Firing Your Customer: An Amex Example

February 24, 2009 at 8:31 am | Posted in Economics | 3 Comments

OK – today’s post has nothing to do with technology but I find it fascinating.  I’m no customer relationship management expert, although I can complain up a storm as well as anybody.  My exposure came during a few years at Meta Group when I was enlisted to help create their second CRM workshop.  This was a technology workshop that detailed the architectural model and services for CRM; the first workshop was concepts.  I remember the idea of “firing your customer”, something that businesses and independent consultants are usually too slow to do.  But this is a very stark example of firing your customer from Amex (from the 2/24/09 WSJ, p D2):

It used to be that credit-card companies lured customers with cash rewards. Now American Express Co. is paying to get rid of them. The card issuer is offering selected customers a $300 AmEx prepaid gift card if they pay off their balances and close their accounts.

Selected members — the company wouldn’t disclose how many — began receiving letters with the voluntary offer earlier this month, according to Molly Faust, an American Express spokeswoman. “It’s a relatively small number of cardmembers who have sizeable balances and little spending and payment activity,” she says.

Each letter came with an RSVP code that, when submitted online, immediately cancels that member’s card.

It’s a sad situation, but I give Amex credit for recognizing some of its relationships don’t make sense and making the rational economic decision that it’s better to record a $300 loss now than a much larger one later.

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The Role of Communication, Collaboration, and Content Technology Investments during Tight Economic Conditions (part 3)

January 22, 2009 at 3:13 pm | Posted in collaboration, communication, Content Management, Economics, portals, Recession | Leave a comment

This is the third in a series on how organizations can frame and deal with the issue of constrained budgets due to the recession at the same time users are demanding productivity-enhancing technology for communication, collaboration, and content. 

In part 1 I set up the idea that companies that do best coming out of a recession are those that invest prudently while they are in one.  In part 2 I mentioned three approaches for meeting user needs with no ability to increase budgets: cost savings, cost avoidance, and “free” stuff.

In this part I will discuss the fourth approach which I’ll call “leveraging existing investments” or “doing more with what you have”.  I’ve given this approach an entry of its own because I think it’s the most useful – but overlooked – of the four approaches.

Doing More With What You Have

Communication, collaboration, and content management technologies have been around a long time – long enough for large organizations to have accumulated quite a portfolio of them. Many are going unused or underutilized.  An initial attempt at rolling them out may have been ill-planned, badly timed, or poorly messaged.  Or the champions or experts on that technology may have left the group, leaving no one to push them forward.  Now is the time to dust off these valuable assets and take a fresh look at how they could meet current user needs.

Not all existing assets can be scaled up without incurring substantial expense.  If new versions haven’t been licensed, playing catchup to get current may be expensive.  In other cases the product cost is mostly based on per-seat licensing, in which case scaling up the existing investment may still be cost prohibitive since costs will rise in near-linear fashion with users.  This applies to some high-end document management and web content management systems for example.  But other products, such as portals, are licensed on a per-CPU or per-server basis, which can allow for some economies of scale when upsizing the usage.  Portals are a good example since initial purchase and setup was often funded during better economic times but they may be underutilized today.  This is a good time to do a portal refresh and beef up parts that are working, fix or ditch parts that aren’t, find out information sources that aren’t on the portal but should be, and re-launch a freshened portal.

The best opportunity for leveraging existing investments is to utilize communication, collaboration, and content technology built into superplatforms that hasn’t been used.  SAP shops have access to a full suite of portal, content management, and collaboration technology in NetWeaver.  IBM Lotus Notes shops may be focusing on email and ignoring its collaborative capabilities.  Organizations with Windows Server have access to Windows SharePoint Services (the no cost part of the SharePoint portfolio).  Oracle’s application server still includes Oracle Portal.  Microsoft OCS 2007 includes instant messaging built in.  There are many examples where useful technology has been bundled in with something the enterprise is already using. 

It is still important to do due diligence in order to avoid winding up with a lot of technologies that were just installed because they were already paid for, but aren’t right for the organization.  But if the option is to wait until the recession is over to get painfully needed communication, collaboration, or content technology, leveraging existing investments should get some very close scrutiny.

Edward Castronova’s Book "Synthetic Worlds"

February 13, 2008 at 10:29 am | Posted in Book Review, Economics, Fun, Gaming, virtual worlds | Leave a comment

In my research into virtual worlds I’ve run across many complimentary references to Edward Castronova, so I was very interested to get his book “Synthetic Worlds, the Business and Culture of Online Games”.  Besides, he teaches at my alma mater Indiana University, so I have to pull for a fellow Hoosier. 

I generally talk about virtual worlds, but Castronova uses the term “synthetic world”.  He defines a synthetic world as “an expansive, world-like, large-group environment made by humans, for humans, and which is maintained, recorded, and rendered by a computer”. 

As an economist, Castronova keenly understands and conveys why items in these worlds have value and why that value is often directly convertible into real currency as proof.  And as an economist, his best insights are into the economics of virtual worlds.  Castronova includes a great chapter on the Economics of Fun.  When I was writing games for Strategic Simulations (SSI) in the 80’s I had an explicit set of characteristics I would apply that described what made a game enjoyable.  Castronova hits them head on: that new objects provide new capabilities, that making choices under scarcity is enjoyable, that the work required to produce rewards is reasonable, and that everyone gets to play “rags to riches” with their characters.  My games pre-dated the internet era, so Castronova adds others that didn’t apply in my experience such as crime, competition, and human-driven economics.

