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I lost my Sprint data thing and my smartphone is getting dumber by the second. (In fact, I’m on my way to trade it in.) So the only way I can get online from the road right now is by stopping at a Panera Bread, which has slow but free wi-fi. The kid is with me and just bought a roll for us to share while I let ya’ll know that I’ll be on Tummelvision live at 8pm tonight Eastern, 5pm Pacific, 0100 Greenwich.

If you’re not hip to Tummeling, find out more here. Tummelvision is the brainthing of Heather Gold, Deb Schultz and Kevin Marks, three excellent folks I’ve known for years. In the last few of those, Kevin and Deb have both been involved with ProjectVRM and its immodest ambitions as well.

Should be a fun conversation. Hear you there.

If you want to know what data you’re sharing — without (thus far) knowing about it — on Facebook, ISharedWhat.com is the way. You run it as a simulator and what’s what.

It was developed by Joe Andrieu, a stalwart contributor of wisdom and code to the VRM community, and has been covered by and tweeted by the Wall Street Journal’s @WhatTheyKnow.

It’s what we call a fourth party app, meaning it performs as an instrument of your intentions, rather than a seller’s or a site operator’s. Check it out and give Joe feedback.

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In The Data Bubble, I told readers to mark the day: 31 July 2010. That’s when The Wall Street Journal published The Web’s Gold Mine: Your Secrets, subtitled A Journal investigation finds that one of the fastest-growing businesses on the Internet is the business of spying on consumers. First in a series. That same series is now nine stories long, not counting the introduction and a long list of related pieces. Here’s the current list:

  1. The Web’s Gold Mine: What They Know About You
  2. Microsoft Quashed Bid to Boost Web Privacy
  3. On the Web’s Cutting Edge: Anonymity in Name Only
  4. Stalking by Cell Phone
  5. Google Agonizes Over Privacy
  6. Kids Face Intensive Tracking on Web
  7. ‘Scrapers’ Dig Deep for Data on the Web
  8. Facebook in Privacy Breach
  9. A Web Pioneer Profiles Users By Name

Related pieces—

Two things I especially like about all this. First, Julia Angwin and her team are doing a terrific job of old-fashioned investigative journalism here. Kudos for that. Second, the whole series stands on the side of readers. The second person voice (you, your) is directed to individual persons—the same persons who do not sit at the tables of decision-makers in this crazy new hyper-personalized advertising business.

To measure the delta of change in that business, start with John Battelle‘s Conversational Marketing series (post 1, post 2, post 3) from early 2007, and then his post Identity and the Independent Web, from last week. In the former he writes about how the need for companies to converse directly with customers and prospects is both inevitable and transformative. He even kindly links to The Cluetrain Manifesto (behind the phrase “brands are conversations”).

In his latest he observes some changes in the Web itself:

Here’s one major architectural pattern I’ve noticed: the emergence of two distinct territories across the web landscape. One I’ll call the “Dependent Web,” the other is its converse: The “Independent Web.”

The Dependent Web is dominated by companies that deliver services, content and advertising based on who that service believes you to be: What you see on these sites “depends” on their proprietary model of your identity, including what you’ve done in the past, what you’re doing right now, what “cohorts” you might fall into based on third- or first-party data and algorithms, and any number of other robust signals.

The Independent Web, for the most part, does not shift its content or services based on who you are. However, in the past few years, a large group of these sites have begun to use Dependent Web algorithms and services to deliver advertising based on who you are.

A Shift In How The Web Works?

And therein lies the itch I’m looking to scratch: With Facebook’s push to export its version of the social graph across the Independent Web; Google’s efforts to personalize display via AdSense and Doubleclick; AOL, Yahoo and Demand building search-driven content farms, and the rise of data-driven ad exchanges and “Demand Side Platforms” to manage revenue for it all, it’s clear that we’re in the early phases of a major shift in the texture and experience of the web.

He goes on to talk about how “these services match their model of your identity to an extraordinary machinery of marketing dollars“, and how

When we’re “on” Facebook, Google, or Twitter, we’re plugged into an infrastructure (in the case of the latter two, it may be a distributed infrastructure) that locks onto us, serving us content and commerce in an automated but increasingly sophisticated fashion. Sure, we navigate around, in control of our experience, but the fact is, the choices provided to us as we navigate are increasingly driven by algorithms modeled on the service’s understanding of our identity.

And here is where we get to the deepest, most critical problem: Their understanding of our identity is not the same as our understanding of our identity. What they have are a bunch of derived assumptions that may or may not be correct; and even if they are, they are not ours. This is a difference in kind, not degree. It doesn’t matter how personalized anybody makes advertising targeted at us. Who we are is something we possess and control—or would at least like to think we do—no matter how well some of us (such as advertisers) rationalize the “socially derived” natures of our identities in the world.

It is standard for people in the ad business to equate assent with approval, and John’s take on this is a good example of that. Sez he,

We know this, and we’re cool with the deal.

In fact we don’t know, we’re not cool with it, and it isn’t a deal.

If we knew, the Wall Street Journal wouldn’t have a reason to clue us in at such length.

We’re cool with it only to the degree that we are uncomplaining about it—so far.

And it isn’t a “deal” because nothing was ever negotiated.

On that last point, our “deals” with vendors on the Web are agreements in name only. Specifically, they are a breed of assent called contracts of adhesion. Also called standard form or boilerplate contracts, they are what you get when a dominant party sets all the terms, there is no room for negotiation, and the submissive party has a choice only to accept the terms or walk away. The term “adhesion” refers to the nailed-down nature of the submissive party’s position, while the dominant party is free to change the terms any time it wishes. Next time you “agree” to terms you haven’t read, go read them and see where it says the other party reserves the right to change the terms.

There is a good reason why we have had these kinds of agreements since the dawn of e-commerce. It’s because that’s the way the Web was built. Only one party—the one with the servers and the services—was in a position to say what was what. It’s still that way. The best slide I’ve seen in the last several years is one of Phil Windley‘s. It says,

HISTORY OF E-COMMERCE

1995: Invention of the Cookie.

The End.

About all we’ve done since 1995 on the sell side is improve the cookie-based system of “relating” to users. This is a one-way take-it-or-leave-it system that has become lame and pernicious in the extreme. We can and should do better than that.

