Monday, April 9, 2018

Who Should Pay the Piper for Facebook? (& the rest)

It's the economics, stupid! -- that's the fundamental problem / fundamental fix
[Update 4/10: Zuckerberg hints that "certainly we consider" ideas in the direction suggested here.]
The Facebook fiasco spotlights the perfect storm we now face, as the dream of digital media empowerment turns sour. Many have suggested a range of remedies. But at its heart this is a business model problem -- we may need a multi-pronged remedial effort, but without fixing the underlying business model, other measures will have limited effectiveness. We have not been imaginative about the business model -- but we can do much better. This post explains how.

Tim Berners-Lee (inventor and champion of the Web) put his finger on this issue: 
Two myths currently limit our collective imagination: the myth that advertising is the only possible business model for online companies, and the myth that it’s too late to change the way platforms operate. ...On both points, we need to be a little more creative. Create a new set of incentives and changes...will follow.
Facebook brought this to a head, but the ugly glare falls on Google, Twitter, and others. Many rightly blame this “original sin” of the Internet ad model that enabled wide access to “free” services. It is now all too clear why it matters that “if you are not paying, you are the product.” We created an “attention market” monster that seeks only to "engage" us -- an economy of clickbait and misuse of our own data. That threatens our privacy, our mental health, and the very democracy we thought digital media would enhance. Internet services have lost our trust. How can we get them to serve our needs? We must realign basic incentives.

It is true that many factors are at play: oligopolies fed by data moats and returns to scale; closed, opaque systems that confine us to anti-competitive “walled gardens;” amoral advertisers seeking profit from us; and even enemies of our democracy. We almost certainly need regulation on data ownership/privacy and concentrations of power -- but those will take time to shape, and they will always be crude and inflexible instruments.

What we can do now, to facilitate all of the rest, is to change the fundamental economics of social media by introducing new and better incentive structures -- from the operational roots, up. We need to align value creation and value capture to better serve users, and thus regain their trust. Facebook, Google, Twitter, and the others can move on their own in that direction now (and can profit from that). Lacking that, we can actively encourage competitors to do better. Doing this will change the incentives that drive our attention economy -- faster and more surely than regulation. ...But we may need regulation too.

Many see this need for a new social contract, one that recognizes that if we are to have “our” media serve us -- as people and as citizens -- we must pay to make that sustainable. When we pay for our media, we become the customer they are driven to serve. We need to vote with dollars, not just “likes” -- to pay for what we value, and motivate our services to serve us. Incentive structures determine actions. Driving engagement to sell ads drives these services in the wrong direction. So, how can we re-engineer our incentive structures for digital media services?

What we have here is failure of imagination 

Zuckerberg admits to the problem, but sees no solution. The Times asked him “about Facebook’s business model -- selling advertisers and developers the ability to target Facebook users based on their personal data." He described his dilemma:
…having [Facebook] be free and have a business model that is ad-supported ends up being really important and aligned…Now, over time, might there be ways for people who can afford it to pay a different way? That’s certainly something we’ve thought about …But I don’t think the ad model is going to go away, because I think fundamentally, it’s important to have a service like this that everyone in the world can use, and the only way to do that is to have it be very cheap or free.
Zuckerberg fails to see that solutions are emerging to enable that “it be very cheap or free” for some, but sustained by user payments from others (those who can afford to pay a fair and sustaining price for the value they receive). That seems impractical only because we are stuck in our old logic. 
  1. The old logic of scarcity, rather than the new logic of digital abundance
  2. The old, but aberrant, logic of pre-set prices
In this digital age we can not only deliver services widely at very low cost, but we can mass-customize prices – not secretly, to exploit customers, but openly, in ways that customers buy-in to as fair.
  • We are so used to the alienating 20th century model of mass-marketing based on pre-set prices (and driven by advertising) that we don’t see how consumers can work together with businesses to set customized prices that are fair for each of us. 
  • What is fair depends on realized value (who, what, where, when, how, and why) and on ability to pay. But now we can apply the power of digital to restore and improve on the principles of value-based pricing that humans have relied on for millennia to take those value factors into account. Doing that is not only good citizenship, but good business. 
We need to re-invent our business models and pricing architectures to apply a new logic more suited to our new digital economy.

FairPay points to a better way

One architecture for moving toward such a new logic, called FairPay, has gained recognition for operationalizing a solution for businesses now (as outlined in the Journal of Revenue and Pricing Management, and a nicely illustrated summary of that, and previously in Harvard Business Review). The details will depend on context, and will need testing to evolve and refine over time, but the principles are clear and well supported.

Digital goods and services are not scarce -- but the willingness of consumers to sustain service providers is scarce. FairPay structures an “invisible handshake” to seek a fair allocation of that willingness to sustain over the course of the relationship. (It considers total value, both to the consumer and from the consumer, including use of personal data and attention to ads). To each provider according to their ability to create and deliver actual value. From each consumer according to their willingness and ability to pay to sustain that. (...With incentives that ensure both.)

The FairPay architecture centers on the continuing relationships we have with our digital services providers. The digital economy facilitates and thrives on ongoing relationships -- many are awakening to the deep changes of our shift to "The Subscription Economy." Those relationships can be managed to work as a “repeated game” (see details) that motivates mutual cooperation, fairness, dialog, trust, and transparency – to keep the game going. We create a process that repeatedly customizes fair prices for the value realized in each relationship -- for consumers who may be rich or poor, heavy or light users, and tolerant or intolerant of advertising and uses of personal data. (See this detailed use-case example.) By doing that, these services can generate good revenue from most customers -- and can make judicious levels of advertising acceptable to many of them.  

Many are calling for similar shifts in our economics: rethinking the value of our data as labor, membership models, and even proposals to turn Twitter into a cooperative. But FairPay shows how companies and consumers can embrace this new invisible handshake to move in desired directions now, fully embedded into routine operations, without waiting for new laws or new capital structures.

By harmonizing fundamental business incentives in this way, we will break the vicious cycle of exploitation and abuse, make services both affordable and sustainable, regain trust between businesses and their customers, and shape a new social contract. Working under that new social contract will reduce the need for externally imposed remedies -- and better position us to apply external remediation to our markets where needed.

Taking action now, at Facebook's initiative?

FairPay is a fundamental architecture for ongoing business-customer relationships that harmonizes the entire spectrum of current practices ranging from conventional pricing to radical extremes like pay what you want. It is applicable to profit enterprises and nonprofits alike (and it is in the public domain, for anyone to apply). Businesses like Facebook can better understand their current incentive models from this value-based perspective, and can test and gradually introduce more innovative models in ways that ensure they actually make their incentives more win-win. That can both increase profits and also empower consumers, by creating more cooperative, transparent, and trusting relationships.

