stop them will only hurt those who actually want to give you money. So focus on providing real value for those who want to buy, and stop worrying so much about everyone else.

The reality that most PC game publishers ignore is that there are people who buy games and people who don't buy games. The focus of a business is to increase its sales. My job, as CEO of Stardock, is not to fight worldwide piracy no matter how much it aggravates me personally. My job is to maximize the sales of my product and service and I do that by focusing on the people who pay my salary -- our customers.

You can waste an awful lot of energy and resources "fighting pirates" and losing, or you can focus on actually serving your customers and making money. Which seems more intelligent?

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When You Treat Your Customers Like Criminals, Don't Be Surprised When They Go To Different Suppliers

from the a-simple-warning dept

An anonymous reader sent in the following story about how some large software companies are suddenly increasing the number of "software audits" they're doing of enterprise buyers. Most enterprise software contracts include license terms that allow the software provider to "audit" the buyer, to make sure they're not abusing the license. As the article notes, however, such audits usually only come at one of two times: (1) when a company threatens to switch to another vendor or (2) when the company has received info from a reliable source that the license was being abused.

However, it looks like with the economy in freefall -- and IT spending being cut back, some enterprise software companies might be thinking that another way to squeeze some money out of customers is to audit them and force a larger bill on them. Of course, this seems like a plan that could backfire in a big, big way. As noted in the article, being audited is not a pleasant experience at all. It's basically a vendor claiming that it thinks you're breaking your agreement. It's not the best way to build up a strong relationship of trust. Because of that, a sudden increase in totally unexpected and uncalled for audits may seriously damage a company's reputation and drive them to proactively look for alternatives from companies who trust them. Treating your customers like criminals is never a good idea...

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Trust Your Customers... And They Do Amazing Things...

from the treat-them-like-criminals,-however... dept

The entertainment industry has a long and sorry history of treating customers like criminals, despite plenty of evidence that suggests that treating customers like criminals makes them more likely to act like criminals, rather than less. SteveD writes in with an example out of the UK, where the proprietor of a small shop decided that his store should be open the day after Christmas, but he didn't want his employees to have to work -- and he didn't want to work either. So, he opened up the shop, put up a note and a box for people to put money in and left the shop entirely unstaffed. It actually worked out well. He made a fair bit of money and didn't find any damage or products stolen.

This reminds me, quite a bit, of the Freakonomics story about the "Bagel Man" who delivered bagels to a variety of office buildings around Washington DC and left out boxes for people to pay. On average, he ended up with around 90% of the money requested, and some interesting lessons in which types of people and companies were more likely to be honest. There's also a scene in the Kevin Smith movie Clerks where the lead character Dante does the same thing -- though his explanation for why it works is: "Theoretically, people see money on the counter, and no one around, they think they're being watched." And, as his girlfriend notes, this is "honesty through paranoia." I'm not sure which it is, but it seems that there's ample evidence that honest people don't need to be "kept honest" and treating your customers like criminals isn't necessarily a very good idea.

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Tribune Company The Latest (And Biggest) In A Growing List To Drop Associated Press

from the ouch dept

While the Associated Press was wasting time stupidly threatening to sue bloggers for pointing people to AP stories without paying, perhaps the folks there should have been paying a bit more attention to actually making sure its business model worked. As we've been noting, over the past few years, its strategy has put it in pretty much direct competition with its members (the AP is made up of numerous member newspapers).

That's creating problems, as we've seen a variety of newspapers have recently been refusing to renew their contracts, notifying the AP that they don't want to participate anymore. There have been some notable names, from the Minneapolis Star-Tribune to the Cleveland Plain Dealer, but none of the "major" newspaper companies had bailed... until now. The Tribune Company, publishers of the Chicago Tribune, the LA Times, the Baltimore Sun and others has surprised many by telling the AP it's not renewing. That could be the big domino, as many other newspapers may follow suit. The article here notes even that some newspapers have been experimenting with picking days when they try to publish without a single AP story to see how it goes.

What's amazing is that, so far, it doesn't seem like the Associated Press recognizes that there's a real problem. They simply seem to shrug off each defection. At some point, the AP needs to realize that it needs to change, rather drastically, if it's going to survive. While the AP isn't like an ordinary company -- it's a non-profit cooperative made up of member news organizations -- that doesn't mean it doesn't need to have a working business model. Without that, and with big members dropping like flies, it won't be able to exist at all.