Phil’s own company, Kynetx, has come up with a whole new schema. Besides clients and servers (which don’t go away), you’ve got end points, events, rules and rules engines to execute the rules. David Siegel’s excellent book, The Power of Pull, describes how the Semantic Web also offers a rich and far more flexible and useful alternative to the Web’s old skool model. His post yesterday is a perfect example of liberated thinking and planning that transcends the old cookie-limited world. The man is on fire. Dig his first paragraph:

Monday I talked about the social networking bubble. Marketers are getting sucked into the social-networking vortex and can’t find their way out. The problem is that most companies are trying small tactical improvements, hoping to improve sales a bit and trying tactical savings programs, hoping to improve margins a bit. Yet there’s a whole new curve of efficiency waiting in the world of pull. It’s time to start talking about savingtrillions, not millions. Companies should think in terms of big, strategic, double-digit improvements, new markets, and new ways to cooperate. Here is a road map

Read on. (I love that he calls social networking a “bubble”. I’m with that.)

This week at IIW in Mountain View, we’re going to be talking about, and working on, improving markets from the buyers’ side. (Through VRM and other means.) On the table will be whole new ways of relating, starting with systems by which users and customers can offer their own terms of engagement, their own policies, their own preferences (even their own prices and payment options)—and by which sellers and site operators can signal their openness to those terms (even if they’re not yet ready to accept them). The idea here is to get buyers out of their shells and sellers out of their silos, so they can meet and deal for real in a truly open marketplace. (This doesn’t have to be complicated. A lot of it can be automated. And, if we do it right, we can skip a lot of the pointless one-sided agreement-clicking friction we now take for granted.)

Right now it’s hard to argue against all the money being spent (and therefore made) in the personalized advertising business—just like it was hard to argue against the bubble in tech stock prices in 1999 and in home prices in 2004. But we need to come to our senses here, and develop new and better systems by which demand and supply can meet and deal with each other as equally powerful parties in the open marketplace. Some of the tech we need for that is coming into being right now. That’s what we should be following. Not just whether Google, Facebook or Twitter will do the best job of putting crosshairs on our backs.

John’s right that the split is between dependence and independence. But the split that matters most is between yesterday’s dependence and tomorrow’s independence—for ourselves. If we want a truly conversational economy, we’re going to need individuals who are independent and self-empowered. Once we have that, the level of economic activity that follows will be a lot higher, and a lot more productive, than we’re getting now just by improving the world’s biggest guesswork business.

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Nice interview with Dan Levy of Sparksheet:

From Part I:

What opportunities does the widespread adoption of mobile smartphones present for VRM?

This is the limitless sweet spot for VRM.

Humans are mobile animals. We were not built only to sit at desks and type on machines, or even to drive cars. We were built to walk and talk before we did anything else.

This is why mobile devices at their best serve as extensions of ourselves. They enlarge our abilities to deal with the world around us, with each other, and with the organizations we relate to. This especially applies to companies we do business with.

Right now we are at what I call the “too many apps” stage of doing this. Every store, every radio station, every newspaper and magazine wants to build its own app. At this early stage in the history of mobile development we need lots and lots of experimenting and prototyping, so having so many apps (where in lots of cases one would do) is fine.

But as time goes on we’re going to want fewer apps and better ways of dealing with multiple entities. For example, we’ll want one easy way to issue a personal RFP, or to store and selectively share personal data on an as-needed basis.

We won’t want our health data in five different clouds, each with its own app. We may have it in one cloud, for example, much as most of us currently have our money in one bank. But we’ll also need for that data to be portable, and the services substitutable.

From Part II:

I want to ask you about privacy, which is an important part of the VRM discussion. We want businesses to recognize our past interactions and treat us in a personalized way, but we’re also a little creeped out when it happens. So how do you see people using VRM tools to navigate that line in a way that makes us feel safe and well served?

We need our own tools for controlling the way our data and other personal information is used. Some of these tools will be technical. Others will be legal. That means we will have tools for engagement that say right up front how we want our data used and respected. We can do this without changing any laws at all – just the way we engage.

As I said in The Data Bubble, the tide began to turn with the Wall Street Journal article series titled “What They Know,” which is about how companies gather and use data about us. More and more of us are going to be creeped out by assumptions made by marketers about what we might want.

This is also part of what I believe is an advertising bubble. Our tolerance of too much advertising is like the proverbial frog, boiling slowly. The difference is that the frog dies, while we’re going to jump out. Everything has its limits, and we will discover how much advertising we’re willing to suffer, especially as more of it gets too personal.

The holy grail of advertising for many decades has been personalization. If we know enough about a person, the theory goes, we can make perfect bull’s-eye messages for them. But this goal has several problems.

The first problem is that personal advertising is kind of an oxymoron. Advertising has always been something you do for populations, not individuals, even if ads show up in searches by individuals, and advertisers are looking for individual responses.

From the individual’s side, advertising shouldn’t be any more personal than a floor tile. You don’t want the floor tile in a public bathroom to speak into your pants.

In fact, we’ve never liked personalized advertising of the old conventional sort, such as direct mail. We see our name on the envelope and then toss it anyway, most of the time.

The second problem is the belief that it’s actually possible to have perfect information about somebody. It’s not. And where it gets close it gets creepy.

The third problem is that advertising is still guesswork.

We need it, to let lots of customers know what we’ve got. But there should also be more efficient ways for supply and demand to meet and get acquainted – ways in which, for example, individual customers eliminate guesswork by telling vendors exactly what they want. VRM is one answer to that need.

These and other topics will be subjects of a panel I’m on this morning at Slush in Helsinki. Ted Shelton of OpenFirst is moderating.

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I’m at a fascinating luncheon talk by Al Roth at CRCS with the irresistable title, “Kidney Exchange.” This can’t help but call to mind “Anonymous Philanthopist Donates 200 Kidneys“, in . which I hope Al has in this talk or puts in his next one.

So I’m taking notes here. Lots of good fodder for the Markets chapter of the book I’m wrirting.,,

Market Design is Al’s summary and collection of works on that subject, including Kidney Exchange. See his “Efficient Kidney Exchange” paper In the American Economic Review. Market design is around patient-donor pairs (usually relatives), even though one half the pair will not be donating a kidney to the other half of the pair. The two surgeries: transplants and nephrectomies. The latter is the removal of a kidney.

