:: The Park Paradigm ::

Markets for the Digital Generation

From a bright new* star in the blogosphere, JP Rangaswami (*well he’s not exactly new to the blogosphere but he finally! has his own soapbox…), an excellent description of the Digital Generation that is one of the key pillars of my paradigm:

What inverted? The age of the early adopter changed, which moved startlingly from 35-40 years old towards 12-21 years old. When you look at mobile phones, texting, instant messaging, downloads, Skype, the iPod and iTunes phenomena, multifunction devices, the standards for these are all set by youth. And this trend is now moving towards changing the functionality of “established” web firms such as Google and Amazon, eBay and Yahoo.

It was this shift, when youth became the early adopters, which signalled a real change from institutional to individual capitalism; not having been exposed to how organisations worked and not caring about how governments operated, youth began to set the agenda.

Peer respect became more important than the power of hierarchical authority; relationships and trust returned to prominence after a long time in the wilderness; there were no longer any taboos about asking why things were the way they were, and challenging the status quo.

Today is their Sixties. And, in a vicarious way, ours too; The Age of the Individual.

Empowered and free from hierarchy, jealous about personal time, keen on relationships and trust, inquisitive about values and ethics, with the power of the web to change their perceptions of time and distance and organisations and government.

Read the whole post here. Inspired by this I have created a wikipedia entry for the Digital Generation.

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Some of you may have wondered at the lack of posts over the last couple of weeks. I was off skiing last week and the week before was just one of those weeks…

It’s not that nothing worth commenting on has transpired. It’s just that being connected on the road is something I’m still not really in the habit of - and this may be made worse by the Blackberry which allows a shorthand connection to email and even some web browsing without the hassle of hauling out the laptop. I can’t say I didn’t have access as last week the place we were staying had free wireless broadband (which is so rare in Europe - I’m sorry but what’s up with that?), it’s just that after 7 hours of skiing everyday, I barely have enough energy to eat dinner. I thought about writing a couple of posts but decided that reading a book or a magazine or playing with the kids was a much better idea.

Read the The Journalist and the Murderer by Janet Malcolm, among other things last week. Anyone who is involved with speaking to the press should read this interesting short essay, which kicks off with the line:

Every journalist who is not too stupid or too full of himself to notice what is going on knows that what he does is morally indefensible.

Gets your attention doesn’t it? Anyhow the rest of the book is more nuanced but as a journalist herself, she is well placed to explore the fascinating relationship between author and subject from a experienced point of view.

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The previous posts on microfinance highlighted the idea that the mobile phone is likely to be the platform of choice in delivering financial services to hundreds of millions in the developing markets over the next decade. But this idea does not just apply to developing markets; mobile devices are already important platforms for commerce in developed economies and there is no reason to doubt that the growth of mobile commerce will not continue apace everywhere. Indeed the ability to reduce transaction costs to a point where you can easily and profitably transact micropayments, then you have the basis upon which to compete for any business. As Kid Mercury points out:

The best businesses are always those that can profitably serve the least valuable customer; their ability to secure the bottom of the market decreases the likelihood of a competitor coming in and taking the market from underneath them.

Where is the pressure highest to achieve this lowest common denominator? Probably in mobile telephony. Companies providing mobile telephony are increasingly being asked to process payments for everything from games to music, gambling to information services on top of their traditional (but highly complex) need to bill for network access in real-time. That’s not to say that these companies have mastered this skill. Indeed it is one of the biggest challenges they currently face. (from The importance of being paid, FT Digital Business:)

Operators, though, will also need to think again about how they approach the whole question of billing, and begin to think less as a telecommunications company and more like a bank.

So if they start thinking like a bank, when do they stop? When does pre-pay stop and deposit taking start? When is post-pay just another form of credit? And how do companies like PayPal or Bango fit in?

I think it will be fascinating to watch this play out. Watch this space.

