Shaking up marketing by taking a consumer’s view

Three start-ups with consumer-centred business models will not overturn old-style marketing – but every good wind needs straws.

As I write this I’m doing something I would never have believed I would do even a year ago: I’m listening to internet radio.

I’ve never been much of a radio fan. Intrusive ads and presenters going all-out to grab my attention drive me up the wall. And invariably some tune comes along that jars. So I end up turning off. But AOL’s radio service, paid for as part of my subscription, is different. No annoying presenters or ads. Just music, and a huge choice too, available at the click of a mouse. I’m a convert.

Internet radio is a new distribution channel, value proposition and business model rolled into one. It’s one factor behind Clear Channel’s loss of $4.67bn (&2.5bn) following a write-down of the value of its US radio licences, and Viacom’s $10.9bn (&5.8bn) write-down of its radio and outdoor business. The industry is in the throes of a revolution.

It’s not alone, of course. As we all know, downloaded music has put a rocket up the music industry’s backside – including traditional music hardware providers such as Sony. Internet television and video-on-demand wait in the wings, with the BBC talking of extending licence-fee charges to people who use computers to watch TV.

Meanwhile, internet-based travel companies – either direct sellers such as easyJet or intermediaries such as Expedia – are transforming the industry’s dynamics and economics. One example: BA’s push towards zero commission payments to travel agents. Then there’s telephony itself. Voice-over-the-internet telephony is forecast to be a $500bn (&270bn) business within five years – by which time BT plans to have stopped selling new landline connections (its former core business) to focus on selling telephony as part of a broader broadband package.

Many years ago, people predicted the internet would change everything to do with information-intensive activities. It didn’t happen as quickly as some predicted. But now it’s happening with a vengeance.

So what’s next? Let’s turn our gaze to three tiny start-ups. Zopa is the brainchild of Richard Duvall and James Alexander, former chief marketing officer and strategy director of Egg. Zopa (it stands for Zone Of Possible Agreement) is a borrowing and lending “exchange” that connects lenders to borrowers directly, letting them decide what prices and risk profiles they are prepared to accept and bypassing high street banks’ enormous overheads, bureaucratic requirements and volume targets

Instead of managing the spread between the rates it pays to lenders and borrowers, Zopa believes it can make a healthy profit from a flat one per cent transaction fee to borrowers, while offering both sides much greater flexibility and control at a much lower price: rates up to 20 to 30 per cent better for both borrowers and lenders. So, like internet radio, it’s a different channel, with a different value proposition and a different business model.

Now let’s turn to classified ads. Last week saw the launch of ThePeoplesWeb.com, which lets individuals and companies advertise anything they want to buy, sell or swap across six major categories (“in the home”, services, property, jobs, travel/holidays, “going out”, and vehicles/accessories) for ridiculously low prices: &5 a year for as many ads as you want for individuals and &25 for services such as plumbers. That compares to Yell, which charges around &100 an ad per region (about &10,000 for national coverage) and a typical local newspaper, which charges &35 for an ad that lasts for just one week.

For companies, the price-tag is slightly higher: &100 a year, full stop. “In theory,” notes founder Tim Hayes, a former European sales and marketing director of Stena Line, “Hilton Hotels could advertise every one of its beds, worldwide, for &100.”

Like Zopa, ThePeoplesWeb charges a flat rate. “Users also like our approach of a one-off payment,” says Hayes. “It directly pitches us against Ebay. We realise that, but we think our model is easier, simpler and cheaper.”

He’s also gunning for convenience. As volumes grow, users will be able to search ThePeoplesWeb at postcode level, to find out who is offering what just around the corner. “The Net is going to get smaller – more community based – not bigger,” he argues. “We are at the tip of the iceberg and can now grow very quickly.”

Now take one last example, this time in the sphere of customer relationship management and consumer data. For decades, this has been seen as a wholly corporate activity: we simply assume that it is companies that collect data about individuals and companies that use this data for their own purposes, such as more efficient sales and marketing.

But according to Iain Henderson of The Customer’s Voice, the next big opportunity lies in the other direction. At present, consumers indulge in a growing but fairly disorganised array of digital activities – paying bills online, storing and sharing digital music and photos, managing money online, keeping records of (e-mail) conversations, and so on. As these activities expand and become more sophisticated, they create a potentially huge market for personal data management services.

These new services (such as The Customer’s Voice) will help individuals build and manage their own personal databases (including things like demographic data, transaction histories and personal preference databanks) to help individuals get the greatest possible value from their personal information. Companies may be allowed access to this data, but only with the individual’s permission, and if they use it to add value for the consumer.

Zopa, ThePeoplesWeb, The Customer’s Voice: none of these start-ups has earned its spurs yet. They all need critical mass to flourish and they may go belly-up long before they achieve it. But they share a common theme: they address the mother of all quintessentially information-intensive activities, matching supply to demand and connecting buyers to sellers.

That’s not the same as “marketing”, because marketing as we know it focuses on just one side of the matching and connecting equation: marketers are paid to help companies in their quest for customers, but not to help consumers in their quest for value.

So it’s not surprising, perhaps, that all three start-ups have a populist flavour to them. “Our research shows that most consumers see today’s financial services as ’designed for them, not me’,” says Zopa’s Duvall. Most financial products are complex, confusing, and unempowering, while Zopa’s are simple, transparent and helpful. “Our job is to help people do what they want to do.”

Likewise, the Customer’s Voice is deliberately “buyer-centric”, while ThePeoplesWeb’s Hayes argues that by slashing the cost of advertising for both consumers and businesses, “we are a people’s champion. We think what we are doing is right.”

That’s as may be. But what really matters is the dynamics of change. Whether it’s internet radio, downloadable music, or individuals wanting to make better use of their money or data, the real innovations don’t seem to be coming from incumbent sellers looking for new and better ways to sell, but from new entrants using new technologies to help consumers in their quest for better value. The vector of change is coming from “outside” traditional marketing. That should make us pause for thought.

Alan Mitchell, asmitchell@aol.com

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