NEAD: Non-simultaneous, Extended Altruistic-Donor Chain. These can add up. Al shows how ten transplants came out of one donor starting the chain. In cost/benefit terms, this is also good. This is now cited in both the New England Journal of Medicine and People magazine.

There are currently ~86,000 people on the waiting list now. There is a question on the floor about calculations based on 100% of Americans on the donors list. Nor feasible, but one wonders if a much larger percentage could be recruited. Al calls these “non-directed donors.”

Wondering what kind of matches we might classify with personal RFPs. (Al is talking here about pairwise ones, because that’s how kidney donorship works.) Other considerations: “Markets must be thick, uncongested and safe.” Need to look at the long and short side of a market. Also matching efficiencies

Interesting point: relationships between hospitals and surgeons are a context. Also that we are starting to see pairs withheld, meaning that a hospital or two may not inform other hospitals about donor candidates. Arcanum: strategyproof industry rational (IR) mechanism.

(I’m surprised that all this stuff, most of which is new to me, does not hurt my brain.)

When creating the large exchange, respect the small exchanges that operated independenly before. “Mechanisms that give priority to internally matachable pairs have good incentive and efficiency properties in large markets. Theorem for k=2 (pairwise exchange), full participation is an E (the Greek letter epsilon) equilibrium for E(n) = 0(1/n).

“It could be that some regulation in order.” e.g., “If you participate, you must show us all our patients.”

Why do we have laws against simply buying and selling kidneys? The same reason we have the Ontario Dwarf Tossing Prevention Ban Act of 2003. The answer is, because it’s repugnant.(At least to lawmakers.) X may not be repugnant, but X+$ is repugnant — n some conditions, anyway, such when selling kidneys. Or kids. (Hmm… kidney sounds like a diminutive term for a kid. Or a kid part.)

Three repugnancies: Objectification, Coercion and Slippery Slope. (Hmm, don’t we have that in lots of business settings already? Such as excessive gathering user data online?)

Back on July 31 I posted The Data Bubble in response to the first of The Wall Street Journal‘s landmark series of articles and Web postings on the topic of unwelcome (and, to their targets, mostly unknown) user tracking.

A couple days ago I began to get concerned about how much time had passed since the last posting, on August 12. So I tweeted, Hey @whattheyknow, is your Wall Street Journal series done? If not, when are we going to see more entries? Last I saw was >1 month ago.

Then yesterday @WhatTheyKnow tweeted back, @dsearls: Ask and ye shall receive: http://on.wsj.com/9DTpdP. Nice!

The piece is titled On the Web, Children Face Intensive Tracking, by Steve Stecklow, and it’s a good one indeed. To start,

The Journal examined 50 sites popular with U.S. teens and children to see what tracking tools they installed on a test computer. As a group, the sites placed 4,123 “cookies,” “beacons” and other pieces of tracking technology. That is 30% more than were found in an analysis of the 50 most popular U.S. sites overall, which are generally aimed at adults.

The most prolific site: Snazzyspace.com, which helps teens customize their social-networking pages, installed 248 tracking tools. Its operator described the site as a “hobby” and said the tracking tools come from advertisers.

Should we call cookies for kids “candy”? Hey, why not?

Once again we see the beginning of the end of fettered user tracking. Such as right here:

Many kids’ sites are heavily dependent on advertising, which likely explains the presence of so many tracking tools. Research has shown children influence hundreds of billions of dollars in annual family purchases.

Google Inc. placed the most tracking files overall on the 50 sites examined. A Google spokesman said “a small proportion” of the files may be used to determine computer users’ interests. He also said Google doesn’t include “topics solely of interest to children” in its profiles.

Still, Google’s Ads Preferences page displays what Google has determined about web users’ interests. There, Google accurately identified a dozen pastimes of 10-year-old Jenna Maas—including pets, photography, “virtual worlds” and “online goodies” such as little animated graphics to decorate a website.

“It is a real eye opener,” said Jenna’s mother, Kate Maas, a schoolteacher in Charleston, S.C., viewing that data.

Jenna, now in fifth grade, said: “I don’t like everyone knowing what I’m doing and stuff.”

A Google spokesman said its preference lists are “based on anonymous browser activity. We don’t know if it’s one user or four using a particular browser, or who those users are.” He said users can adjust the privacy settings on their browser or use the Ads Preferences page to limit data collection.

I went and checked my own Ads Preferences page (http://www.google.com/ads/preferences) and found that I had opted out of Google’s interest-based advertising sometime in the past. I barely remember doing that, but I’m not surprised I did. On the whole I think most people would opt to turn that kind of stuff off, just to get a small measure of shelter amidst the advertising blizzard that the commercial Web has become.

Finding Google’s opt-out control box without a flashlight, however, is a bit of a chore. Worse, Google is just one company. The average user has to deal with dozens or hundreds of other (forgive me) cookie monsters, each with its own opt-out/in control boxes (or lack of them). And I suspect that most of those others are far less disclosing about their practices (and respectful of users) than Google is.

(But I have no research to back that up—yet. If anybody does, please let me have it. There’s a whole chapter in a book I’m writing that’s all about this kind of stuff.)

Meanwhile, says the Journal,

Parents hoping to let their kids use the Internet, while protecting them from snooping, are in a bind. That’s because many sites put the onus on visitors to figure out how data companies use the information they collect.

Exactly. And what are we to do? Depend on the site owners and their partners? Not in the absence of help, that’s for sure. The Journal again:

Gaiaonline.com—where teens hang out together in a virtual world—says in its privacy policy that it “cannot control the activities” of other companies that install tracking files on its users’ computers. It suggests that users consult the privacy policies of 11 different companies.

In a statement, gaiaonline.com said, “It is standard industry practice that advertisers and ad networks are bound by their own privacy policy, which is why we recommend that our users review those.” The Journal’s examination found that gaiaonline.com installed 131 tracking files from third parties, such as ad networks.

An executive at a company that installed several of those 131 files, eXelate Media Ltd., said in an email that his firm wasn’t collecting or selling teen-related data. “We currently are not specifically capturing or promoting any ‘teen’ oriented segments for marketing purposes,” wrote Mark S. Zagorski, eXelate’s chief revenue officer.

