Day: 21 September 2006

I have often wondered why we spend so much time wrestling with the issues related to Marketing in the 21st Century, with reframing IPR and DRM, and with “net neutrality“. Why we land up with starkly polarised views and start calling each other names. Blefuscu and Lilliput all over again.

And recently, I’ve begun to think it’s about Doc’s Because Effect. More precisely, it’s about people unable to cope with the Because Effect.

What we are seeing are people who are running scared, paralysed, sometimes not willing, often not able, to make the move from making money with something to making money because of something. So they try and build walls around whatever it is they made money with, and try and build laws that will keep those walls in place, and try and claim that anyone who disagrees is a pinko lefty criminal tree-hugging utopian no-hoping loser.

Take a look at what Peter Drucker said in the context of marketing:

• It is meaningful to say that “product A costs X dollars”. It is meaningful to say that “we have to get Y dollars for the product to cover our own costs of production and have enough left over to cover the cost of capital, and thereby to show an adequate profit.” But it makes no sense at all to conclude, “… and therefore the customer has to pay the lump sum of Y dollars in cash for each piece of product A he buys.”

What Drucker is referring to is the fallacy inherent in directly correlating what a customer pays for with what an enterprise wants, even sometimes needs,  to receive. Drucker continues:

• Rather, the argument should go as follows: “What the customer pays for each piece of the product has to work out as Y dollars for us. But how the customer pays depends on what makes the most sense to him. It depends on what the product does for the customer. It depends on what fits his reality. It depends on what the customer sees as ‘value’ “

That’s what part of the Because Effect is about. Google doesn’t make money from search. It makes money from advertising. So Google gets their “Y dollars”, and “how the customer pays depends on what makes the most sense to him”.

You can see it as part of Christensen’s Innovator’s Dilemma. People didn’t buy encyclopaedias, they assuaged guilt to the tune of $1500. So when they could buy a PC and a disk containing an encyclopaedia for the same $1500, they “paid it, depending on what made the most sense to them”.

You can see it in the kids who pay $4.99 for a ringtone yet won’t pay $15 for a CD.

You can see it everywhere.

Back to Drucker. He said:

• Price in itself is not “pricing”, and it is not “value”. But this is nothing but elementary marketing, most readers will protest, and they are right. It is nothing but elementary marketing. To start out with the customer’s utility, with what the customer buys, with what the realities of the customer are and what the customer’s values are — this is what marketing is all about. But why, after forty years of preaching marketing, teaching marketing, professing marketing, so few suppliers are willing to follow, I cannot explain.

What Drucker cannot explain is what I have found hard to understand. And why I am Confused.

Enough about Marketing. Let’s take patents. One way of looking at patents is that they provide an inventor with an artificial monopoly rent. This monopoly rent allows the inventor to create a difference between the cost of production and the price charged to the customer. In effect, the patent allows the inventor to make money with a product rather than because of it. [For a short time, as With moved to Because].

This was reasonable, a short-term artificial basis for inventors and their firms to recoup their investments and their costs of capital. First-mover disadvantage was neutralised and everyone was happy.

But.

In the old days, most of research was done in universities and academic institutions. They thrived on knowledge, on sharing knowledge, it was their life-blood. And, for the most part, they had no patents. Yet they shared ideas. Sometimes the ideas needed considerable capital injections before they could see the light of day as inventions, and so we had patents. In this context you could argue that the monopoly rent was used to offset the costs of research. Perfectly reasonable.

But.

Even then, there was a considerable time delay between the issuance of a patent and the commercialisation of the invention. In many cases the commercial product came into existence around the time the patent was ending anyway. Which meant that the artificial monopoly rent disappeared at the right time.

But.

Now cycle times have changed, the gestation period between concept and patent and commercial product is small. The capital costs have changed, much of the need is intellectual rather than land or capital. Production costs have changed in a digital borderless innovating-on-the-edge networked non-hierarchical world.

Yet.

Patents are still pending while the commercial product meanders towards obsolescence. There are offensive patents, defensive patents, frivolous patents, spam patents, shyster patents trying to take public domain things private, more patents than the population of China. Patents trying to create monopoly rents in order to defray nothing at all.

And so we have high costs to do with patents. More patent lawyers than the population of India and China. An expensive meaningless discovery process. An inability to define what the thing is, an inability to prove or disprove prior art. And guess what, someone needs to recoup all these costs.

Have we reached a stage where the true reason for a patent’s monopoly rent is actually to recoup the costs of the patent process and nothing more? I wonder.

It’s back to The Because Effect. Customers will pay because they get value. It is up to them how they pay. And firms that understand that will land up recouping their costs because they have happy customers. Firms will not recoup their costs via lock-ins and artificial monopolies. Especially costs that shouldn’t exist in the first place. Costs to do with production and distribution. And patents. And windfall expectations.