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EA Brushes Off DRM Complainers As Fringe 0.2%

from the listening-to-your-customers dept

It would appear that gaming company EA got the wrong message concerning DRM after its Spore DRM debacle. While EA eventually backed down, it certainly did plenty to damage its own reputation in the gaming community. Hell, when we recently posted an article about EA that had nothing to do with DRM at all, a bunch of commenters used the post to complain about EA's DRM policy anyway. That suggests a Metallica-like reputation problem.

So, how is EA dealing with this reputation issue? Apparently by dismissing it as nothing to be concerned about. A whole bunch of our readers sent in this story about an EA exec claiming that only 0.2% of users would even notice the DRM used in Spore -- basically suggesting that the complaints were hyped up and out of proportion to the issue. That's sort of missing the point. While some users who complained might never actually encounter problems with the DRM, that doesn't mean that they're comfortable with the idea that EA has significantly limited how they can use a product that they purchased. Even a quick review of the history of DRM would show EA execs two things: it does nothing to stop piracy, and it seriously gets in the way of legitimate users, no matter how artfully designed.

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Echostar Trying To Get Info On Innocent Customers Of Satellite TV Receivers

from the this-again? dept

You may recall a few years back, prior to the RIAA embracing the concept of "pre-litigation letters," that DirecTV was a huge proponent of using them. The company had sued some companies that sold smart card readers -- which could be used for a variety of purposes, only one of which was potentially unauthorized access of satellite TV signals. However, DirecTV was still given access to those company's full customer lists, and proceeded to send most of them one of those pre-litigation letters, demanding $3,500 or saying that a lawsuit would be filed. Of course, plenty of buyers had perfectly legitimate reasons for purchasing a smart card reader that had nothing at all to do with pirating satellite TV. But, no matter, pay up or go to court. And, in fact, many people just paid up.

Eventually, a court finally told DirecTV to knock it off.

However, it appears that DirecTV's main competitors, Echostar never got the message. The EFF is pointing out that Echostar is trying to gain access to the customer lists of a bunch of sellers of a satellite receiver even if there's no evidence that the individual buyers used the satellite receivers to pirate Echostar's DISH Network satellite TV service.

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Sometimes The Customer Is Wrong

from the better-customers dept

My friend Jacob Grier weighs in on a story that's been getting a ton of attention: some guy went into a DC-area coffee shop called Murky Coffee (where Jacob once worked) and asked for an iced espresso. The barista told him that the shop has a policy against making iced espresso. The barista agreed to give the guy an espresso and a cup of ice so he could ice his own espresso, but a shouting match ensued and the customer wound up leaving a dollar tip with a message that's not printable in a family blog. The owner of Murky's Coffee responded here.

At first glance, it seems like if the customer wants his espresso poured over ice, that's what the customer should get. But Jacob makes an interesting point: Murky's fastidiousness (or pig-headedness, depending on your perspective) about coffee quality is part of what sets it apart from the run-of-the-mill coffee shops. Murky isn't just selling coffee, they're also trying to build up a clientele that takes coffee seriously. This reminds me of a great post Don Marti wrote a couple of years ago called "FUD is good for you." Marti pointed out that while it's true that Microsoft's disinformation about free software could actually drive away some potential customers from free software, that's not necessarily a bad thing. These are, after all, likely to be the least technically-savvy customers, customers who will consume a disproportionate share of tech support resources and unlikely to be repeat customers. In the long run, the company might find it's actually more successful because some of its customers were scared away by FUD. I think we can see the same kind of attitude at Apple. For example, Steve Jobs took a lot of heat when he unveiled the iMac in 1998 without a floppy drive -- one small part of a broader strategy of giving customers what Jobs thought was good for them rather than what they asked for. That attitude has alienated a lot of potential customers over the years, but it has also produced a lot of repeat customers who are more loyal than the customers of any other computer company. In contrast, the PC vendors that have tried to serve every customer have wound up in a brutally competitive market with razor-thin margins.