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Maybe its a case of confirmation bias, but I was amused to find a full page article in the FTfm this morning with the headline: Doing good and making a profit:

Once carrying the whiff of obscure do-gooding, [microfinance] is being discovered by a growing number of individuals, corporations and organisations, which are viewing it as a financial investment as well as a form of aid. Offering a “double bottom line” of profit and social good, it is especially appealing to capitalist philanthropists such as Bill Gates and Pierre Omidyar both of whom gave large donations to microlending organisations in the past year.

The article also mentions the Calvert Foundation and The Microfinance Information Exchange.

Also in the FT’s Digital Business supplement today, Craig Ehrlich asks us to Let private enterprise bridge the divide as he (more) eloquently and completely makes the point I tried to make below that mobile phones are likely to become the main technology in the developing world for connecting people to the global internet, economy and markets:

Although mobile phones do not have all the features found in a laptop, they can deliver services – voice calls, text messages and, increasingly access to e-mail and the internet – that meet the needs of the hundreds of millions of farmers, fishermen and other small business people.

For these people, who have never had access to telecommunications before, the device they use is far less important than whether it is connected to the wider world. Just like a laptop with an internet connection, mobile phones can quickly link buyers and sellers, co-ordinate vaccinations programmes, help the unemployed find jobs, transfer electronic payments and perform all kinds of other important tasks that normally require a lengthy journey.

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One of main beneficiaries of the new paradigm in financial services might well be the fascinating and important business of microcredit or micofinance. For anyone new to the subject, you could do worse than starting by reading a survey The Economist published last November entitled The hidden wealth of the poor.

I think that in time many of the advances in information and communications technology that will drive the transformation of global wholesale financial markets (and in doing so blur the lines between what are now considered distinct wholesale and retail markets), have the possibility to precipitate a quantum shift in the viability and scale of microfinance around the globe. I’m not saying that this is inevitable, nor that it will happen overnight - as pointed out in The Economist survey, many of the obstacles holding back the growth of these markets is political or cultural - but the opportunities are potentially too significant both in terms of profits and, more importantly, in terms of human development.

Where does the opportunity lie? One element is captured in this statement from The Economist survey:

The idea is that big business has so far ignored a huge number of people who have very little money but nevertheless represent a potentially lucrative market. The big banks have noticed, but they are moving slowly and with great caution. ICICI Bank of India reckons that providing $1.3m in loans to microfinance clients currently requires 40 times more manpower than a corporate loan of the same size.

Technology will help bring down the cost of doing business. Clearly newer and better ways of managing transactions at the centre will help and seem intuitively inevitable, but how does one apply technology in reducing the distribution costs of microfinance? After all the customers are unlikely to have broadband connections at home or be familiar with the concept of online banking…but initiatives like the $100 laptop and businesses like Grameen Telecom are sure to revolutionize access for the world’s poorest over the next few decades. (This is a topic that I was first properly introduced to at TED.)

The Economist survey finishes with the thought: Financial services for the poor and the rich are becoming increasingly alike:

Microfinance offers all the transactions you would expect in any branch of finance: loans, deposits, money transfers, insurance. It is distinct only because it involves amounts of money so small that in the past conventional firms did not think them worthwhile. That is clearly changing.

Many microfinance institutions report better returns on equity than do large banks. Five years ago, providing financial services to people with little money might have been dismissed as a tiny niche business or charity. Now all the participants in the capital markets, from big banks to investors to rating agencies, are beginning to open up to it.

But within a few years, the number of people who have access to financial services may expand from hundreds of millions to several billions. Historical precedent suggests that this could bring huge opportunities. In the past, some financial institutions, notably Bank of America, Merrill Lynch and many large European insurers, did spectacularly well by nurturing clients only slightly too poor to be of interest to the leading firms of the day.

Rather than quote or regurgitate the entire article I highly recommend you read it if you are interested as it eloquently sums up the opportunities and challenges that lie ahead, concluding:

In the past, the two main obstacles to providing financial services to poor people have been lack of information and costs. Those obstacles are now being overcome. Ultimately lower costs and better information are good not just for the poor, but for everyone. Microfinance may have started as a niche business, but the chances are it will soon be micro no more.