The same happens when people argue about who is going to pay for Stevens’ Tubes. [By the way, talking about Senator Stevens, have you seen this? Or, in the context of IPR, this? Or, in the context of DRM, this? Laughable.]

A coda: Peter Drucker on Marketing. Again.

….That after twenty years of marketing rhetoric consumerism could become a powerful popular movement proves that not much marketing has been practiced. Consumerism is the “shame of marketing“.

Consumerism is the shame of marketing. And IPR and DRM.

This is a post about chillies and about endorphins. If you’re into either, read on, Macduff. I’m into both.
The kernel for this post was a story by Mark Frauenfelder on Boing Boing recently, revisiting an article he’d written some time ago called The Cult of Capsaicin.

In the excerpt, Mark quotes Dave De Witt, a seasoned (yes, pun intended) veteran of books on the chili pepper. Dave in turn refers to a Yale study in the 1970s that classified people into supertasters, tasters and nontasters, based on the number of taste buds per square something-or-the-other.

I’ll come to the argument and the controversy shortly; first, some scattered seeds to help those who aren’t yet into chillies big-time.

Believe it or not, there’s actually an index, the Scoville Scale, to measure the “hotness” of food, particularly chili peppers. To give you an idea of how hot hot can be, the Naga Dorset pepper, currently claimed as the world’s hottest chillie, has a Scoville rating of between 876K and 970K. Contrast that with the habanero, a measly 100K to 350K, or with your common-or-garden jalapeno, a miserly 2.5K to 10K.

There is some evidence to suggest that chillies only grow in hot climates, and that one of their key roles is to help humans living in such hot climates to cool down. The logic goes: Eat chillie. Sweat buckets. Allow prevailing wind to operate on sweaty body. Cool down.

Now that’s not everyone’s cup of tea (although the same logic is used to explain why people drink hot tea in hot climates, to cool down….).

There is also considerable research into the protective and curative properties of the chillie (assuming that this public domain good hasn’t already been illegally patented to death); one of the more unusual bits of research suggest that some aspect of capsaicin, the active compound present in chillies, helps produce anti-carcinogenic behaviour in the human body. But that’s a deeper subject. If you are interested in the rich history, culture, science and folklore of the chillie, I would recommend you read Amal Naj’s Peppers. It’s an excellent first book on the subject.

Now to the main course of this post. Frauenfelder’s story set off alarm bells in my head, as I saw an old controversy rear its ugly head. The controversial concept is simple:

• Some people can eat hot chillies. Others can’t. The difference can be explained by the number of tastebuds.

The 1970s Yale study seemed to endorse this position, given the likelihood that people could be classified into super-tasters, tasters and non-tasters.

Wrong.

This is another nature-versus-nurture debate.

Man’s ability to endure chillie heat has nothing to do with tastebuds. It has to do with training the mind.

You see, chillies are a fantastic con. Let me explain.
When you drink a cup of really hot coffee or tea, you damage some tastebuds. If you lived in the US I guess you may even sue, on the basis that you couldn’t read Warning: Hot or something like that.

The damage that a hot liquid does to your tastebuds is physical. Unless you’re desperately unlucky, the damage is temporary; for a few days, a part of your tongue is over-sensitive to heat and cold, and you struggle. But soon you mend.

As against this, look what happens when you eat a really hot chillie. Brain gets message: I AM ON FIRE. Sends out the fire engines. Every mucous membrane known to mankind rains on the chillie’s parade. Brain  then says to itself, OK, damage limitation done. Now let’s see what else needs to be done. Oh yes, we took some serious heat there, better send out some heavy-duty painkillers. The brain then dispatches a cartload of endorphins. Shortly after, the body calms down and all is well.

Now you can train your body to be more efficient about this process. Eat chillies. Miss out the fire-engine bit. Do not pass Go. Go straight to collect endorphin consignment. Live happy.

This is not to say there isn’t a physical issue to do with chillies. Capsaicin is a major irritant. So you’re messing with death if you don’t wear gloves while chopping up really hot chillies. Don’t even think about removing contact lenses or visiting the men’s (or ladies’ ) rooms until and unless you’ve really washed your hands AND worn gloves.

The irritant aspect of capsaicin is one to be feared, especially with sensitive areas like the eyes, nose and for that matter regions further south. But most people don’t tend to eat chillies using those parts of the body.

For the mouth and the tongue, the irritant aspect is manageable and trainable. And the endorphin kick is enjoyable.

It’s only anecdotal and completely unscientific, but I know people who are serious foodies, with highly developed senses of taste, smell and flavour, who can and do eat heavy-duty chillies. At least one is also a pretty good judge of wine.

So for me I don’t buy the argument that chillie tolerance is connected to having a shortage of taste buds.

Any comments?