Ideally, such a transition could be entirely self-initiated by Facebook (and the other platforms).
  • Facebook could first test FairPay at the margins, for specific "premium" services like reducing ad loads and giving users more control over filtering criteria and data privacy. [**See update below suggesting Facebook is considering this.] 
  • This could include "reverse metering" to recognize and give credit for the value that users provide to Facebook, paying with their attention and their data. That reverse meter could also credit user-generated content and viral sharing. 
Simple trials at the margins could begin to shift some percentage of Facebook revenue to be user-funded, rather than ad-funded. Once trialed with privacy-sensitive and social-welfare-minded users, it could be proven, refined, and extended to others to shift the revenue base more broadly. As the percentage of user revenue increases, Facebook would be inherently motivated to be more user-value-first in its decision processes.

Facebook reported that in the US and Canada it generates about $7/month in advertising revenue per user. (Of course that is now under serious threat, as based on advertising abuses and monopoly rents. Is it fair that Facebook gain such high margins? Perhaps it should be only a fraction of that, say $1-2.) 

Whatever the fair level of revenue per user with its current model, expecting revenue of comparable magnitude from a shift to user-paid revenue does not seem outlandish, at least for a significant portion of users who want and can afford a premium, ad-free (or ad-reduced) and privacy-strict service. For them, a rate of even $10 per month may not be unreasonable (perhaps even more for some users with full-feature, high usage and high ability to pay). Gradually, the broad range of users could be phased in, including large numbers at rates that are "very cheap or free."

But still, there is the question of what is a fair profit margin for Facebook's service -- are current levels unfairly high monopoly rents and spoils of abuse? That brings us to consideration of more forceful change...

A heavier hand? -- mandated gradual improvement (the vehicle emissions regulation model)

To the extent that Facebook and the others fail to shift their incentive structures deeply and quickly enough, external measures can be applied by competitors, and by government. 

  • Many have proposed competitive efforts, new "alt-Facebook"services that offer more customer-first business models and practices. FairPay can help make those strategies successful. But the path to scale at the level of Facebook seems slow and difficult. Given the severity and urgency of the crisis we are now facing, mandated action by Facebook may be required. 
  • Here too, changing the fundamental incentives -- and monitoring and tuning them to ensure that they work as desired -- is the best way to achieve results. 
  • Change can be mandated in much the same way that we mandate increasingly strict vehicle emission standards. Shifting at once to a reader revenue model would be challenging, and something Facebook management and shareowners might be very reluctant to pursue. But regulation could be staged to require that X% of revenue must be user-derived by some date -- with X starting small, but then increasing in stages over time. As X increases, incentives for tolerating ad-related abuse would be reduced and offset by pressure to be customer-first. Let Facebook figure out how best to do that, but give them targets over time, and hold them to it.
If we force digital services businesses to find more win-win customer-sustained business models, they will find ways to to do that far better that we can yet imagine -- whether with forms of FairPay, or some variation on similar themes. That will make them and their users (and all citizens) much happier. But if we as consumers and citizens and regulators don't have the imagination to push them to use their imagination, they will not try very hard.

The nuclear option? - regulation as a public utility

Of course, given the gravity of the threat to public welfare and the urgency of change in corporate mind-set -- and the fact that Facebook currently provides what some might view as "essential" communication services along our social graph that we would not want to do without -- providing utility services -- there is an obvious extreme option.  Nationalize Facebook, or at least regulate it as a public utility, funded by its users, with government subsidies as needed (much as was done with the Bell System). This might be done as a temporary custodianship that would revert to private control when appropriate. Such a structure would immediately incentivize Facebook to put public welfare first. That may seem drastic, but is that so unreasonable for an essential public service that can do great harm if misused?

  • The Bell System was a regulated monopoly until 1982, when it was broken up into independent "Baby Bells" connecting to users, long distance services, and equipment suppliers. 
  • Telephone service regulation followed the earlier and still continuing example of railroads being regulated as "common carriers."
  • Postal services have always been public services, paid in part by users, but subsidized by governments as needed. 
  • Public radio and TV are government-funded with voluntary payments by users. 
Hasn't Facebook become a common carrier? How can it be reasonable for Zuckerberg to have the unchecked, unmonitored, exclusive control of this new "Pa Mark" that that serves all of us as a utility (much as "Ma Bell" did)? Clearly, there is an antitrust case here, and the breakup of Ma Bell is instructive, as I explore more deeply on my other blog.

Toward a win-win future

Any of these options (alone or in combination) would begin to change the fundamental incentive structures of our essential digital services -- more or less dramatically. We can apply the heavy hand of regulation* -- but to the extent we can shift internal corporate operational incentives to align with consumer welfare -- we are likely to achieve better outcomes more organically, in ways that are more continuously adaptable to changing needs and ongoing technical advances. To the extent business see that and act to get ahead of this, they can solve the problem better that regulators, at least in large part.

  • Whatever we do, we need to move quickly and decisively. Facebook still can take the initiative, and perhaps retain a high degree of autonomy. Alternatively, we may conclude we need stronger and swifter measures. In any case, it is essential that we put the consumer (and the public) first, by putting incentives in place to drive that.
  • The surest way to do that is by having the consumer pay -- so that Facebook is driven at every level to satisfy them, and not the advertisers and hucksters who seek to buy consumer attention cheaply. 
  • We need to have the imagination to rethink our obsolete economic assumptions, to get creative about mass-customizing our value propositions, and to seek a path up this ladder of value.

FairPay is one architecture that points in that direction. If you don't like that one, find another. In any case, we need to move aggressively on whatever path we can manage to find, as long as it leads toward full, fair, and transparent alignment of value creation and value capture. 

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[*Update 4/9/18: An excellent summary of how intractable regulatory solutions are is in today's column in The Information by Sam Lessin. I commented on it: changing the business model economics would reduce the severity of the abuses that regulation can only crudely seek to remedy.] 

[**Update 4/10/18: Zuckerberg suggested in his Senate testimony that Facebook would “certainly consider ideas like that.” As reported: "By not rejecting the possibility of a paid product, Mr. Zuckerberg’s comment could be interpreted as endorsing the idea that Facebook might experiment with a version of its social network that relies on subscription revenue instead of advertising."

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More on this theme

Related points are in my previous post, Zuckerberg: How to Fix Facebook -- Stop Hanging Us With the Ad Model! -- A New Economics, and my 2012 post, Beyond the Ad Model - A New Economics for Media.

Another prior post, How Market Commerce Can Become More Cooperative, Fair, and Human, addresses Twitter (when there was some excitement about the idea of turning it into a cooperative). The same principles can apply to any digital service to consumers.

Other posts in this FairPayZone.com blog explain the key principles that enable this:
(Some broad suggestions on opening up the platform oligopolies are in a post on my other blog.)