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John Hagel, the (increasingly) well-known strategy consultant and author of The Only Sustainable Edge writes in his blog:

As I have written before, today’s large media conglomerates emerged in an environment of scarce distribution. Scale and scope mattered in negotiations with distribution channels. Distribution scarcity is rapidly eroding and being replaced by attention scarcity. As these changes play out, if media companies want to maintain scale and scope, they will need to build relationships with specific audience segments (and use the Internet to build relationships with individual members of the audience segments). They will then need to develop the skills required to use the deep understanding of these audience members to become ever more helpful in connecting them with content (and other relationships) regardless of who produced the content. The mindset shift required to do this should not be under-estimated.

And commenting on TimeWarner and the media industry generally:

The earlier wave of M&A was largely driven by an assumption that physical distribution channels (e.g., broadcast or cable channels and movie theaters) were the key bottleneck in the media business. If you didn’t own your own distribution channels or build sufficient scale to achieve greater negotiating power with distribution channels, the thinking went, your content businesses would be at a permanent disadvantage. The growth of the Internet challenges this assumption at its core.

As the bandwidth of Internet connections, both wireline and wireless, steadily increases, physical distribution constraints erode rapidly. But media companies face a different challenge and opportunity that could provide a basis for restructuring the media business. We are seeing content proliferate and a new bottleneck emerging: our attention. We each have only 24 hours of attention each day – no amount of technology innovation will change that basic fact of life. How we choose to allocate that attention among a growing array of options competing for our attention will determine who creates value and who destroys value. I have posted about the significance of this development in transforming brands.

So what? Replace media with financial services. That’s what. Ok, the analogy is not perfect but if you are a regular reader of the Park Paradigm, with a small mental leap I hope you can see where I’m going with this. Hagel’s focus on attention, customer-centric brands, and collaboration marketing resonates enormously with me and - although he is coming at it from a very different perspective - neatly articulates the opportunities that will characterize the capital markets for the digital generation. And so, mashing up Hagel with Park gets you:

Today’s large financial conglomerates emerged in an environment of scarce distribution. Scale and scope mattered in negotiations with distribution channels; even better was to own the channels. Distribution scarcity is rapidly eroding and being replaced by attention scarcity. As these changes play out, if financial sevices companies want to maintain scale and scope, they will need to build relationships with specific customer segments (and use the Internet to build relationships with individual members of the customer segments). They will then need to develop the skills required to use the deep understanding of these customers to become ever more helpful in connecting them with products (and other relationships) regardless of who produced the products. The mindset shift required to do this should not be under-estimated.

Be the conduit. The facilitator. The path of least resistance. The products ultimately all become commodities in the sense that they can be sourced. What will make your customer pick you out of the crowd? What do you need to do to capture her attention? Small is the new big. (Thanks Seth for that modern classic.)

(The post that got me off on this particular tangent.)

Interested in the emerging market for attention? You could do worse than starting here: Joshua Porter on Attention Trust; and Root.net.

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bbc.com reports:

Rising concentrations of greenhouse gases may have more serious impacts than previously believed, a major scientific report has said. The report, published by the UK government, says there is only a small chance of greenhouse gas emissions being kept below “dangerous” levels.

Interesting but what does this have to do with ‘Markets for the Digital Generation’?

It does and it doesn’t. On the one hand, I believe that the issue of climate change has reached a tipping point in terms of popular interest, moving from a small but growing number of committed constituencies to becoming part of the popular vernacular. The balance has already starting to shift and when we look back on 2006 in the future I believe it will be see as the pivotal year in terms of placing climate change into the mainstream of the global agenda. As such it will become a key concern and issue for the digital generation and resonate at a much more fundamental level that for any previous generation.

Additionally, I believe many of the challenges thrown up in the context of trying to address climate change - mitigate it, deal with its consequences - will ultimately be resolved through the ingenious use of new and interesting markets and ideas made possible by the digital revolution.

This is only an opinion. The future will tell. Watch this space.

If you are interested here are a few links to take a look at: PointCarbon, Chicago Climate Exchange, Climate Change Capital…

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The title of this post alludes to Thomas Malone’s seminal book The Future of Work.

