Tuesday, June 26, 2007

Balance of Power, continued

I wrote recently about the new balance of power between businesses and their customers. It's a fascinating topic and there have been all kinds of stories that made me think more about it in the last week.

Consider "gagwrap" software licenses, which attempt to ban users from writing anything bad about a piece of software by prohibiting use of trademarked names or graphics in negative reviews. (Jon Gordon of Minnesota Public Radio has been looking at this and did a segment on his excellent Wavlength podcast about it the other day. Aside from the many legal problems with them (they seem to be unenforceable), consider the message to users: if you use our product, we will control what you can say about it. Does anyone think this is going to win friends and customers, even among those who like the products?

Or how about AT&T's new DSL deal? As part of their merger with BellSouth, they agreed to offer $10/month DSL in the 22 states where they are the local phone company. It's a good deal; it's not fast service, but look, it's $10. Instead of turning this into an opportunity to tell dial-up users in those states, "Look - there's no reason to use dialup anymore, they've basically hidden the service from customers and made it difficult to find out it exists, never mind sign up for it. (The tech blogger at our local paper has been writing about the travails of those who want the service.)

Yes, it will cannibalize some of their current low-end DSL business. But so what? AT&T does seem to be good at understanding the customers in those 22 states are people who can buy a phone line, internet service, a mobile phone, long distance, and their new U-Verse digital TV service. Why piss them off over the DSL? Especially when the service is slow enough that it's not terribly appealing to anyone considering going to the cable company instead?

And then there's a proposed amendment to DVD licensing that would ban all copying of DVDs - including you making a personal backup of a DVD, or creating a DVD image on a PC (so, for example, you could watch your DVDs on your laptop on an airplane without running the battery down so fast by spinning that optical drive).

Guess what? Pirates will keep copying DVDs anyway, and users who want to copy DVDs for legitimate, legal reasons, will find life annoying.

What do all these stories have in common? They're examples of businesses that do no understand the role of information in markets today. All the economic ideas about how markets work that we know and love are predicated on the idea of perfect information - if buyers have accurate information, they will behave in certain ways. That's true, and it never really happens.

The big story of recent years is that the amount of information available to buyers has increased. You don't need to just listen to a company's claims and ask some friends if they've found them to be true; you can look on the web and find out what lots of people say about a company. People will hear about AT&T's DSL deal whether AT&T tells them or not. Even those who will never copy a DVD will hear about an attempt to limit their legal use of a product they pay real money for.

Very few businesses have really figured this out - information is flowing faster than you realize, and tactics based on keeping customers in the dark are likely to fail. Such tactical failures can have broad impacts - going back to AT&T, it's not just about how much $10 DSL will impact $20 DSL sales, but whether it leaves customers so annoyed that they just give up and buy the whole phone/net/TV package from a competitor.

The winners will be the businesses that make today's environment - more information for all - work for them.

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