There are two lessons here. One, not all customers are created equal. To most customers, coffee is all pretty much the same, and one coffee shop is about as good as another. (Just as one all PCs and software stacks are pretty much the same.) But there's also a minority of customers who pay more attention to quality, and the latter will tend to be a lot more valuable because they'll be more loyal and more prepared to pay a premium for quality. If it's true that icing an espresso ruins it (personally I think coffee is all revolting, so I'm agnostic on the question), refusing to serve iced espressos may be a good business strategy; the customers it drives away probably wouldn't have stuck around for very long anyway. Similarly, Apple's high-handed approach to its customers seems to have worked fairly well for it. It's a niche player in the PC market, but it has proven to be an extremely profitable niche. Second, sometimes customers only discover quality after it's shown to them. It turned out that Jobs was basically right about the floppy drive; I bought an external floppy drive for my iMac but almost never used it. Similarly, Jacob notes that the coffee shop customer seems to have enjoyed the alternative iced beverage that was suggested to him. I doubt that particular customer will be back, but there may be others who develop a taste for the specialty coffee served at Murky and then start to notice the defects of coffee from run-of-the-mill coffee shops. Niche businesses can create loyal customers by guiding them towards more refined tastes, and this can be more rewarding than trying to comply with every whim of every customer.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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Time For Warner Music To Fire The Lawyers And Promote Ethan Kaplan

from the just-a-suggestion dept

I'm at the Mesh Conference in Toronto this week, where I'm scheduled to give a talk on the economics of abundance tomorrow. The keynote today was an interview of Ethan Kaplan by Mathew Ingram. Kaplan, as many of you probably know, is the VP of technology for Warner Bros. Music. He's a smart guy, whose blog has been worth following for years. If you've followed his writings, it's been clear for quite some time that he deeply understands what's going on in the music industry, and how that relates to the changing marketplace. It seems so rare to hear a recording industry exec say things that make sense and that don't seem anti-consumer, that it really stands out when one does so. Specifically, he talked a lot about how a modern record label really should be focused on how to help use modern technologies to better let musicians connect with fans in useful and meaningful ways. And a record label has the resources and (should have) the skills to do that while allowing the musicians to focus on the music. As he noted, it really is all about cultivating the community of fans and helping that community come together and connect with both each other and the band. From that, multiple (lucrative) business models easily follow.

This fits in with a variety of themes we've touched on, from the role that is clearly still available for a smart record label, to the importance of concept of better connecting with your true fans. Kaplan seems to be very focused on positioning Warner Music to be able to enable that for every band the company works with. That's fantastic and very exciting (though, it's years later than it should have happened).

Unfortunately, though, it appears (at least in practice) that Warner Music focuses on using Kaplan's expertise solely on the technology side, rather than on the business side. Warner has been one of the more aggressive record labels in suing fans and suing any service out there that does help fans better connect with each other and the musicians. Warner still seems to be of the mindset that it absolutely needs to get a cut from any such service, even if allowing the service to promote its artists would help everyone long term. Warner is also run by Edgar Bronfman Jr., who (when he was head of Universal Music) kicked off the industry's plan to sue everyone, though he's since rewritten history to say that the industry went into a mistaken "inadvertent war" with consumers (it wasn't inadvertent at all -- Bronfman himself talked specifically about "armies of lawyers").

If Warner Music really wanted to shift its position, it should rein in its lawyers, stop worrying about "protecting" everything and focus on adding value and enabling new business models to flow from its stable of top musicians. Give Kaplan more control over the business side as well and see what radical new ideas come forth. Unfortunately, that seems unlikely to happen any time soon. It reminds me, tragically, of the story we wrote a few years back about MTV. The company had been lauded in the press for hiring a "chief digital officer," as if that showed that the company "got" new media. The problem is that thinking digitally isn't a separate job function. It needs to pervade the entire company. It needs to inform the thinking of everyone in the entertainment industry these days. And, indeed, just a few months after the press talked up the "CDO" of MTV, the guy was out of the job. It's great that Kaplan is inside Warner Music, helping to inform their overall strategy -- but he shouldn't be just a "tech geek" (even at the VP level). The digital marketplace is the marketplace for music these days, and Kaplan's insights into that overall space shouldn't be pigeonholed as "the tech stuff." It should be part of any music label's overall business strategy.