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More about FairPay

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" provides an overview of FairPay (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video). 

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain.)  

(My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

Friday, March 23, 2018

Zuckerberg: How to Fix Facebook -- Stop Hanging Us With the Ad Model! -- A New Economics

"Zuckerberg’s Answers to Privacy Scandal Raise More Questions" as Kevin Roose recaps his 3/21 NY Times interview: "Here, for example, is how he answered a question about Facebook’s business model, which is based on selling advertisers and developers the ability to target Facebook users based on their personal data." Zuckerberg says:
...having it be free and have a business model that is ad-supported ends up being really important and aligned.
Now, over time, might there be ways for people who can afford it to pay a different way? That’s certainly something we’ve thought about over time. But I don’t think the ad model is going to go away, because I think fundamentally, it’s important to have a service like this that everyone in the world can use, and the only way to do that is to have it be very cheap or free."
What Zuckerberg says translates as "yes, we capitalists are selling bad-actors (and value-subtractors) the advertising rope to hang us with (to paraphrase Karl Marx). We do it because we have not figured out a better way to scale services sustainably, especially to those with low ability/willingness to pay." But this is just a failure of imagination and experimentation.

Beyond the Ad Model - New Economics for Media

 As I said in "Beyond the Ad Model - A New Economics for Media" on MediaPost in 2012:
It is time to rethink payment for media in the digital age. Most users of Facebook, or any media service, would be willing to pay a fee -- if it were commensurate with the value they actually perceive, and their ability to pay. Charging for Facebook seems impractical only because we have not figured out how to create a payment model that works for a wide range of consumers.
How can a vendor understand the right price for each user, at each point in time? This seems intractable until we consider letting the user tell us -- the user knows.  
The concern is that the user will not be fair, and will understate what he is willing to pay--or will fail to appreciate the cost of service. But we are in an era of relationship commerce – now we can build personalized relationships on mass scale.  The solution is to build relationships with customers based on dialogs about value -- so that we can maintain relationships with those that set values fairly, nudge them to recognize the value, and cut off [or dial back] relationships with those who are unfair.  The same technologies that enable ad targeting, individualized merchandising, and automated customer service can enable this too.  I have been talking to companies of all sizes about just such an approach -- I call it “FairPay” (short for “fair pay what you want”).
Advertising and data sales can still have a significant place in adding economic value, but can be limited to not detract from the core value proposition between the consumer and the business.  The same FairPay process can let users individually determine what level of advertising and data usage they will tolerate, in return for reduced payments.
Can that be done? Can we get users to pay, and can we sustain our businesses with prices that consumers will accept as fair for varying levels of use -- and varying abilities to pay? Even if some know that others are paying less? A large body of business experience and behavioral economics studies show that it can be done -- if we shift from a short-term transaction mind-set to build ongoing customer relationships into a repeated game that motivates cooperation and fairness.

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" provides an overview (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

Another post, How Market Commerce Can Become More Cooperative, Fair, and Human, explores these ideas, drawing on the example of Twitter (when some people got excited about the idea of turning it into a cooperative). The same principles can apply to any digital service to consumers.

Other posts in this FairPayZone.com blog explain the key principles that enable this:
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More about FairPay

For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video). 

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain.)  

(My work on FairPay is pro-bono. I offer free consultation to those interested in evaluating and applying FairPay, and am happy to address questions.)

Monday, February 26, 2018

FairPay, "A Novel Architecture," in Journal of Revenue and Pricing Management

This excellent overview of FairPay and why the thinking behind it is broadly important was just published in the Journal of Revenue and Pricing Managementand is available online (free to all under open access).

This expands on and updates a brief introductory article in Harvard Business Review (2013). Marco Bertini was my co-author on both.

This new paper more fully presents the core ideas behind FairPay, and how they fit into a flexible architecture for better pricing that moves the exchange between seller and buyer from the transactional to the relational.

The abstract:
As commerce continues to shift to the digital domain, organizations respond by improving and evolving their approach to creating value for customers. When the time comes to convert digital anything into cash they can bank, however, the same organizations seem stuck in time. The purpose of the article is to highlight this inconsistency and, importantly, propose a solution. First, we leverage the literature on freemium and participative pricing mechanisms to lay the foundations for a revenue architecture fit for the digital economy. We argue in favour of three building blocks: empowerment, dialog, and reputation. Second, we describe FairPay as a promising configuration of these factors.
We hope you will read it, and find it helpful -- and will let us know what you think.

---
Marco is associate professor and department head of the marketing subject area at ESADE (a world-class business school in Barcelona, Spain). He is a prolific author in HBR and other leading business and academic journals, and has been working for some time on many of the strategies that FairPay builds on. He completed doctoral studies at Harvard Business School, and was previously on the faculty at the London Business School. (More background on Marco and his work.)

My background is as a practitioner in online media and e-commerce, and the technologies that drive that (bio).

My great thanks to Marco for this very rewarding collaboration (and to Dan Ariely and Ayelet Gneezy for connecting us). We found much synergy in our ideas, and the citations in this paper highlight how much of Marco's work is supportive of the strategies that FairPay draws power from.

I am very pleased that this new publication presents these ideas concisely and compellingly, and will bring awareness to more people about this new logic to power a more win-win approach to commerce.

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More about FairPay

For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video). 

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain.)  

(My work on FairPay is pro-bono. I offer free consultation to those interested in evaluating and applying FairPay, and am happy to address questions.)


Wednesday, January 24, 2018

Making "Pay As You Wish" More Equitable -- Sustaining the Met Museum (and Others)

The Metropolitan Museum of Art in NYC stirred up a lot of heat and raised some interesting questions when it announced a partial end to its "pay as you wish" (= pay what you want, PWYW) admission policy earlier this month. Under financial pressure, it is ending PWYW admissions for all but residents of NY state (plus students from NJ and CT).

The underlying issue is how can a museum build relationships with "patrons" that are fair and affordable, while encouraging them to be true patrons, paying what they can afford to sustain the museum. Modern technology enables new ways to solve this knotty problem, but few have begun to exploit that.

An industrial strength variant of PWYW -- for profits -- and for non-profits

While for-profit businesses currently tend to fear giving any pricing power to customers, PWYW works surprisingly well in many situations. PWYW is common in museums, and has become popular for digital content and services (and has other well-established uses such as tipping). What I suggest is that the Met -- and others -- look at how to make it work better.

My work on FairPay points to new technology-enabled strategies to make enriched forms of PWYW "ready for prime time" -- by balancing pricing power more fairly on both sides in an ongoing relationship. FairPay was developed for for-profit businesses, but it is very well-suited to non-profits, such as the Met, as well.