But the Journal found that eXelate was offering data for sale on 5.9 million people it described as “Age: 13-17.” In a later interview, Mr. Zagorski confirmed eXelate was selling teen data. He said it was a small part of its business and didn’t include personal details such as names.

BlueKai Inc., which auctions data on Internet users, also said it wasn’t offering for sale data on minors. “We are not selling data on kids,” chief executive Omar Tawakol wrote in an email. “Let there be no doubt on what we do.”

However, another data-collecting company, Lotame Solutions Inc., told the Journal that it was selling what it labeled “teeny bopper” data on kids age 13 to 19 via BlueKai’s auctions. “If you log into BlueKai, you’ll see ‘teeny boppers’ available for sale,” said Eric L. Porres, Lotame’s chief marketing officer.

Mr. Tawakol of BlueKai later confirmed the “teeny bopper” data had been for sale on BlueKai’s exchange but no one had ever bought it. He said as a result of the Journal’s inquiries, BlueKai had removed it.

The FTC is reviewing the only federal law that limits data collection about kids, the Children’s Online Privacy Protection Act, or Coppa. That law requires sites aimed at children under 13 to obtain parental permission before collecting, using or disclosing a child’s “personal information” such as name, home or email address, and phone and Social Security number. The law also applies to general-audience sites that knowingly collect personal information from kids.

So we have pots and kettles calling each other black while copping out of responsibility in any case—and then, naturally, turning toward government for help.

My own advice: let’s not be so fast with that. Let’s continue to expose bad practices, but let’s also fix the problem on the users’ end. Because what we really need here are tools by which individuals (including parents) can issue their own global preferences, their own terms of engagement,  their own controls, and their own ends of relationships with companies that serve them.

These tools need to be be based on open standards, code and protocols, and independent of any seller. Where they require trusted intermediaries, those parties should be substitutable, so individuals are not locked in again.

And guess what? We’re working on those. Here’s what I wrote last month in Cooperation vs. Coercion:

What we need now is for vendors to discover that free customers are more valuable than captive ones. For that we need to equip customers with better ways to enjoy and express their freedom, including ways of engaging that work consistently for many vendors, rather than in as many different ways ways as there are vendors — which is the “system” (that isn’t) we have now.

There are lots of VRM development efforts working on both the customer and vendor sides of this challenge. In this post I want to draw attention to the symbols that represent those two sides, which we call r-buttons, two of which appear [in the example below]. Yours is the left one. The vendor’s is the right one. They face each other like magnets, and are open on the facing ends.

These are designed to support what Steve Gillmor calls gestures, which he started talking about back in 2005 or so. I paid some respect to gestures (though I didn’t yet understand what he meant) in The Intention Economy, a piece I wrote for Linux Journal in 2006. (That same title is also the one for book I’m writing for Harvard Business Press. The subtitle is What happens when customers get real power.) On the sell side, in a browser environment, the vendor puts some RDFa in its HTML that says “We welcome free customers.” That can mean many things, but the most important is this: Free customers bring their own means of engagement. It also means they bring their own terms of engagement.

Being open to free customers doesn’t mean that a vendor has to accept the customer’s terms. It does mean that the vendor doesn’t believe it has to provide all those terms itself, through the currently defaulted contracts of adhesion that most of us click “accept” for, almost daily. We have those because from the dawn of e-commerce sellers have assumed that they alone have full responsibility for relationships with customers. Maybe now that dawn has passed, we can get some daylight on other ways of getting along in a free and open marketplace.

The gesture shown here —

— is the vendor (in this case the public radio station KQED, which I’m just using as an example here) expressing openness to the user, through that RDFa code in its HTML. Without that code, the right-side r-button would be gray. The red color on the left side shows that the user has his or her own code for engagement, ready to go. (I unpack some of this stuff here.)

Putting in that RDFa would be trivial for a CRM system. Or even for a CMS (content management system). Next step: (I have Craig Burton leading me on this… he’s on the phone with me right now…) RESTful APIs for customer data. Check slide 69 here. Also slides 98 and 99. And 122, 124, 133 and 153.

If I’m not mistaken, a little bit of RDFa can populate a pop-down menu on the site’s side that might look like this:

All the lower stuff is typical “here are our social links” jive. The important new one is that item at the top. It’s the new place for “legal” (the symbol is one side of a “scale of justice”) but it doesn’t say “these are our non-negotiable terms of service (or privacy policies, or other contracts of adhesion). Just by appearing there it says “We’re open to what you bring to the table. Click here to see how.” This in turn opens the door to a whole new way for buyers and sellers to relate: one that doesn’t need to start with the buyer (or the user) just “accepting” terms he or she doesn’t bother to read because they give all advantages to the seller and are not negotiable. Instead it is an open door like one in a store. Much can be implicit, casual and free of obligation. No new law is required here. Just new practice. This worked for Creative Commons (which neither offered nor required new copyright law), and it can work for r-commerce (a term I just made up). As with Creative Commons, what happens behind that symbol can be machine, lawyer or human-readable. You don’t have to click on it. If your policy as a buyer is that you don’t want to to be tracked by advertisers, you can specify that, and the site can hear and respond to it. The system is, as Renee Lloyd puts it, the difference between a handcuff and a handshake.

Giving customers means for showing up in the marketplace with their own terms of engagement is a core job right now for VRM. Being ready to deal with customers who bring their own terms is equally important for CRM. What I wrote here goes into some of the progress being made for both. Much more is going on as well. (I’m writing about this stuff because these are the development projects I’m involved with personally. There are many others.)

You can check out some of those others here.

Bonus link: Tracking the Companies that Track You Online. That’s a Fresh Air interview by Dave Davies of Julia Angwin, senior technology editor of The Wall Street Journal and the lead reporter on the What They Know series.

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Ten years ago this month, on the morning after I gave this speech in Lucerne, my wife and I were walking through the restaurant at our hotel across the lake when a friendly American gentleman having breakfast buttonholed me to say he liked what I said in my talk. I thanked him and asked if he’d be at the conference again that day. He said yes, and that it would be nice to talk later.

