WoonWaarUWilt!

Haven’t heard of it yet? Maybe that’s because you don’t speak Dutch. It’s means ‘Live where you want’: a new initiative from ING bank that allows consumers to place offers on houses that aren’t yet on the market, in the hopes that an appealing enough offer might cause the current owner to consider the sale.

This is an absolutely brilliant move. I heard about it through Springwise, which picks up on the connection to Doc Searls’ Intention Economy:

The Intention Economy grows around buyers, not sellers. It leverages the simple fact that buyers are the first source of money, and that they come ready-made. You don’t need advertising to make them.

This concept is exactly what VortexDNA is based on. The lives we are after, the sites we visit, and the products we buy are shaped around our intention, not that of our vendors.

Imagine a world in which there is no marketing, only needs arising and being fulfilled. The ING concept and Searls’ Intention Economy is the difference between trying to create need to match your product and operating at the point where need arises spontaneously.

The spontaneous nature of market demand in the Intention Economy can yield far greater results with less effort, because there’s no need to change buyer behavior. You don’t have to convince anyone that they can only find love by using a certain mascara or owning an iPhone. So all of the investment that is put into trying to change people’s minds about whether they need something can instead be put into making superior products with an outstanding customer experience.

Last night, I went to a presentation by UK-based behavioral scientist Howard Lees. It was absolutely fascinating. Don’t worry about the psychology of it, he said. Look at what people say they’re going to do, and at what they actually do, and then compare the two.

This is highly practical advice. What are people actually doing? My favorite-font-of-information Brian Hayes pointed out that Barack Obama’s advisory group includes a bunch of behaviorists dedicated to understanding what people do; their insights drive his foreign policy and economic positions.

Lees also said that if you want to change behavior, you have to start by changing the environment. Turn the TV off. Move the furniture around. Burn the bridge.

Be practical. Don’t buy into an idealistic position just because you buy into the ideology. The Intention Economy is a great idea because it accurately incorporates the way people really are.

Do you have any experience with behavioral science or the Intention Economy? I’d love to hear your thoughts.

Yesterday, I spoke out in praise of Chris Anderson’s Free article. At the same time, Alex Iskold over at Read/Write Web was writing up his rebuttal to Anderson: Beware of Freeconomics. I really respect Alex as a writer; he’s always got fascinating insights. In this instance, though, I’m sticking with my original pick.

I’ll go through each of Alex’s arguments here to explain why I don’t think the freeconomics model should be dismissed out of hand.

Gmail

Yahoo! had a free version with limited space and charged for extra storage. Then Google came along and made email free along with a ton of extra storage. So some people (albeit mostly early adopters at this point) moved away from Yahoo! and began using GMail. But the trend was apparent, so Yahoo! had no choice but to add more storage and make it all free to stay competitive…

…The fact of the matter is that GMail was offered for free mostly because Google could afford it. This is a standard monopolistic tactic used to enter a new market - drive the price down (in this case to $0) and kill off the competition. Yahoo! was actually first to market and had a perfectly good product with a fair model: they offered a basic product for free and a premium product with more storage for a price. But when Google made its move, Yahoo! could not compete.

So let me get this straight: Yahoo had a free base product and charged a premium for the premium product. Then Google offered a free base product and charged a premium for the premium product, only their base product included more than Yahoo’s base product. Then Yahoo offered everything free, while Google is still charging for the premium product.

But, according to Alex, Google is the one not playing fair and acting monopolistic. Why isn’t it monopolistic for Yahoo to have offered the free product in the first place, or to have trumped Google by offering all the storage for free? It’s a case of history being written by the winners; Gmail’s near-monopolistic success leads to the conclusion that its practice was monopolistic, when in fact Google simply had a better product.

The Yahoo/Gmail case is not a case of zero marginal cost; it’s one where the companies make such a miniscule portion of their revenue off storage fees that they’re better off giving the storage away and increasing their user base.

DVRs

Another example used in the article is that of digital video recording devices (DVR). Comcast gives out DVRs for free, just like cell phone companies give out basic cell phones for free and then make up the money with the service charges…

Yet, the other aspect of free is quality. Anyone who owns a Comcast DVR knows that humans have never invented a worse remote control. It is just bad. Even with my masters degree in computer science, it took me a long time to master it. Free is not always good. Sooner, rather than later, free might deliver a punch on quality. If it’s free, put less engineers on it. If it’s free, then why do we need to fix bugs? It’s free - so this is good enough.