FairPay membership relationships

My post from last year, A Better Revenue Strategy for Non-Profits in the Digital Era, explains how FairPay (short for Fair Pay What You Want) can change the game in ongoing patron relationships.
  • The idea is to seek to personalize a level of payment that is fair and affordable to each patron, and to motivate each patron to pay at that fair level. 
  • The problem is that patrons have very different value propositions -- different levels of usage, of value obtained, and of willingness and ability to pay.
  • Addressing that variability is facilitated by shifting to a relationship view: from one-off admissions, to the total being paid by an individual patron over an ongoing period. 
  • This shifts all sides from a transaction mind-set to a relational mind-set -- and turns price-setting into a repeated game that centers on value instead of price, and encourages cooperation, transparency, and trust
  • That relational mind-set builds mutual dialog and engagement -- which is good for both the museum and the patron. Technology enables this to become far stronger.
FairPay works much like a membership, but with fully personalized pricing that adapts to the value each member gets, as well as their willingness and ability to pay. Because FairPay is highly flexible and adaptable in its pricing, it can work for anyone who is likely to make repeat visits. It can provide for free or low-price admission in cases where that is fair, given the circumstances -- and enable simpler forms of premium patronship for those willing and able to provide greater financial support to a cause they think worthy. (Another post explores FairPay memberships in more depth: The Missing Piece of the Membership Puzzle -- Agreeing on Value for Each Member.)

Even for institutions not ready to move to FairPay, understanding the principles behind it suggests a direction to move toward (as encapsulated by the thought experiment described in another post).

From visitors to members ...to become true patrons

Of course many who visit the museum will be one-time visitors. FairPay is primarily aimed at ongoing "member" relationships, and that was the focus of my prior post on non-profits. However, FairPay can be adapted to address the issue of new and one-shot relationships, and to provide a smoother path from visitor to ongoing patron. That leads to pricing that is both more win-win, and more economically efficient -- raising more funds from more people.

Much of the negative response to the Met's PWYW change is about how it may reduce access to disadvantaged visitors. FairPay's flexibility in customizing relationships adapts to patrons with both low and high ability to pay.

Here, I sketch out some suggestions on how a new visitor might be addressed with FairPay, and highlight some of the underlying principles.
  • The idea is to invite those who want to pay less than full price -- as well anyone who expects to be a repeat visitor -- to join a special "FairPay patronship program." 
  • This can work for any visitor who is willing to build a relationship that is more value-centered, even those of means -- many of whom might pay at premium levels, just as in other membership programs.
  • While this may not be well suited to the out-of-area visitors now being excluded from the PWYW policy (at least those who will not visit regularly), it offers a way to get more, on a more cooperative basis, from those who are still permitted to pay as they wish. (And it should be able to pass muster with NYC as being no more onerous to those who cannot pay than the current PWYW policy mandated by the Met's lease of public parkland.)
  • It also provides a tool for the Met to build a direct relationship with the many visitors who have not joined as members. Membership now costs $100 for unlimited visits (if within 200 miles) versus the suggested $25 per visit.
  • FairPay provides a smoother and more rational range of value propositions -- less that $100 for those who might visit 2-3 times per year, and a basis to suggest those who visit many times per year should pay more, if they can. Instead of pre-set bundles of perks for higher level memberships, FairPay can provide for individually customized on-demand bundling.
FairPay relationships generate personalized prices and value propositions based on the following key principles:
  • Post-pricing: set the price after the experience, when the value of the experience is known. That eliminates the patron's pricing risk (the risk that the experience is disappointing). Note that the Met has little pricing risk at an individual level (since its marginal cost per person is near zero), only the overall risk that the aggregate pricing level (over all people) is too low.
  • Post-bundling: a further aspect of post-pricing -- enable the patron to select the package or bundle of services they desire, one piece at a time, when they know what they want -- not as some pre-set package that is arbitrarily bundled (often with undesired pieces that are not used, as in the Met's current $200 and $600 membership bundles).
  • Participatory pricing: get the patron involved in setting a personalized price that they consider fair and affordable for them. That avoids misunderstanding the value proposition (as they perceive it), and helps build a deeper and more cooperative relationship. Some patrons will push for lower prices, while some can be "nudged" to pay more than now suggested.
  • A repeated game: shift the focus to the continuing relationship, rather than the one-shot transaction, to focus on value rather than price, and to draw on human values of cooperation:  fairness, reciprocity, trust, and altruism (especially powerful for museums and other public services).
Together, these principles lead to prices that are fair for each patron, whatever their level of activity and their ability to pay.

The repeated game of relationship

How does this game work?  Think of it as something like "running a tab," but with a new kind of cooperative price-setting process. See the diagram (fully explained in another post, with some basics here):
  1. Visitors seeking this FairPay admission would join as "FairPay patrons," providing and confirming their email (and maybe presenting a credit card for validation only, with no payment), thus beginning a basic, ongoing relationship with the Met. 
  2. They could immediately be given a membership card (or an app) with a coded tag that allows tracking of their entry and exit times (and which exhibits they visit).
  3. After their visit, the Met would email them to request a payment -- reminding them of how much time they spent, and any special exhibitions visited, with a suggested price for them. The Met would emphasize the importance of the patron's financial support to maintain its offerings, and emphasize the benefits offered to ongoing patrons. 
  4. The patron could then "pay what you think fair" -- and indicate the reasons why they feel it is fair to pay less (or more) than the amount that had been suggested for them to pay. They would be free to be unfair and not pay much (or at all), but that would be tracked. Note the important difference between "pay what you think fair" and "pay what you wish" -- the emphasis is on fairness, not whim. 
  5. On their return for another visit, the card or app could be used again on the same terms -- if the holder is in good standing, based on their prior usage and payment history. Thus repeat visits would be enabled, with all payment requests for that month processed together. 
Note how tracking visits provides a way for the Met to make the value obtained more evident, and more personalized. These repeated visits could be discounted on a sliding scale to work much like an annual membership, but still be priced to reflect individually varying levels of activity. There could also be cap on total payments in a given year, as with conventional memberships.

But unlike conventional memberships, it could be made clear that those who visited often, and for longer times (and visited premium exhibits) might be expected to pay more than those who visited less. Similarly, students, retirees, and other categories with limited means might be empowered to claim discounts (with more flexibility and privacy than at a ticket window). Conversely, visitors who can afford to pay more could be "nudged" to do so. Seniors and students who are affluent could be discouraged from seeking discounts.
Another important benefit these methods would provide to the Met is that new visitors are immediately brought into an email-based relationship with the museum. That has numerous obvious benefits.