Turns out he was the first speaker that morning. His name was , and he was the CEO of Wal-Mart. Later at lunch, which consisted of boxed food you could take out to tables by the lake, he came over to the table where my wife and I were sitting and asked if he could join us. I said sure, and we got to talking. One of the questions I asked him was why K-Mart had failed while Wal-Mart succeeded. He compressed his reply to one word: coupons. K-Mart had hooked its customers on coupons and couldn’t get them un-hooked. This tended to produce too many of the wrong kinds of customers, buying for the wrong reasons. Way too much of K-Mart’s overhead went into printing what was in essence a kind of currency — one that reduced the value of both the merchandise and the motives for buying it. By contrast Wal-Mart kept to old Sam Walton’s original guidelines, which minimized advertising and promotion, and simply promising “everyday low prices.” This saved money and helped build loyalty.

Lee’s lesson comes to mind when I read  at the . It’s too hard to compress the story, so here it is:

There’s a fascinating essay on Facebook just now from the owner of the lovely , about how Groupon nearly bankrupted her business.

The coffeeshop proprietor, Jessie Burke, was shocked at how much money the daily deals site charged to run the promotion. Groupon sold consumers a $13 Posie’s credit for $6, and then sought to keep the entire $6. Eventually, Posie’s and Groupon agreed on a 50% cut: Groupon would get $3 and Posie’s would get $3. Groupon’s $3 was almost pure profit,  but the cafe had to use its remaining $3 to cover the costs of $13 worth of cookies and coffee.

Is it any surprise the promotion was a smash? Over 1,000 customers used the promotion, but the cost imposed by those customers resulted in disastrous losses:

After three months of Groupons coming through the door, I started to see the results really hurting us financially. There came a time when we literally couldn’t not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign. We literally had to take $8,000 out of our personal savings to cover payroll and rent that month. It was sickening, especially after our sales had been rising.

The losses would have been worthwhile if the Groupon customers had become loyal, profitable patrons but many only cared about a discount, not about what made the cafe special:

Over the six months that the Groupon is valid, we met many, many wonderful new customers, and were so happy to have them join the Posies family. At the same time we met many, many terrible Groupon customers… customers that didn’t follow the Groupon rules and used multiple Groupons for single transactions, and argued with you about it with disgusted looks on their faces or who tipped based on what they owed.

And here is Jessie Burke’s original post on the matter, at Posie’s blog.

To be fair, the bad customers were neither “Groupons” (as Jessie calls them) nor “Groupon customers” (since they didn’t buy anything from Groupon — in fact Posie’s was the real Groupon customer). They were coupon shoppers. Promotion hunters. Nothing wrong with that, of course. Most of us play that role some of the time. The problem for Posie’s is one of the oldest in retailing: promotions are good for causing traffic, but lousy for causing loyalty. And making constant promotion part of your business changes your business, literally by cheapening it.

What’s clear about Posie’s is that it’s a business built on human contact, on conversation and relationship. Not just on transactions — and least of all on discounted ones.

Relationship is personal. Even at the biggest companies, success and failure ride on personal behavior, and personal connections. “Trust breaks down first over money,” David Hodskins (my business partner of many years and a very wise dude) observes. Throwing coupons into a personal relationships, especially business ones, is a recipe for trouble.

Since the dawn of the Industrial Age, businesses large and small have also looked at individual relationships with customers as a kind of cost — one that can be reduced or eliminated, often by avoiding or de-humanizing conversations with customers. Promotions like Posie’s with Groupon are just one example of how cheapening gimmicks can actually damage a business that depends on personal relationships between a company’s people and its customers. There are many more examples, especially at larger companies, which too often turn customer support conversations into reverse : making humans sound like machines.

Making relationships work has always been both the foundation and the frontier of business. Ideally, technology should help relationships. And to some degree it does. Telephony and other “social” technologies certainly do help us stay in touch. But there are many other technologies, and uses — including some in the “social” space — that prevent or pervert relationships.

Earlier today, when I went looking for Bermuda tweeters, I went down the list of nearly (and now more than) 500 followers of @BDASun (the Bermuda Sun newspaper). A large percentage of followers are just there to promote something. On a day like today, when a hurricane is bearing down on that tiny country, you can tell the wheat from the chaff. The wheat is dealing with the hurricane (or stays quietly hunkered down). The chaff just promotes.

This has me wondering how much of “social media” today is devoted to being social in the old-fashioned literal sense, and how much is about marketing and promotion. Because I think there is a huge split between the two: a split as sharp as the one between Posie’s good and bad customers.

‘s @WhatTheyKnow tweet stream is still going strong, but we haven’t seen anything new in the series since Google Agonizes on Privacy as Ad World Vaults Ahead, on August 10. That was “fifth in a series” that had many more than five items in it. Dunno whassup with that, but my favorite follow-ups so far are from Don Marti, whose two posts on the matter are Framing discussions of web privacy and Privacy tweaks for browsers? Both put the onus on the user, rather than the websites.

Interesting angle. Go dig it.

It’s been a week since VRM+CRM 2010, and there have been many conversations on private channels (emails, face-to-face, phone-to-phone, face-to-faces), all “processing,” as they say. Meanwhile we also have some very interesting postings to chew on. (Note: This is cross-posted here.)

First, Bill Wendell‘s RealEstateCafe wiki has a nice outline of sessions at the workshop. Better than our own, so far, I might add. Great notes behind his many links, and an excellent resource.

Next, there is Katherine Warman Kerns’s Making Sense of Things (which follows her HuffPo piece, Will VRMCRM2010 disrupt ambiguity?). Here Katherine puts on some hats we both shared as veterans of the advertising and media businesses, and does some great thinking out loud about better ways for marketing energy to be spent than CRM, online advertising and FSIs (I believe these are Free Standing Inserts). An excerpt:

What if that 3% in CRM, the 1% in FSI’s, and the less than 1% online are the same heavy TV watchers with nothing better to do?You’d think there would be a lot of investment in innovation to develop “something better”, but innovators are getting mixed signals from advertisers.  Most businesses still advertise  in order to convince retailers and/or Wall Street that they are supporting the brand.