Free is not without competition in this case; there’s plenty of poorly designed stuff you can pay lots of money for. The question of quality really has nothing to do with free; it has to do with value. People will pay more for things they value more. If they don’t really care about the design of the remote control, they’ll be happier if it’s free. But if remote controls are really important to them (as they are to the man in my house), they’ll spring for the gold-plated two-foot-long four-hundred-button custom jobby.

Unfunded Startups

Perhaps the biggest worry of free are startups. To begin with, how do you compete with free? Suppose someone has a great idea for improving web mail. Entering the market is really difficult. A lot of inertia is now behind Google and in the new world of freeconomics, you can no longer compete on price. Not that long ago the concept of better and cheaper allowed startups to make the bet. But now that cheaper has been replaced with free, that axis is shut out.

One of the biggest mistakes that startups make is assuming that the only thing people care about is price, and one of the great things about free is that it removes price from the equation altogether.

In a freeconomics model, the only way to compete is to provide a value that people otherwise aren’t getting.

And isn’t that what we should be trying to do anyway? If we’re not providing a value, why are we in business? And the ‘better and cheaper’ argument doesn’t seem to be working in other fields, like, say, office productivity applications. Inertia is inertia.

Even more problematic is funding. How do you fund a startup that a priori can not charge the user? One might argue that we’re now living in an ads-only monetization world, which of course we are, but things are not that simple. First, how many startups are actually making money on ads? Sure Google is doing great, but is Yahoo!? We used to live in a world where Flickr could charge $25 per year for premium use. Now we are talking about a world where Flickr has to be completely free to everyone and have unlimited storage to survive. What’s the model for ads next to your own pictures?

Freeconomics doesn’t meant that startups a priori can’t charge the users. Anderson describes six viable, financially sustainable models for companies operating in the land of the free, including ‘freemium’?and uses Flickr and Flickr Pro as a good example of it.

The Middle Man

…consider any company that makes an ad-supported product. The man in the middle is the ad network. You have the core product that the company makes and you have the audience that is interested in the product, but does not want to pay for it. Here come the ads - a panacea for the problem.

But is it really? We are in an economic downturn and suddenly companies do not want to spend money on advertising. So your business is immediately impacted, even though the demand for your product has not diminished. How strange is that? Even as your customer base grows, you’ll still be losing money.

This is a problem that media companies have dealt with since the dawn of media companies. The truth is, nobody is immune, freeconomics or no. If you’re charging for your product and you have an economic downturn, it’s unlikely your customer base would be growing anyway. The only reason demand for your product has not diminished is?wait for it?because it’s free.

Complexity

…Chris cites an example of a European airline that charges people only $20 for the ride. The rest of the money they make up on meals, drinks, priority boarding, credit card handling, advertising revenue, etc. This sounds incredibly complex for both the business and the customer.

The cost of inventing and accounting for all these different small channels of revenue is high. And to the customer it’s just a headache. Oh, you mean you actually wanted to sit on this flight instead of standing? That will be an extra $20. What seems to be forgotten is one of the lessons large companies have already learned: you should sell bundles for one price. People want all inclusive, not all excluded.

This last is a reasonably big assumption: do people really want all inclusive? Everyone? What about all those people whose attitude is that you arrive at the same time whether you’re sitting in the front of the plane or at the back? What about people who couldn’t normally afford plane travel because they’d have to pay profit margins on all the extras they don’t actually need?

This airline model is an experiment, and the market will surely let us know whether people value the proposition or not. But to dismiss it out of hand is presumptuous.

Conclusion

Freeconomics is not simple. It requires companies to really think through what their business models are and who their customer is. It requires companies to balance the tension between serving the free audience and the paying customer (think Facebook). And sometimes it requires companies to upskill outside of their core area of expertise to become financially sustainable. But surely any startup looking to make it big will be forced to understand the economic dynamics behind its business?otherwise it will be sunk anyway?and it just so happens that many of the economic dynamics in play at the moment involve ‘free’.

I’d love to get your thoughts on the subject. Do you think free is a good thing? A sustainable thing? A detriment to society and all we hold dear? What free services do you use?

If you think my posts are long (yes, Amitava Mitra, I’m talking to you), you should try Chris Anderson’s article Free! Why $0.00 Is the Future of Business, which came out in Wired yesterday. It’s six pages of essential reading for people looking to understand the economics of a market where everything is trending towards costing nothing.