There are strong behavioral economic underpinnings to making this strategy fair and sustaining -- this should be primarily "carrots," but there are also some "sticks:"
  • Some might try to abuse FairPay and not return, or could return with another email address. But FairPay's tracking process makes such abuse harder -- and more conspicuously at odds with maintaining one's own positive self-image. 
  • Such abuse might have results similar to the current PWYW policy -- but probably for fewer people, and less aggressively -- and abusers could now be tracked and cut off from repeated abuse. (Enforcement of fairness criteria could be lenient, or as whatever level the Met and the city agree to be appropriate.)
  • Other methods proven by behavioral economics could be applied to nudge patrons to pay fairly, and even generously. 
  • More direct, proactive programs could be applied to encourage participation by the disadvantaged (or others) -- and even to encourage them to volunteer non-cash support that might be credited toward their membership obligations.
Thus total revenue should be higher than with the current PWYW policy -- and relationships should be much stronger.
Naturally the Met would want to test this to learn how to manage the process well, starting with selected segments of visitors who can be expected to be most deserving and appreciative of this increased level of cooperation, transparency, and trust.


From visits to relationships, from price to value

FairPay is all about building value-centered relationships, and being smart about how to motivate and value such relationships. Technology is providing much more powerful ways to do that than ever before.

The institution's challenge is to exploit these new ways to make museum pricing work better for all of us -- whether with full forms of FairPay, or with partial steps in that more win-win direction.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video). 

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain.)

Tuesday, January 16, 2018

"The Square and the Tower" — Hierarchy versus Emergence

For those interested in the big picture of history and how technology affects that (and is shaped by that) -- with implications for the future of commerce in our digital world -- Niall Ferguson's new book, The Square and the Tower: Networks and Power from the Freemasons to Facebook is well worth a look. I have posted a full review, with some proactive suggestions, on my other blog.

A few extracts:

...a sweeping historical review of the perennial power struggle between top-down hierarchies and more open forms of networks. It offers a thought-provoking perspective on a wide range of current global issues, as the beautiful techno-utopian theories of free and open networks increasingly face murder by two brutal gangs of facts: repressive hierarchies and anarchistic swarms.

...I think Ferguson fails to see the potential for better ways to design, manage, use, and govern our networks -- and to better balance the best of hierarchy and openness. To be fair, few technologists are yet focused on the opportunities that I see as reachable, and now urgently needed.

My full review: "The Square and the Tower" — Augmenting and Modularizing the Algorithm (a Review and Beyond)

Wednesday, December 20, 2017

The Ghost of Pricing Future -- A Thought Experiment

In the spirit of Dickens's Ghost of Christmas Future, I thought again of the "demon" that I have outlined as a simple but over-arching vision of ideal pricing.

It is easy to get lost in the many currents of discussion about the strategy and tactics of pricing -- and to lose sight of the deep connection of pricing to how enterprises think about their business, their customer relationships, and the marketing, production, and design of their products and services.
  • There are many strategies for more effective pricing, such as based on value, performance, solutions, and outcomes. These relate to broader business directions, such as one-to-one, customer-first, and customer-value-first, as well as the growing focus on customer experience
  • While these generally point in the right direction, we often fail to see the forest for the trees. We need a fundamental principle to guide us, and to make it clear how to align all aspects of a business. 
  • My demon illuminates that driving principle.
Think of the Value-Pricing Demon outlined below -- What would the demon do? 

If your pricing stays true to that, success will follow.

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(Prolog to the book, FairPay: Adaptively Win–Win Customer Relationships, by Richard Reisman)

Prolog:  
A Thought Experiment -- Imagine a Value-Pricing Demon…

Imagine a demon that might power a system of commerce.  Imagine that this demon has perfect ability to observe activity and read the minds of buyers and sellers to determine individualized "value-in-use" -- the actual value perceived and realized by each buyer, at each stage of using a product or service.
  • The demon knows how each buyer uses the product or service, how much they like it, what value it provides them, and how that relates to their larger objectives and willingness/ability to pay. It understands the ever-changing attributes of current context, where the value of a given item or unit of service can depend on when and how it is experienced.
  • Furthermore, this demon can determine the economic value surplus of the offering -- how much value it generates beyond the cost to produce and deliver it.
  • The demon can go even farther, to act as an arbiter of how the economic surplus can be shared fairly between the producer and the customer. How much of the surplus should go to the customer, as a value gain over the price paid, and how much should go the producer, as a profit over the cost of production and delivery, to sustain their ability to continue those activities.
Such a commerce demon might thus serve as the brains of a system that sets prices that are adaptive and personalized -- to set a price for each person, at each time, that is fair to both the producer and the customer.  Imagine we could build an e-commerce system, with advanced programming and data that worked as an artificial intelligence version of this demon. Prices would not be pre-set by the seller, but would be set dynamically by the demon for each item or unit of service, at levels that would be fair and acceptable to both the buyer and seller.

Actually, a rather different pricing demon has long been widely accepted as central to our economics.  Isn’t Adam Smith’s invisible hand just the hand of a demon that guides the setting of prices based on a balance of supply and demand?

So if we have Adam Smith’s demon, why do we need my demon?  Because the invisible hand works nicely for markets of scarcity, but in the digital era, we face markets of abundance.  The task of these new markets is not how to allocate scarce goods, but how to sustain the creation of services that can be replicated without cost or limit.  What we now need to allocate is a fair share of the customer’s wallet. 

This book shows how thinking about my demon can help us do that. FairPay is a business architecture centered on a new value feedback process that adaptively seeks to approximate what the demon knows

(More on thought experiments and this demon in Chapter 5.)


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This Prolog to my book, FairPay: Adaptively Win–Win Customer Relationships is also online. I first posted about this (with added commentary) in 2015:  Harnessing the Demons of The Digital Economy.
.

(A note on ghosts and demons:  Of course my demon is a converse of Dickens' ghost, which pointed to the dark scenario -- my demon points to the ideal scenario -- but both serve as thought experiments. I call it a demon in the same spirit as the well-known benign demons of physics:  Maxwell's demon and Laplace's demon -- those have long served as very useful thought experiments.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video). 

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain.)

Tuesday, October 31, 2017

"Invisibly"? -- Or Visibly? ..."Finding the New Revenue Stream Publishers Dream Of"

"Can startup Invisibly be the new revenue stream publishers dream of?" asks Ken Doctor in his very interesting Newsonomics piece last week.
Led by the cofounder of Square, Invisibly promises “four-figure CPMs” and a way to make big money off readers who won’t subscribe. It says it has most of the U.S. digital news industry on board. But is it just “an ad network dressed up as a savior for news sites”?
(This post is based on the comment I made on Ken's piece.)

Invisibly?

There is much positive here -- but there is one fundamental concern at the heart of this -- the "invisibly" part!