Few outsiders understand that advertising has become a business to business marketing tactic more than a business to “consumer” tactic. Instead of paying attention to advertising spending trends –  dropping from 40.6 % of the total media/marketing industry in 1975 to 17.2% in 2009 . . . . . .  the Venture world pays attention to the proportional amount spent on different tactics: “what this chart (provided by GOOGLE’s Hal Varian) says is that over that past decade Internet has gone from nothing to 5% of all the ad spend in the US”.  As I point out in my comment on this post, “At 5% of 17.2% that puts internet advertising at less than 1% of total media/marketing revenues. “

Ignoring this fundamental change in the market, an amazing amount of money is wasted on investing in incremental change.  For example, the race is on (reportedly, over $40 Billion a year) to upgrade CRM technology to improve predictive accuracy so that 3% will go up.

I’m all for continuous improvement process . . .  but, when the starting point is single digit success and that success may not even be among the desirable demographic who leaves the house, doesn’t it make sense to spend some of that money developing Plan B?

Hey if everyone on the team is aiming for the same corner of the goal with a single digit success rate, doesn’t it make sense to develop the skill to go after the remaining 90%+ of the goal?Until something better comes along, a market leader, P&G is quietly investing in the “new media” segment, “custom digital publishing”, to reach their target with less waste and to identify “thought leaders” to engage in their leading edge open innovation process.  Two examples are beinggirl.com and the partnership with NBCU to produce lifegoesstrong.com.

A new technology movement is creating a possibility to offer something even better: making it possible to shift the paradigm from improving Business to Customer communications to improving Customer to Business communicationInstead of wasting money on better ways to interrupt customers with messages, the customers are enabled to tell business when and what they want information. Project Vendor Relationship Management is the thought leadership evangelizing this premise and encouraging technology development.  On August 26-27, a workshop calledVRMCRM2010 introduced many of these technologies to VRM fans and receptive CRM professionals.

Media has an opportunity to use this technology to give all participants “The Freedom to be Ourselves”.   Instead of self-censuring because of uncertainty over what, with whom, or when their participation will be available for exploitation in “cyberspace”, participants may manage the release of identity, content, and information “in context”.   AND this control can be mutual – for  the “formerly known as audience”, the “formerly known as creative content producers”**, and the “formerly known as advertisers”.

Mutual benefit has the potential to breakdown the siloes which are barriers to collaborate on innovation.  Indeed, VRMCRM- like technologies offer a blank canvas of possibilities for media and marketing innovation to  disrupt ambiguity.

Next, Dan Miller’s In Spite of Investment in “Social CRM”, Enterprises are Still not Paying Attention. Dan, who led the CRM panel at the workshop, sees CRM and social CRM as a train wreck in progress:

…current solutions that are based in CRM and social CRM capture and conduct analysis on a broad set of customer generated data and metadata. Companies think they are doing a better job of paying attention but, whether they admit it to themselves or not, they continue to use their resources to analyze activity, target messages and promotions and influence future activity. That’s not listening or engaging in a meaningful conversation.

VRM involves a totally different engagement model. “Users” (be they shoppers, searchers, mobile subscribers or “other”) initiate conversations with their selected vendors through a trusted resource or advocate. They can compare notes with other shoppers/customers and, while they may be loyal to a brand, they are more loyal to themselves and their peers. In the ideal, the power shifts to the shopper in ways that will disintermediate traditional channels (like the contact center) and influencers (meaning commercials and advertisements).

The train wreck is not the result of there being too many names for the social CRM phenomenon, it is that CRM and VRM are on a collision course whereby one side seeks to grant more power to buyers while the other seeks to retain nearly all the power by pretending to do a better job of listening.

On the other hand, Denis Pombriant sees social CRM as having some promise for VRM, and writes about that in VRM’s Missing Ingredient, also posted as VRM and CRM Meet. An excerpt:

The great thing about social CRM is that it lets the genie out of the bottle.  It introduces randomness and uncertainty to the puzzle and that’s largely a good thing.  You can’t program a customer relationship, there are too many permutations and customers do things you just can’t always predict.

My big takeaway from the conference is the wisdom of crowds, the idea that since you can’t predict, take a deep breath and stop trying.  Instead, just ask the customer and, if you do it right, you’ll get amazing insights.  It struck me that the wisdom of crowds is, perhaps, one thing that VRM could incorporate with great success.

Mitch Lieberman (@mjayliebs) put up a nice summary of #vrmcrm2010 tweets through September 1. Here’s the current Twitter search for the tag.

Even though the workshop was well-attended by CRM folks (and some of their customers), I was struck by how widely varied that business actually is. The distinction between CRM and sCRM is but one of very many.

In fact I had already been schooled on this by my old friend Larry Augustin, whom I got to know well back when he was a major force in the Linux community, and now runs SugarCRM. You can’t have a $15 billion (give or take… I still haven’t seen any numbers since 2008) business without a great deal of variation in what is sold to whom, and how it is used.

And, of course, relating to customers is not the sole province of CRM itself. I would bet that most customer-supporting corporate Twitter entities (e.g. @BigCoCares) began as individual efforts within their companies, completely outside those companies’ CRM systems, including call centers. These as a class now qualify as sCRM, I suppose. But in any case, it’s complicated.

So is VRM, of course. It starts from the individual, but can go in many directions after that. Here are a few of my own take-aways, all arguable, of course:

  1. You can’t get to VRM from CRM, or even sCRM, any more than you can get to personal from social. But VRM needs to engage both. And both need to engage VRM.
  2. You can’t get to VRM from advertising, either. Trying to make VRM from advertising is like trying to make green from red. The closest you’ll get is brown.
  3. We have code, and were able to show some off (or at least talk about it), and that was great. Adam Marcus’ talk on r-buttons, while delayed by equipment failings (not his — the classroom’s built-in projection system on Day One was flaky), showed how users and site owners could signal their intentions toward each other with symbols that actually worked. Renee Lloyd unpacked the (very friendly) legal side of that too. Iain Henderson gave a nice forecast of the Personal Data Store (PDS) trials that MyDex will be running in the UK shortly. Phil Windley vetted the work Kynetx is doing with the Kynetx Rules Language (KRL). It also amazed me that, even when the workshop was over, many people stayed late, on a Friday, to see Craig Burton give a quick demonstration of KRL at work. (See the photo series that starts here.) Joe Andrieu didn’t show his code at work, but gave a great talk on how search is more than queries. I could go on, but to sum up: this was a watershed moment for the VRM community.
  4. It’s still early. Maybe very early. At the end of the workshop I was asked the What’s Next question. My reply was that it’s great to see a fleet of planes airborne after watching them head down the runway for three years — and that they’re all heading in different directions. Also, they’re not the only planes. Beyond that the future is what we make it, and we’ve still got a lot of making to do.
  5. VRM+CRM is a live topic. There was much talk afterward of next steps with workshops, conferences and other kinds of gatherings, in addition to a list for people wanting to follow up with focused conversation. Stay tuned for more on all that.
  6. VRM is not just the counterpart of CRM. There are VRM efforts, such as The Mine! Project, that address one-to-one relating outside the scope both of identity systems (from which some VRM efforts originated) and of CRM. These also matter a great deal, and are very close to the heart of VRM’s mission.
  7. GRM has mojo going. Two years ago, Britt Blaser was the only GRM guy at that VRM workshop, and had trouble drawing a crowd. This time he brought his own crowd, and drew a bigger one. Very encouraging.
  8. I’m still not entirely sure what ProjectVRM should become as it spins out of the Berkman Center. I want it to be lightweight and useful. I’ll be involved, obviously; and we’ll always have a kinship connection with Berkman. Specifics beyond that are forthcoming, probably in the next three weeks.