Chris wastes no time lamenting the moral turpitude of a society that expects a free lunch. You might or might not think free is a good idea, but it doesn’t really matter; it’s already happening:

A decade and a half into the great online experiment, the last debates over free versus pay online are ending. In 2007 The New York Times went free; this year, so will much of The Wall Street Journal. (The remaining fee-based parts, new owner Rupert Murdoch announced, will be “really special … and, sorry to tell you, probably more expensive.” This calls to mind one version of Stewart Brand’s original aphorism from 1984: “Information wants to be free. Information also wants to be expensive … That tension will not go away.”)

Instead of reverse engineering the present situation, he deftly dissects the dynamics at work and identifies the opportunities presented by the shift towards free. He tells the story of the Father of the Cross-Subsidy, King Gillette, who at the turn of the century realized that he could sell more razor blades by giving away the razors. He defines the six business models built on the basis of free: ‘freemium’, advertising, cross-subsidies, zero marginal cost, labor exchange, and gift economy. He explores the economics of abundance.

I may well be biased towards this article because it touches on so many of the topics I’ve been discussing recently, but just because Chris is my homeboy doesn’t mean it isn’t a darn good hunk of words. So go on, brew yourself a cup of tea, kick back and enjoy the mental stimulation. I promise it will be worth it.

Summary: The democratization of the Internet will cost the jobs of media professionals. Offshore manufacturing will cost the jobs of blue-collar workers. But should we fight to keep those jobs if they are no longer relevant? Were they entitled to those jobs in the first place? I suggest that they weren’t, no more?and no less?than any of us is entitled to anything.

Can you name one thing in your life that you believe you’re entitled to?

How about your job? Your home? Food to eat? Life, liberty and the pursuit of happiness?

There’s quite a bit of entitlement talk going on these days, only the word is rarely used. Consumers feel entitled to pirated content and the recording industry feels entitled to sue consumers. The public feels entitled to health care and the insurance industry feels entitled to exclusions.

Entitlement is the basis of the primary argument in The Cult of the Amateur, the lamenting of a massive shift in the economic infrastructure. How, Keen argues, can we as a society allow Tower Records to shut down? How can we allow YouTube to distract attention from that most valuable of media, television?

?perhaps the biggest casualties of the Web 2.0 revolution are real businesses with real products, real employees, and real shareholders, as I?ll discuss in Chapters 4 and 5. Every defunct record label, or laid-off newspaper reporter, or bankrupt independent bookstore is a consequence of ?free? user-generated Internet content?from Craigslist?s free advertising, to YouTube?s free music videos, to Wikipedia?s free information.

(Quick disclaimer: I?ve been giving him a hard time, but Keen makes many excellent points and the book is certainly worth the read.)

Entitlement was also the basis of a conversation I had yesterday. My friend Phillip does a great deal of charity work, part of which includes donating product whose manufacture he controls. Here?s the conflict: if he takes his manufacturing offshore, he can donate much more product; of course, in the process, he takes jobs away from deserving locals.

We were not the only ones having this conversation; it is a conversation that is had around the world at the tables of employers looking to maximize returns and employees fearful of an uncertain economic future. It is a conversation that Ross Perot fueled when he said the result of Nafta would be a giant sucking sound as jobs swirled through the border plughole into Mexico. It is a conversation that the potential presidential candidates are having ad nauseum?at once attempting to balance commercial sustainability with the very real concerns of the working class.

At the core of the question is that innocuous word: ?deserving.?

Do we deserve to have government and kindly souls keep things as they are indefinitely? If products can be made better and cheaper overseas, do we deserve to keep making them locally?

I humbly suggest that we don?t.

In fact, I humbly suggest that we aren?t entitled, in any sort of inherent sense of the word, to anything.

The world is not built on entitlement; it?s built on agreement.

We agree that all men are endowed with inalienable rights, and we agree to make laws and construct our society to support that agreement.

We agree that we must take care of the least fortunate among us because that is our vision of how a community functions, and we form health care systems and welfare programs. Or we agree that socialist systems remove performance incentives and that if you give too much assistance people will lose their ability to become self-reliant, and we privatize health care and eliminate welfare programs.

We agree that the employment of our population is directly beneficial to everyone in our society, and so we aim to maintain the employment of our population.

But these are all agreements; they are not entitlements. They are agreements with which not everyone agrees, which vary from country to country and city to city and house to house, and sometimes even within a house.