The name relates to the handling of what is described on Invisibly's FAQ:
A digital wallet will accompany visitors as they navigate content across the internet. As the visitor happens upon participating sites, the digital wallet will invisibly keep a ledger of earnings from brand engagements and expenditures from content. At the optimal time, the system will prompt visitors to sign up and improve their experience, by giving them a choice of watching or avoiding ads. If a visitor wants to avoid ads, they can add payment (i.e. a credit card) that can process all of their content and subscription purchases in one bill.
Thus, as Ken fills in, based on his interviews: 
A reader/consumer’s "wallet" will fill up silently in the background — invisibly, you might say — depending how much value his attention to commerce is affording advertisers. Consumers won’t see these wallets, or how much content these value holders will offer them. Why? In showing actual value gained, consumers will try to 'game' the system.
But I say, "On the contrary!"

Hiding the wallet (ledger) seems inevitably to harm cooperation, loyalty, and willingness to pay a fair price for value -- the willingness to contribute funds that sustain the continuing creation of such value. The value of of a consumer's attention and how it affects the price they are asked to pay is secret??? How would that make you feel? Would you want to do business with a company that hides your account balance and history? a bank that wants to hide your balance from you?

Consumers will feel gamed, and that will lead them to feel justified in seeking to game the system against the publisher in return. They will seek to avoid paying a fair share -- or just not buy at all -- because they feel any publisher who is hiding this ledger of value exchanged is not playing fair with them. The same reason current experiments with dynamic pricing are hated so much -- it is done invisibly, often secretly, with no apparent justification -- just a devious game of extracting the most possible from one's wallet.

Visibly (= Transparently)

The publishing world (much like the larger business world) is recognizing the need to be customer-value-first -- to build a true "social contract" around their relationships and value propositions with their readers/members/customers. That requires transparency.

Most of the rest of what Ken reports of Invisibly seems to be a smart combination of many of the strategies of FairPay (an open architecture that I have proposed): flexible exchange of value personalized to individual reader behavior, based on "a new business model stack" that goes beyond "the binary subscribe/don't subscribe" model. An approach that seeks "a newer kind of advertising engagement" that is factored into a reverse meter to give credit for attention to ads. The difference is that FairPay seeks to transparently justify its new forms of personalized pricing -- doing it in ways that customers can participate in and recognize as fair -- not by "invisibly" imposing pricing that will seem arbitrary and exploitative.

"What will the readers think?"

As Ken pinpoints, the big question is one of "consumer acceptance and adoption." Hiding the accounting for the exchange of value seems bound to intensify the zero-sum conflict between publishers and their readers.

Maybe Invisibly can play its game cleverly enough to work better than the badly broken model we have now. There is much that is smart and forward looking here. But there is this fundamental turn toward the dark side...

A new logic (a new business model stack) that is win-win

Why not apply these sophisticated strategies in a more cooperative manner? It is time for publishers to embrace the idea that in our new world of digital, the only truly winning game is a win-win game with readers/viewers/customers. Many publishers are beginning to warm to that more customer-value-first logic. They should learn from what Invisibly has right, but in a way that is more transparent.

As I said in a LinkedIn message to Invisibly founder Jim McKelvey, "You seem to be on the right track, but with one more twist needed to be win-win. (Maybe Invisibly 2.0, if not now...)" I hope McKelvey and Invisibly's launch partners will look carefully at this issue, and realize that zero-sum games of hidden manipulation are not the way to sustain a publishing business. Invisibly seems an otherwise well-conceived and formidable effort to help publishers. But that needs to be done visibly and transparently.

In these times of existential threat to publishers -- in which both publishers and readers increasingly recognize a need for "a new social contract" that is win-win -- it would be a shame to turn publishers toward a darker direction that is in direct conflict with that. Invisibly seems to be smart, but what is needed is to be wise.

The only way publishers will find the new social contract needed to win with their customers in a scalable and sustainable way is visibly!

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.


(FairPay is an open architecture, in the public domain.)

Monday, October 16, 2017

Thaler's Nobel, Surge Pricing, Fairness, and Long-Term Relationships

Some very nice insights on this theme are woven together in the latest Upshot reporting by Neil Irwin. It shows how Richard Thaler's behavioral economics adds deeper dimension to the debates about surge pricing -- and how that ties to underlying issues of fairness and long-term relationships, beyond the usual conflicting simplistic responses ("not fair"/"sound economics").

My congratulations to Thaler on winning the 2017 Nobel Prize in Economics last week for his work in creating the field of behavioral economics. That is a key foundation for my work on FairPay, and I am very appreciative to have gained his encouragement, as noted below.

When we look beyond the surface, we see that fairness in long-term relationships is what really matters for economics to work well, and that leads to the values (fairness) that we all seek. Thaler developed behavioral economics to look deeply at those deeper issues of human value and behavior. FairPay makes that the center of an new logic for consumer commerce that is badly overdue in our new digital age.

Some relevant quotes from Irwin's article:
For artists, no one show exists in a vacuum. And the things that might maximize revenue for any given night might not be the elements that matter in the longer term in developing devoted fans.
...So one view of the Springsteen approach is that it is economically irrational. But another is that it is part of a long-term relationship between a performer and his fans.
...Utilities and regulators, in other words, have to think a little like Mr. Springsteen: It’s not just about maximizing the efficiency of the energy market on any one day, just as the Boss isn’t trying to maximize his revenue from any one concert. Rather, it’s about maintaining a relationship in which people do not feel like they have been exploited.
...People’s perceptions of what is fair and just are not set in stone; they evolve over time. But companies looking to use variable pricing have to be cognizant of how important it is to respect those perceptions.
...What the successful examples of variable pricing have in common is that they treat customers’ desire for fairness not as some irrational rejection of economic logic to be scoffed at, but something fundamental, hard-wired into their view of the world. It is a reality that has to be respected and understood, whether you’re setting the price for a highway toll, a kilowatt of power on a hot day, or a generator after a hurricane.
“If you treat people in a way they think is unfair, then it will come back and bite you,” Mr. Thaler said. And it doesn’t take a Nobel to understand that.

Numerous posts on this blog address similar underlying issues related to consumer perceptions of price discrimination (including surge pricing) -- and how a more enlightened variation that I call "value discrimination" can be very fair and broadly beneficial to consumers.

I was privileged to get Richard Thaler's attention and encouragement when I wrote to him in 2015 about how nudging is a key aspect of the FairPay strategy, referring to my blog post, How Consumers Can Nudge Corporations for Good (which commented on a piece by him in the NY Times). He then connected me to his colleague, Heather Caruso, executive director of the Center for Decision Research at the University of Chicago Booth School. After some encouraging discussion, she indicated that their center would be interested in possibly being a resource for help in conducting experiments when a company is ready to do a trial.

With regard to trials, businesses, entrepreneurs, researchers, or others who might have interest in applying FairPay or related strategies are invited to contact me for pro-bono assistance. (FairPay is an open architecture in the public domain.)