I’ll think of others, but I’m out of time right now. Please add your own. And thanks again to everybody who participated. It was a great workshop.

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First, three posts by:

His bottom line in the last of those: “… people are saying the web dumbs us down. This is wrong. The web can dumb us down, but only if we choose to let it.” Much substance leads up to that, including many comments to the first two posts.

In the first post, JP says, “For information to have power, it needs to be held asymmetrically. Preferably very very asymmetrically. Someone who knows something that others do not know can do something potentially useful and profitable with that information.” He adds,

So when people create walled-garden paid apps, others will create unpaid apps that get to the same material. It’s only a matter of time. Because every attempt at building dams and filters on the internet is seen as pollution by the volunteers. It’s not about the money, it’s about the principle. No pollutants.

Which brings me to the reason for this post. There’s been a lot of talk about the web and the internet making us dumber.

I think it’s more serious than that. What the web does is reduce the capacity for asymmetry in education. Which in turn undermines the exalted status of the expert.

The web makes experts “dumb”. By reducing the privileged nature of their expertise.

Every artificial scarcity will be met by an equal and opposite artificial abundance. And, over time, the abundance will win. There will always be more people choosing to find ways to undo DRM than people employed in the DRM-implementing sector. Always.

Joe Andrieu responds with Asmmetry by choice.  After giving some examples, Joe adds,

These types of voluntary acceptance of asymmetry in information are the fabric of relationships. We trust people with sensitive information when we believe they will respect our privacy.

I don’t see abundance undoing that. Either the untrustworthy recipient develops a reputation for indescretion and is cut off, or the entire system would have to preclude any privacy at all. In that latter scenario, it would became impossible to share our thoughts and ideas, our dreams and passions, without divulging it to the world. We would stop sharing and shut down those thoughts altogether rather than allow ourselves to become vulnerable to passing strangers and the powers that be. Such a world would of totalitarian omniscience would be unbearable and unsustainable. Human beings need to be able to trust one another.  Friends need to be able to talk to friends without broadcasting to the world. Otherwise, we are just cogs in a vast social order over which we have almost no control.

Asymmetry-by-choice, whether formalized in an NDA, regulated by law, or just understood between close friends, is part of the weft and weave of modern society.

The power of asymmetry-by-choice is the power of relationships. When we can trust someone else with our secrets, we gain. When we can’t, we are limited to just whatever we can do with that information in isolation.

This is a core part of what we are doing with and the . Vendor Relationship Management (VRM) is about helping users get the most out of their relationships with vendors. And those relationships depend on Vendors respecting the directives of their customers, especially around asymmetric information. The Information Sharing Work Group (ISWG) is developing scenarios and legal agreements that enable individuals to share information with service providers on their own terms. The notion of a is predicated on providing privileged information to service providers, dynamically, with full assurance and the backing of the law. The receiving service providers can then provide enhanced, customized services based on the content of that data store… and individuals can rest assured that law abiding service providers will respect the terms they’ve requested.

I think the value of this asymmetry-by-choice is about artificial scarcity, in that it is constructed through voluntary agreement rather than the mechanics/electronics of the situation, but it is also about voluntary relationships, and that is why it is so powerful and essential.

I’ll let both arguments stand for now (and I think if the two of them were talking here right now they’d come to some kind of agreement… maybe they will in comments here or on their own blogs), while I lever both their points toward the issue of privacy, which will continue to heat up as more people become aware of liberties taken with personal information by Web companies, especially those in the advertising business. I hadn’t thought about this in terms of asymmetry before, but maybe it helps.

The Web has always embodied the design asymmetry of . Sites have servers. Visitors have clients (your computing device and its browser). To help keep track of visitors’ relationships, the server gives them . These are small text files that help the server recall logins, passwords, contact history and other helpful information. Cookies have been normative in the extreme since they were first used in the mid-nineties.

Today advertising on the Web is also normative to an extreme that is beginning to feel . In efforts to improve advertising, “beacons” and flash cookies have been added to the HTTP variety, and all are now also used to track users on the Web. The Wall Street Journal has been following this in its series, and you can find out more there. Improvement, in the new advertising business, is now about personalization. “It is a sea change in the way the industry works,” Omar Tawakol, CEO of BlueKai, told the Wall Street Journal. “Advertisers want to buy access to people, not Web pages.”

Talk about asymmetry. You are no longer just a client to a server. You are a target with crosshairs on your wallet.

Trying to make advertising more helpful is a good thing. Within a trusted relationship, it can be a better thing. The problem with all this tracking is that it does not involve trusted relationships. Advertisers and site owners may assume or infer some degree of conscious assent by users. But, as the Journal series makes clear, most of us have no idea how much unwelcome tracking is really going on. (Hell, they didn’t know until they started digging.)

So let’s say we can construct trusted relationships with sellers. By we I mean you and me, as individuals. How about if we have our own terms of engagement with sellers—ones that express our intentions, and not just theirs? What might we say? How about,

  • You will put nothing on my computer or browser other than what we need for our  relationship.
  • Any data you collect in the course of our relationship can be shared with me.
  • You can combine my data with other data and share it outside our relatinship, provided it is not PII (Personally Identifiable Information).
  • If we cease our relationship, you can keep my data but not associate any PII with that data.
  • You will also not follow my behavior or accumulate data about me for the purposes of promotion or advertising unless I opt into that. Nor will your affiliates or partners.