Castornova has also discovered the concept I call “bridging” when he talks about “moments that blurred the distinction between this world and the synthetic world”.  I also feel this is why some people don’t “get” virtual worlds though.  They cannot suspend belief or open themselves up to the virtual reality as having any meaning.

He shows some good insight into general aspects of philosophy, policy, and design of virtual worlds.  In fact, the best quote of the book is this one: “my argument is not that you should care about the ogres and elves running around in cyberspace, but that you should care about the fact that there are ogres and elves, millions of them, running around in cyberspace.” (p. 251)

But clearly, Castronova is not as authoritative when straying far from economics.  For example, when entering the realm of behavioral science, Castronova falls into the common fallacy of saying that people immerse themselves in virtual worlds when they are better than the real world.  The stereotype here is the geek who gets picked on by the bigger boys at school and is ignored by his parents, but escapes to his room to play EverQuest where he is a famous, powerful warrior that commands respect and attention. But those are my words.  As Castronova puts it: “the new worlds being built will grow in popularity if, and only if, they provide a better life experience than the world we were born into.” (p. 70)  That may be true for some people and at some times when they look for escape, just as people do through movies.  But VWs also just count as entertainment, like sports.  Has anyone shown quantitatively or anecdotally that when internet access is provided in impoverished inner cities or war-torn third world countries that people try to escape into virtual worlds?  On the contrary, I think VWs are more popular with people with pretty comfy lives who have their other basic needs met.

But it is in the realm of philosophy (or, more exactly, utopian visioning), that Castronova runs off the road (chapter 12).  His imaginings include potential utopias where a person would be “judged not by the body but on the basis of the mind alone.” and “once everyone gets used to the fact that bodies don’t matter, they may cease to cause discrimination even on Earth.”  (p.258)

Many of his experiences in these games and worlds simply don’t match with mine.  For one, his description of the experience of using a synthetic world is a bit more immersive and extreme than I have experienced and I suspect may overstate its impact on people.  For example, he describes how the user’s identity begins to expand to encompass the user’s avatar, such as when “the avatar’s attributes felt like they were your own personal attributes” or that people frequently leave off “character” or “avatar” when saying things like “my strength is depleted”.  They actually do this when they have multiple avatars, which is pretty common. 

So all in all, I think this is a great book and a must-read for people interested in what virtual worlds are about (mostly from a gaming point of view).  It provides an overview of how the games work followed by a survey of philosophy, game design, politics, psychology, and sociology behind the games, but is clearly most at home with the economics of these worlds.

Dictating Standards

August 14, 2007 at 11:30 am | Posted in Economics, Legal | 2 Comments

Mark Goldberg wrote a blog entry on Picking Winners that was replied to by Alec Saunders in an entry today called Driving on the right-hand side in a left-hand wireless world. The entry is about imposing standards by wresting control of the technology from a monopoly and handing it to aspiring entrants :

Consumers are best served when commodities are delivered in standard ways. And because monopolies tend to act in the best interests of shareholders rather than consumers I would argue, in disagreement with my friend Mark, that when the market reaches a point where competition is not being served, standards should be dictated.

I feel Alec’s reply raises more difficult questions than answers, however:

  • Which markets does this apply to?  There’s a big difference between applying this to wireless carriers, pharmaceutical research, and software.  If it applies to only certain types of markets (e.g., huge entry barriers) it may be difficult to define which to apply it to.
  • Who says when something is a “commodity”? The potential competitors? I don’t think anyone invests a lot of R&D into something and thinks they have invented a great new commodity.
  • Why is it a given that defending the best interests of consumers automatically trumps the best interests of shareholders? I’m sure when Zimbabwe outlawed inflation and froze prices that must have seemed in the best interests of consumers – until all the shelves went bare and businesspeople left the market. This is an extreme example, but one that shows why automatic favoring of consumer over producer (or vice versa) causes problems – it’s a delicate balance.
  • Who determines when competition is not being served? Again, it seems the competitors tend to happily take on this role.
  • What does “dictated” mean? Do you get fined or arrested for selling something non-standard? I’m not against compliance tests and labels if they are voluntary.
  • How does innovation occur once a standard has been dictated? There are ways to address this, but they are often slow and tedious.
  • How do you avoid a free rider problem when market consensus on what a standard needs to contain is only obtained by expensive, iterative exploration by innovative companies? The market may reach a point where “competition is not being served”, but how does the government then compensate those that competed versus those that come along after the whistle has blown? I do not believe the lead garnered by brand reputation and awareness is enough on its own to compensate for the competitive costs.
  • As a corollary of the free rider problem, for complex technical issues how does the government assure “survival of the fittest” over “survival of the first”? Standards often emerge only after an evolutionary process encourages variations that live to evolve or die based on their usefulness (although sometimes market realities like poor management or insufficient bootstrapping funds can distort the process).
  • How could one be sure that a law meant to ensnare monopolies would not slowly expand to catch weaker and weaker monopolies until it’s simply being applied to any market? While framed as an attack on monopolies that have rendered competition impossible, many of the examples he gives (e.g., VHS vs Beta, camera lenses as a personal monopoly of his rather than an exit barrier) are not monopolies, which demonstrates the slippery slope that a regulation like this would face.

I must agree with Mark Goldberg (and all my Economics professors) that “markets are better at picking winners than governments.”

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