More detail on how behavioral economics supports the strategies that underlie FairPay is in my earlier post, Thinking Fast and Slow about FairPay: A New Psychology for Commerce in a Networked Age, and in Making Customers Want to Pay You -- Research on How FairPay Changes the Game. (I previously had brief interchanges with Daniel Kahneman, the first winner of a Nobel for related work in behavioral economics, and author of Thinking Fast and Slow.)

We are just beginning to see the real world results of the more human side of economics that Kahneman, Tversky, and Thaler shined their light on.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.


(FairPay is an open architecture, in the public domain.)

Monday, October 9, 2017

WTF?: A New, Better, Warm-Blooded Capitalism -- Linking Profit to Human Values


We can start now, one company at a time. What company will take that step? -- to shift from the cold-blooded zero-sum logic of dinosaurs, to the more dynamic and cooperative logic of mammals? All it takes is one imaginative business to lead the way (most likely starting in digital).

I just finished an advance copy of Tim O'Reilly's important new book, WTF?: What's the Future and Why It's Up to Us.* My focus was Tim's perspective on how we are now confronting "the beginning of the end of a failed economic theory," because my work on FairPay is aimed at a simple change in how we structure customer relationships that can enable individual companies to lead toward "an economy where people matter, not just profit."

Tim's WTF? provides a sweeping and insightful synthesis of how technology has been reshaping all aspects of our civilization -- not all for the best. It paints a compelling picture of the forces driving the problems we now face, and of the wide variety of hopeful vectors for change that are emerging. But it only hints at the idea that there are simple things that companies can do now on their own initiative (with the aid of consumer support) to begin to change the game unilaterally, in a way that can begin to shift perspectives more broadly. Just as Eastern sages say "there is nothing you must do first to achieve complete and perfect enlightenment," there is nothing we must do first to allow companies to align profits with human values (at least to a far greater degree than we do now, in some contexts).

First some initial comments on why Tim's book is important and compelling, then some observations on how FairPay highlights possibilities now at hand that promise to enable us to change direction even faster than Tim seems to suggest.

WTF?: What's the Future and Why It's Up to Us

Tim draws on his established position as thought leader with ties to the increasingly broad range of "alpha geeks" and entrepreneurs that have shaped our digital world, and his perspective as a publisher and communicator concerned about the broad human effects of technology on our civilization. He richly explores the double-edged effects of technologies such as platforms, automation, algorithms, and AI, and how they seem to be making life worse in many ways, even as they work miracles.

Tim makes his case in terms of a fitness function, the quantified objective function that guides the evolutionary optimization of an organism (or a system) to fit an environment. Through a wide range of contexts and examples, Tim suggests that we need to change the rules and incentives of our markets -- not only markets for goods and services but also financial markets -- and layers of internal and governmental rules that regulate them -- to better address the conflicts between people and profit, to turn the invisible hand to guide corporations fairly. On the long-term effects of algorithms and automation, he wisely observes that we need to not only manage these to protect and augment people (rather than simply replace them), but also to shift our focus to not simply protect jobs, but to the guide ourselves to the work that needs doing.

Tim points not only to emerging problems, but also to many signs of hope, and to how to build on that. He draws our attention to the many vectors of change (forces characterized by both intensity and direction) that shape the future. He points to both the urgent need, and the rich potential, that we have at this pivotal time, to remold the world closer to our heart's desire.

WTF?: What steps can a business take now to jump-start  that future?

My focus here is to synthesize and build on some of the vectors that are already pointing to ways to do this without waiting for systemic change in the underlying rules and regulations of our markets. There are already shoots we can build on, to work within the logic of our markets, to be more focused on human values.

There is nothing we must do first: we have already entered an age where profit can be increased by better serving customer values. Just be customer-value-first. 

What does that mean? Many businesses are realizing that it is not enough to be customer-centered (just seeking to extract maximum value from customers). We are entering an age of relationship capitalism -- most visibly in the emerging subscription economy where it is now understood that the key metric is not quarterly profit but customer lifetime value (CLV). Companies of all kinds are looking to customer journeys and loyalty loops, and seeing the need to be customer-value-first -- to work with each customer to maximize the value they perceive (and thus get the most from them in return). CLV is maximized when the company looks not to what its customers can do for it, but what it can do for its customers.

Value-based pricing has emerged in the B2B world as a way to align the business with the value it co-creates with its customers, to share fairly in that value surplus, and to drive that directly to the bottom line of pricing and thus profits. Less need for multiple bottom lines that tack on social values, if those values are priced in to the financial bottom line. Less need for external controls to manage externalities, if those are baked into value-based prices. Less conflict with investor demands, if prices and profits are aligned with customer values.

Translating that value mind-set into the B2C world has lagged because doing value-based pricing in a scalable way for mass-consumer markets has seemed so impractical that few even think about it. But we are seeing hints of a sea-change. Tim mentions Patreon and other new crowdfunding strategies for consumer funding of creation as "having a lot to teach us about [the economy's] future direction." Similar shoots can be seen in the move toward membership models in which readers fund journalism (or other services) that they care about. Behavioral economics has studied such participative pricing models (including the often-too-extremely customer-value-first model of pay what you want) to find that they are surprisingly effective, and that the classical economic model of a purely financially motivated homo economicus misses the actual behavior of real people. (Tim also mentions cooperatives, like the Green Bay Packers, REI, and Vanguard, and how they succeed at better aligning profit with human values.)

It is encouraging that a theoretical base for deep changes in corporate mind-set has been coalescing in the work of some marketing scholars and businesses who are re-examining the “goods-dominant logic” of the past, versus the “service-dominant logic” that we now are faced with. This meshes with recognition that value is not created by “producers” and purchased by “consumers,” but that “actors” in ecosystems work together to co-create value, which flows in multiple directions. Customer-value-first thinking is just one aspect of that (and platforms are another).

Tim quotes William Gibson, "The future is already here -- it's just not evenly distributed." My work on FairPay seeks to build on these shoots of a more participative, win-win future, to drive simple changes to the structure of the game that a business offers to play with its customers, changes that can make that relationship far more cooperative in seeking a fair sharing of the business and consumer surplus.

FairPay and the invisible handshake

Tim describes how the invisible hand of competition in our markets does its work to balance supply and demand. The invisible hand works by rationing scarce supply against demand. But, increasingly, we have markets in which supply is not scarce, but essentially infinite (especially markets for digital goods and services). Furthermore, increasingly we expect our markets to work for goods and services that are not commodities, but experiences that have very different values to different people.