I’m not a lawyer, and I’m not saying any of the points above are either legal or in legal language. But they are the kinds of things we might like to say within a relationship that is symmetrical in nature yet includes the kind of asymmetry-by-choice that Joe talks about: the kind based on real trust and real agreement and not just passive assent.

The idea here isn’t to make buyers more powerful than sellers. It’s to frame up standard mechanisms by which understandings can be established by both parties. Joe mentioned some of the work going on there. I also mention some in Cooperation vs. Coercion, on the . Here’s a long excerpt:

What we need now is for vendors to discover that free customers are more valuable than captive ones. For that we need to equip customers with better ways to enjoy and express their freedom, including ways of engaging that work consistently for many vendors, rather than in as many different ways ways as there are vendors — which is the “system” (that isn’t) we have now.

There are lots of VRM development efforts working on both the customer and vendor sides of this challenge. In this post I want to draw attention to the symbols that represent those two sides, which we call r-buttons, two of which appear above. Yours is the left one. The vendor’s is the right one. They face each other like magnets, and are open on the facing ends.

These are designed to support what calls , which he started talking about back in 2005 or so. I paid some respect to gestures (though I didn’t yet understand what he meant) in The Intention Economy, a piece I wrote for in 2006. (That same title is also the one for book I’m writing for . The subtitle is What happens when customers get real power.) On the sell side, in a browser environment, the vendor puts some RDFa in its HTML that says “We welcome free customers.” That can mean many things, but the most important is this: Free customers bring their own means of engagement. It also means they bring their own terms of engagement.

Being open to free customers doesn’t mean that a vendor has to accept the customer’s terms. It does mean that the vendor doesn’t believe it has to provide all those terms itself, through the currently defaulted contracts of adhesion that most of us click “accept” for, almost daily. We have those because from the dawn of e-commerce sellers have assumed that they alone have full responsibility for relationships with customers. Maybe now that dawn has passed, we can get some daylight on other ways of getting along in a free and open marketplace.

The gesture shown here —

— is the vendor (in this case the public radio station , which I’m just using as an example here) expressing openness to the user, through that RDFa code in its HTML. Without that code, the right-side r-button would be gray. The red color on the left side shows that the user has his or her own code for engagement, ready to go. (I unpack some of this stuff here.)

Putting in that RDFa would be trivial for a CRM system. Or even for a CMS (content management system). Next step: (I have Craig Burton leading me on this… he’s on the phone with me right now…) RESTful APIs for customer data. Check slide 69 here. Also slides 98 and 99. And 122, 124, 133 and 153.

If I’m not mistaken, a little bit of RDFa can populate a pop-down menu on the site’s side that might look like this:

All the lower stuff is typical “here are our social links” jive. The important new one is that item at the top. It’s the new place for “legal” (the symbol is one side of a “scale of justice”) but it doesn’t say “these are our non-negotiable terms of service (or privacy policies, or other contracts of adhesion). Just by appearing there it says “We’re open to what you bring to the table. Click here to see how.” This in turn opens the door to a whole new way for buyers and sellers to relate: one that doesn’t need to start with the buyer (or the user) just “accepting” terms he or she doesn’t bother to read because they give all advantages to the seller and are not negotiable. Instead it is an open door like one in a store. Much can be implicit, casual and free of obligation. No new law is required here. Just new practice. This worked for (which neither offered nor required new copyright law), and it can work for r-commerce (a term I just made up). As with Creative Commons, what happens behind that symbol can be machine, lawyer or human-readable. You don’t have to click on it. If your policy as a buyer is that you don’t want to to be tracked by advertisers, you can specify that, and the site can hear and respond to it. The system is, as Renee Lloyd puts it, the difference between a handcuff and a handshake.

Renee is a lawyer and self-described “shark trainer” who has done much in the community to help us think about agreements in ways that are legal without being complicated. For example, when you walk into a store, you are surrounded by laws of many kinds, yet you have an understanding with that store that you will behave as a proper guest. (And many stores, such as Target, refer by policy to their customers as “guests.”) You don’t have accept “terms of service” that look like this:

You agree we are not liable for annoying interruptions caused by you; or a third party, buildings, hills, network congestion, rye whiskey falling sickness or unexpected acts of God or man, and will save harmless rotary lyrfmstrdl detections of bargas overload prevention, or if Elvis leaves the building, living or dead. Unattended overseas submissions in saved mail hazard functions will be subject to bad weather or sneeze funneling through contractor felch reform blister pack truncation, or for the duration of the remaining unintended contractual subsequent lost or expired obligations, except in the state of Arizona at night. We also save ourselves and close relatives harmless from anything we don’t control; including clear weather and oddball acts of random gods. You also agree we are not liable for missed garments, body parts, electronic communications or musical instruments, even if you have saved them. Nothing we say or mumble here is trustworthy or true, or meant for any purpose other than to sphincter the fears of our legal department, which has no other reason to live. Everything here does not hold if we become lost, damaged or sold to some other company. Whether for reasons of drugs, hormones, gas or mood, we may also terminate or change this agreement with cheerful impunity.

[   ]  Accept.

And for that you get a cookie. Yum.

gives a great talk in which he reduces History of E-Commerce to one slide. It looks like this:

1995: Invention of the Cookie.

The End.

Not content with that, Phil has moved history forward a step by writing KRL, the , which he describes in this post here. The bottom line for our purpose in this post is that you can write your own rules. Terms of engagement are not among them yet, but why not? It’s early. At last Friday, showed how easy it is to program a relationship—or just your side of one—with KRL. What blew my mind was that the show was over and it was past time to leave, on a Friday, and people hung out to see how this was done. (Here’s a gallery of photos from the workshop.)

And those are just some of the efforts going on in the VRM (and soon, we trust, the CRM) community. What we’re trusting (we’re beyond just hoping at this point) is that tools for users wishing to manage relationships with organizations of all kinds (and not just vendors) will continue to find their way into the marketplace. And the result will be voluntary relationships that employ asymmetry by choice—in which the choice is made freely by all the parties involved.

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