: Social Data Revolution, Part 1 — Time and Money: What Instantaneous and Free Communication is Doing For Consumers :

Way back in time, communication seemed simple: people were home in the evening, and you could just swing by for a chat. But then the printing press was invented, greatly increasing the scope and reducing the cost of communication. Print, often complemented by services such as mail delivery, enabled firms to reach a huge number of people inexpensively.

Sears, for example, sent its catalog to millions of US households twice a year from 1896 until 1993. It was a slow world—products and prices remained valid until the next issue came out. Relevant dates, such as the delivery date, were hard to predict and rarely communicated to customers. But the customers did not expect much transparency from the firms, either—they were happy as long as the toaster they ordered eventually arrived.

Shifting the focus from transaction to relationship

In this era of limited communication, the firm only knew about the final orders, not the process of decision making. The focus was on transactions, not on relationships.

And now? The Internet allows us to reach anyone, anywhere, instantaneously. The reach of communication has increased from the people in the sender’s town to the entire world. People are social—they want to listen, comment, and be heard. But now that everyone can have a voice, who actually gets heard?

In the old world, senders bore the main cost of communication. Buying stamps and mailing out physical letters limited the number of messages generated. But in electronic communication, the marginal cost of another message is essentially zero. The bottleneck has moved from the sender to the receivers: they are becoming inundated with more requests for attention than they can deal with. The problem is that we are hard-wired to attend to new stimuli. We need to make these new technologies work for people and not against them.

The new currency: May I have your attention, please?

With all these demands on our time, how should we allocate our attention? Randomly? Perhaps—a former colleague’s strategy was to sporadically delete the messages in his inbox as his way of coping with information overload. Needless to say, though, his typical excuse (“I guess your email must have been in the batch I deleted”) was not particularly popular.

Right now, for most of us, that long-awaited love letter arrives the same way as yet another credit card solicitation. Can we do better than allocating our attention randomly? The answer comes in two parts: data, and more data.

Meta-data matter

Meta-data, data about the message, can help guide our decisions: how important it is for senders that their message gets read, and what is the message’s expected value for the reader?

Well, the simplest way to get this data is just to ask! Mr. Sender, tell us on a scale from 0 to 10: how important is it to you that the reader actually reads your message? And how much do you think the reader will get out of it?  These two numbers can help us prioritize our attention.

But taking these values by themselves won’t do the trick. Just as in the physical world, slimy marketers will try to game the system by creating the impression that their message is of utmost importance to us. They’ll try to whet our appetites and get us to open that spam.

To solve this problem, we’ll need to introduce a direct feedback mechanism by getting some data from the message’s recipient. Obviously, this wouldn’t work for physical mail—our junk mail just finds its way to the shredder. This non-response is a very weak learning signal since the sender has no way of gauging the recipient’s response to the message. It could be that the recipient was an early adopter of the sender’s product and is very happy with it. Or, he could be getting very annoyed with all these messages, to the degree that he is actually starting to hate the company!

In the world of cheap, bi-directional communication, we can do better. The receiver can directly indicate the actual value the message has for him—if he actually does enjoy receiving lots of updates, for example, he can express positive feedback.  By indicating the actual relevance for him, the receiver can increase or decrease the relevance of future messages from the same sender. That is, he directly benefits from his actions in the immediate future.

Senders, on the other hand, can benefit as well.  There is a new term in the cost function of mass communication—the cost of sending unwanted messages, as expressed by the rising voice of the consumer. Being aware of their recipients’ feedback helps them maintain their pristine reputation—senders will not benefit by becoming attention offenders.

Cheap communication allows us to calibrate senders’ predictions with the actual value perceived by the recipient. As we build up a history of direct feedback, our relevance functions will improve and allow us to prioritize our attention effectively. With free bi-directional communication, the era of the con-artist is coming to an end—only companies that respect their customers will be able to get through to them.  Since everybody has an incentive to make as accurate relevance predictions as possible, we can use the power of the community to build a good system.

To sum up, two data sources allow us to harness the power of the community: relevance predictions from the senders, and relevance assessments of the recipients.

The communication revolution is a meta-data revolution

With communication being free and instantaneous, attention is increasingly scarce. Economics is the science of scarcity. So, that’s why we need to develop an economic model of communication. Before, scarcity was on the side of the senders (time, money). It was impossible for firms to communicate effectively with large numbers of people at once, and communication/coordination between customers was even more difficult.  There was no way for an individual to effectively reach a broad audience beyond a very limited radius.  But the communication revolution has brought about many changes.  At first glance, this seemed to be great for companies—it’s now almost free to bury customers in ad campaigns!  However, now that the scarcity has shifted to the recipients (time, attention), communication needs to go beyond transactions and move to relationships. In fact, the value of relationships is greater than the value of transactions. Truly customer-centric companies like Zappos understand the value of long-term relationships and bidirectional communication.  Unfortunately, though, these companies are the exception. There are many more companies that are moving in the wrong direction by cutting costs in customer service. In general, communication between individuals and firms has not become any easier even though it’s now easier than ever for individuals to communicate with each other. When will the communication revolution allow us to easily reach all companies we want to talk to?

Related posts:

  1. SAP SALON on The Social Data Revolution: Who pays whom?
  2. New at Haas: Marketing in Web2.0
  3. How the Gathering, Using & Selling of Data is Changing
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[...] previous post discussed how free communication has changed the world, inclucing the expectations and work of individuals, business, and society. This post discusses how [...]

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