Jason Fried, one of the founders of 37Signals, has given a very interesting presentation on ITConversations on “what works and what doesn’t in web development and how the unconventional methodologies followed by 37signals give it an edge…Jason explains how he learned that less is more when it comes to features and emphasizes the importance of building ‘half a product, not a half assed product’.”

While his talk is framed in the context of developing a new web (or software) product, I think there are a number of universal truths in terms of generically how to bring products to market in today’s world. Simple is the new black. Avoid unnecessary complexity at all costs.

Thanks to Phil Dawes for pointing me to this link.

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Naked Conversations makes a good point with respect to blogs being a key component in successfully making the move to an online (digital) business model.

Customers (especially the Digital Generation) generally love conducting business online. They love the control and efficiency it brings. They love the lower cost and price transparency it brings. They love the speed and ease of use. All of these are obviously subject to the service provider having an efficient, intuitive and robust online platform. But even when this is the case, nobody is entirely immune to an unhappy customer; nobody can possibly hope to answer online every possible question a customer might have with respect to the product or services being offered. Additionally, there is nothing more powerful in terms of generating customer loyalty and strong word-of-mouth marketing than dealing effectively with a customer problem or issue. (The opposite is also true: bad experience = angry customers - beware!)

So how do you provide this excellent customer experience under all circumstances while not bankrupting your business in the process by driving your costs through the roof? I think it would be naive to say there is one silver bullet, and like so many things in life and in business, alot of it comes down to hard work and diligence, but I would agree with Shel that “blogging is an affordable way for companies to talk with their customers.” Generalising a bit more, the most successful companies in the future will be the ones that adeptly choreograph the intricate combinatorial ballet of conversational channels - in person, voice, email, IM, blogs, wikis, etc. - to create an at once excellent yet (cost) efficient customer experience.

Social software is not just a fad. It will be a key tool in running an effective digital business.

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from What Should I Do With My Life by Po Bronson:

[from a panel discussion of the Business Council, Po Bronson answers the question ‘What do people really want?’]

They want to find work they’re passionate about. Offering benefits and incentives are mere compromises. Educating people is important but not enough. We need to encourage people to find their sweet spot. Productivity explodes when people love what they do. We’re sitting on a huge potential boom in productivity, which we could tap into if we got all the square pegs in the square holes and the round pegs in the round holes. It’s not something we can measure with statistics, but it’s a huge economic issue. It’s a great natural resource that we’re ignoring.

The tone in the room shifted. One by one, CEOs stood up and shared anecdotes that concurred with my thesis. The value in their companies came from the employees who were passionate about being there. The extra effort came from them. The new ideas came from them. They took it upon themselves to teach and lead others. Was it just that they were driven? Was it just that they were well educated? No, and often those traits were distractions. Often these dedicated people weren’t executives. They could be at any level of the company. They were the company’s sustaining force. Every CEO wanted more of this kind of employee - if only there were a magical way to recruit them. Vague? Yes. Impractical? Not at all.

So it’s time to define the new era. Economic growth will not come from one particular sector, of from companies that adopt whatever management method is in vogue - this will not be an era of blanket solutions; instead, growth will come one company at a time, from companies that focus on doing what they do, and doing it better.

And in the same way, individual success will not be attained by migrating to a particular “hot” industry, or by adopting a particular career-guiding mantra (your metaphor pollution is no good here); instead, the individuals that thrive will do so because they focused on the question of who they really are, and from that found work they truly love, and in so doing unleashed a productive and creative power they never imagined. The organisations that fuel this growth are as likely to be in shipping, defense, or education as they are to be in technology. The individuals that power this growth are as likely to be truckers, lab technicians, or teachers as they are to be MBAs.

Those who are lit by this passion will be the object of envy among their peers, and the subject of intense curiosity. They are the ones who, day by day, will rescue this drifting ship. And they will be rewarded. By money, sure, and responsibility, undoubtedly, but there is no reward more gratifying than enjoying a job well done.

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