We still think with the economic logic of the invisible hand, but it no longer works so well in many domains (especially digital). For example, many digital businesses feel driven to create artificial scarcity, in an effort to prop up the invisible hand to maintain their profits under this obsolete fitness function. Customers easily see through that, and wonder why they should pay what is demanded (or anything at all) -- they resent being manipulated in ways that they see as patently unfair. Even publishers are realizing that information wants to be ubiquitous (except in special markets like time-sensitive financial information in which customers want scarcity and are willing to pay a premium for that). Furthermore, artificial scarcity is an enemy of the economies of scale that benefit business, customers, and society alike -- it limits the fruits of creation to those with high ability to pay.

Tim says "I am a strong believer in the social value of business done right. We should aim to build an economy in which the important things are a natural outcome of the way we do business, paid for in self-sustaining ways rather than as charities to be funded out of the goodness of our hearts." I agree completely -- that is the objective of FairPay.

Tim is concerned about how capital markets get distorted to focus on the narrow interests of shareholders (and management), and looks to ways to change that. That is a deep and urgent concern -- I do not mean to suggest any weakening of Tim's points regarding that. But I suggest there are complementary ways to make our fitness functions work better -- for businesses, customers, and society -- from inside our businesses, in the current market environment. Let's do what we can to change from inside, now!

FairPay builds on the recognition that many businesses are now much more strongly a matter of relationships. Subscription businesses are beginning to see that they are living a new kind of social contract with their customers. Customers rightly question why they should pay for existing content (since it can be provided at negligible cost). They understand what they need to pay for instead is the continuing creation of more such content. (The recent dramatic increases in news subscriptions is an example.)

A business applying FairPay makes this social contract explicit, in the form of a repeated game that motivates cooperation. "I will be more flexible (and give you more say) in how I price my services, as long as you are fair about paying for the value you receive" (as explained in FairPay Changes the "Game" of Commerce). Instead of an invisible hand, think of this social contract as an invisible handshake that drives pricing toward equitable sharing of the value surplus, however that varies in any specific context (including widely varying abilities to pay). (This is explained in An Invisible Handshake for The Digital Wealth of Nations and Harnessing the Demons of The Digital Economy.)

No one else needs to change any rules to apply this invisible handshake -- it is just a matter of a single business being clear about the structure and intent of the game it offers to play, and being smart about framing its offers, learning what the customer values and working to deliver it, and nudging the customer to accept and hold up his end of this social contract. This can be done in many market sectors, among selected segments of users who (1) value the service, (2) want more flexibility in pricing and offers, and (3) are willing to make an effort to be fair about it.

Businesses of all sizes using current emerging models like Patreon and membership are pointing in this direction already. (And effective SaaS platforms can facilitate this to make it easy for small businesses and even individuals -- with significant scale economies and data network effects -- a major entrepreneurial opportunity there! Think not just of CRM, but of pricing and relationships as a service.)

Tim emphasizes the importance of tight feedback loops to achieve fitness functions, and to ensure product-market fit. FairPay is driven by an adaptive feedback loop that underlies every touch-point between the customer and a business and its products/services, to seek to jointly measure and maximize value at all levels -- as both the business and customer agree to define it.

Tim explores the dark side of business models that seek engagement (like Facebook and other ad- or commerce-driven businesses). FairPay fosters a form of consumer engagement that is win-win for all of us.

Tim suggests thinking of the economy as a game. FairPay shifts our micro-economics to see commercial relationships as a repeated game that works not for single transactions, but over a relationship, to align business and customer incentives to produce what we want, when and how we want it, for everyone who values that -- and to divide the surplus value so that both profit well from doing that. That harnesses the law of attractive profits to incentivize companies to profit from competing on creating customer relationships that maximize human values. That in turn leads to a macro-economics in which bottom-line revenues and corporate profits correlate with the creation of real human value.

A vector to broader human values (and other WTF? improvements)

Taking this farther will take skill and continuous learning and refinement, but, if done with care on the part of the business, customers will increasingly see that it delivers the value they seek, on terms they are be happy with. That value can include not only the narrow aspects of value addressed by the invisible hand, but whatever human and social values the customer wants to factor in (including people, planet, and purpose, to the extent the business will agree that is reasonable).** All of the vectors that Tim describes support and facilitate moving in this direction. Early success will lead to wider use across broader segments of consumers. Even costly real goods can be partly amenable to this logic, especially if they are based on human creative work (which Tim points to as another important vector).

Seeing this invisible handshake work will help create a climate for the more broadly systemic changes in business (and how it is regulated) that Tim points to. Businesses and the capitalist system will find themselves driven closer to our heart's desire. That will reduce the need for external remedies, and will create a more cooperative climate in which those remedies that are still needed will be seen as less objectionable.

...All it takes is one company to give this a try. (...Maybe O'Reilly Media?)

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On a personal note -- as one who has spent his career watching, developing, forecasting, and inventing the future since the 1960s -- I very much relate to Tim's perspectives. I hope many will think seriously about this future and "why it is up to us." Now, more than ever, our future depends on that.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.


(FairPay is an open architecture, in the public domain.)

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*A preview of WTF? is provided in Tim's August post on Medium (which I commented on). A sample chapter is also available. Publication date is tomorrow, 10/10/17.

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**[UPDATE -- comment from Tim O'Reilly] 
Thanks very much Tim!  To your very relevant point of concern, I should expand on how FairPay enables customers to have a much greater say about that...

FairPay seeks to define value to "include not only the narrow aspects of value addressed by the invisible hand, but whatever human and social values the customer wants to factor in (including people, planet, and purpose, to the extent the business will agree that is reasonable)."

When pricing is sufficiently participative, through a process like FairPay, customers can nudge businesses to have their price factor in whatever aspects of value they want it to include. That can be soft customer values like service and support, but can also include broader social factors like how a company treats its employees, sources its goods, supports its community, and protects the environment. It can include bonuses to journalists or musicians or other contributors. It can factor in credits for being a good corporate citizen (much as some companies already enjoy a level of premium pricing because of their good reputation), and, conversely, can factor in debits for bad behavior (much as the market now punishes known bad actors). Just as old fashioned negotiation or tipping often factor in such broader considerations, the new invisible handshake of FairPay can do that in a way this is more explicit and powerful.

This is not to suggest such "customer nudging for good" will fully address all important aspects of human and social values, but that it can lead to enough of a shift in how prices reflect such values to have dramatic effect -- and thus can reduce the need for external measures (and "multiple bottom lines").

This is expanded on in my post, How Market Commerce Can Become More Cooperative, Fair, and Human.

[UPDATE 1/16/18] 
An interesting complement to WTF? is Niall Ferguson's new book, The Square and the Tower: Networks and Power from the Freemasons to Facebook. It provides interesting historical perspective, which I explore and expand on in a review on my other blog: "The Square and the Tower" — Augmenting and Modularizing the Algorithm (a Review and Beyond)