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Knowing What Business You're In Includes Knowing Who Your Most Important Customers Are

from the three-sided-market dept

One of the themes we've emphasized here at Techdirt is that it's essential to know what market you're in. We've mostly talked about that in terms of knowing when to give away infinite resources in order to sell expensive resources. But another key component is recognizing where the value of your business comes from. For example, one of the keys to Google's success has been their recognition that even though their revenue comes from advertisers, their real value is their users, and so they've focused on keeping users happy. Google knows that as long as they have a lot of users, the advertisers will come to them, but if they drive away users they may not come back. The Bits blog has an even more striking example of the same principle: Bits says that Yelp, the restaurant review site, is succeeding because they recognize that the key to success for their market was to cater to a subset of their users -- their volunteer reviewers. If they have good reviews, users will come to them, and if they have users, the advertisers will come. So they've focused on making reviewing an easy and rewarding experience. The site has focused on building community among the reviewers themselves, adding social-networking functionality so reviewers can connect with each other and follow each others reviews, and even hosting social functions where the most prolific reviewers can meet face to face. Yelp is also careful to shield reviewers from irate restaurant owners: a business owner is allowed to send a reviewer one message, but if he doesn't get a response he's not allowed to contact the reviewer again.

One way to look at this is as a multi-sided market. Traditional media outlets, for example, operate in a two-sided market, where they trade content for eyeballs, and then sell the eyeballs to an advertiser. Yelp's business model is similar, except that they exist in a three-sided market. First, they have to make the site appealing enough to reviewers that they'll write a lot of reviews. Then they use the reviews to attract eyeballs, which they finally sell to advertisers. All three of these are "customers" in some sense, but because the reviewers are what ultimately attracts everyone else to the site, they're ultimately the most important to the site's long-term success. Although Yelp certainly has its share of critics, the basic strategy of catering to reviewers seems like the right one for a review-oriented site.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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Your Company Will Be In Trouble If You Don't Focus On Product Quality

from the better-products-needed dept

One of the biggest signs that a business has trouble ahead is when it seems to be focusing on everything except the quality of its products. Back in the dot-com boom it was common to see a bunch of MBAs get together and draw up plans for a technology company, raise a bunch of funding, throw a lavish launch party, buy a Super Bowl ad, and then hire some programmers to implement the product almost as an afterthought. Most of them aren't around any more. If I were a Microsoft shareholder, I think I would be worried about the rumors going around that "an aggressive acceleration of the company's investment in its data center network" will be "one of the cornerstones" of Microsoft's online strategy. Obviously, Microsoft is going to need more and better data centers to compete effectively with Google. But ultimately, success in the online marketplace is the result of having great products, not great data centers. If you've got such a great product that demand is outstripping your server capacity, it's not that hard to buy additional infrastructure. But if your core products suck, a lot of servers and disk space isn't going to do you any good. Indeed, I suspect that it doesn't even make sense to build "data centers" in the abstract. It's hard to know exactly what mix of hardware will be needed and how it should be set up without a specific suite of applications in mind. So it seems like it would make sense for Microsoft to focus its resources on developing and marketing great products (like this one, perhaps) and upgrade their data centers as demand warrants. Treating data centers as a "cornerstone" of their strategy seems like they're putting the cart before the horse.

Techcrunch points us to an even more egregious example of focusing on the wrong things: AOL has been touting the number of new sites it plans to launch in the coming year. It's hard to think of a more meaningless statistic than the number of websites your company owns. AOL says it plans to roll out 30 websites by the end of 2008, but one good website will generate more traffic than 30 bad ones. Google, for example launches new sites all the time, but you don't see them bragging about the number of new sites they're launching. They understand that what their customers care about is what their sites can do, not how many there are. Of course, this is probably an outgrowth of AOL's misguided idea that it's in the advertising business rather than the online content business. When your company focus is on advertisers, then websites probably seem like interchangeable places to sell ads. The problem is that if the content isn't any good, you'll have fewer and fewer eyeballs to sell to those advertisers—even if the number of websites you own keeps going up.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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EFF Asks For Details On Border Laptop & Mobile Phone Searches

from the guidelines-please? dept

Last month, we wrote about how more courts have been saying that customs agents could search the content of your laptop or mobile phone upon entering the country. For many, that's a pretty scary thought, considering the amount of personal or confidential information that people often have on their laptops and phones. It's even scarier when customs agents make a copy of that data, as it's not clear what they actually do with it or if they ever delete it. In response, the EFF, along with the Asian Law Caucus, are filing a lawsuit to force the government to give details and guidelines that explain its policies on these searches and what's actually done with the data. It seems like a totally reasonable question -- but given our government's belief in secrecy over all else, expect to find out that this cannot be revealed for "national security" purposes.

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