And so while some agree that it is more important to keep a job onshore than to operate in a manner that is sustainable financially, others might not be willing to pay the premium for the product that goes along with that agreement.

Sometimes you have to fight the tide: when everybody agrees that slavery is okay, one person has to stand up and say otherwise, in doing so permitting others to do the same. But the question that should always be asked, every day of a million things, is, ?Why?? Why am I fighting to keep this job? Is it because it?s the right thing to do, as right as speaking out for abolition? Or is it because this is what I?m used to and what I?m comfortable with?

If the answer is that you?re fighting to maintain what you?re comfortable with, you?ve fallen victim to your own sense of entitlement.

I realize that I?ve gone off on a few tangents here, but I?d still love to hear from you. What are your views on charity? Do you think jobs should be kept open artificially? Should cultural institutions?including for-profit ventures like The New York Times?deserve to remain in business even if the market demands other forms of media?

Feel free to espouse your viewpoint below; dissent welcome.

As a general rule, I try not to use this blog just to show off, but we’ve gotten some great coverage lately and I think it’s worth sharing. Those of you who are interested in our company might find some of these pieces elucidating.

First, Branton Kenton-Dau, the Director of VortexDNA, did an interview with my talented Search Insider colleague Gord Hotchkiss of Enquiro; Gord published the complete transcript here. He also published a synopsis, beefed up with his own opinions, on Search Engine Land.

I managed to rack up a contest win on David Berkowitz’ blog; he included a very flattering description of me?thanks, David! MUCH more importantly, my prize was a donation to the Camel Book Drive of some excellent titles:

• Mee-An and the Magic Serpent - Baba Wague Diakite
• Ella Fitzgerald - Andrea Pinkney
• Bluish (sig) - Virginia Hamilton
• Zeely - Virginia Hamilton
• The Hunterman And The Crocodile - Baba Wague Diakite

Finally, Darren Rowse ran a guest piece of mine, called A Tortoise’s Guide to Blogging, on his superb ProBlogger blog yesterday. It got some really uplifting responses; thanks so much to those of you who commented and a big hearty welcome to those of you who found your way here through any of the above channels!

I really appreciate all of these opportunities to connect, and always welcome more. If you’re interested in collaborating with me in any way, please feel free to email me on kaila (AT) vortexdna (DOT) com.

Back to my usual opinations tomorrow…

Hugh’s Law: All social networks eventually evolve into a swampy mush of spam.

Kaila’s Hypothesis: Swampy mushes of spam, coupled with near-infinite transparency, will force genuine behavior.

I just finished reading The Cult of the Amateur, which paints a pretty grim picture of the evolution of the Internet. According to Andrew Keen, the world is falling to bits, talented people are forced to go begging, and nobody has any use for real news anymore because bloggers?ahem?are illegitimately claiming to be legitimate journalists.

He may be right.

At the same time, I tend to have a bit more faith in humanity. And, while you may be yelling, “Naive optimist!” at your monitor, my faith is not driven by a belief in our inherent goodness or capacity to overcome. It’s driven instead by an understanding of the cyclical nature of our universe, and a confidence that we will continue to evolve cyclically.

When I was a kid, I learned about a population growth model for wild animals. Animals in an area where food was abundant would reproduce heartily until their numbers caused demand to outstrip the food supply, which would subsequently dwindle. Because of the lack of food supply, animals would die off, until population stability was reached. Cyclical.

Housewives became Type A executives as the feminist movement opened doors; now it’s become admirable again to be a stay-at-home mom. Cyclical.

Gary Fisher launched a mountain bike movement that resulted in machines with cutting-edge engineering more advanced than that of motorcycles: ultrasensitive transmissions, dynamically adaptive shock absorbers, precision control of damping and rebound. Today the coolest of the cool are riding single-speed bikes with no suspension at all. Cyclical.

Social networks devolve into swampy mushes of spam, driving a hunger for genuine interaction that carries more meaning than a poke or a bite and forcing the creation of platforms that offer such a possibility. Cyclical.

The unfiltered broadcast of our lives forces us to be ever more cautious about how our behavior is perceived, which causes us to make more conscious decisions about the behavior itself. Companies are forced to walk the walk of delivering value or face the wrath of the marketplace. And, while technology opens the door to gaming the system, it also opens the door to quick and severe repercussions to those trying to gain unfair advantage by faking genuineness.

Don’t lament the downfall of society just yet, neither celebrate its enlightenment. It’s all cyclical.