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?

Have you ever heard of Richard Butler? A man, who, according to Jim White in the Daily Telegraph, “hit the council where it hurts; he has kicked it in the red tape.” A delightful story that you can read here, without a paywall in sight.

The story’s simple. Council wants to build road through man’s garden. Man likes garden. Man protests, banner shows website address. Banner banned. “Illegal advertising”. So. Man introduces fractional ownership into said garden. Plots for £1 a pop. Buyers aplenty. Fractional owners dispersed globally. Council cannot build road until and unless all owners are served with compulsory purchase orders. Which will take time.

The power of many.
Different context. Willie Nelson. And band. Travelling through Louisiana. Issued misdemeanour citations. Rather than prison sentences. Because the band acted as a group. Story here.
The power of many.

Different context. Class 7A, Mr Patrick Vianna’s class, St Xavier’s Collegiate School, Calcutta. Sometime in 1971. Rich boy brings 100 rupee note to class. To pay school fees. 100 rupee note goes missing. “Prefect of Discipline” Fr Camille Bouche called for. He shuts the doors. Tells all forty-odd students (average age 13). Form a line. Walk one-by-one to the open window. Reach into pocket. Come out with a closed fist. Place fist through open window. Below sight line. Retract hand. Walk on. And magically, 100 rupee note is found on grass outside. [A classic example of the pragmatic wisdom and sensitivity shown to all of us by Father Bouche, who passed away a few years ago. A giant of a man. I miss him.]

The power of many.

Different context. Apocryphal tale. Calcutta, maybe 1974. Bank A wants to try and get Bank B’s customers, aggressive marketing ploy. You can open an account for as little as one rupee. Bank B, next door, sees marketing campaign. Bank B worries. Until someone has a brainstorm. Go out and give every street dweller you see a banana, a cup of tea and a rupee. Ask them to go and open an account at Bank A. Horrendous queues in front of Bank A, as they stroll in to open accounts. Regular customers don’t get served, switch over time to Bank B. [Was this the world’s first DDOS attack? :-) ] Plan backfires gloriously.

The power of many.

People who want to work together can do amazing things. Nitin Nohria and Paul Lawrence, in Driven, spoke of the Drive to Acquire, the Drive to Defend, the Drive to Bond and the Drive to Learn. I do so like their model, so much more than that of Maslow fifty years earlier. People want to bond. People want to learn. People want to defend that which they hold as precious. And people want to acquire, yes, but not at the cost of the other drivers.

Sure, any form of collective action has its perils and its misuses. But hey, any form of anything has its perils and its misuses. So let’s celebrate the different ways people work together in different contexts.

I believe in building people up, in encouraging people, in helping people develop to their potential, and to extend that potential.

I believe that social software helps us do that. It’s not the only way, it may not even be an important way, but it is a way.

Recent comments on Esther and her role at PC Forum, and on Kim Cameron and his role in the Microsoft OSP, have  helped me see just how good the blogosphere can be for encouraging people. Yes, in both cases they were helped by wonderful teams of people working hard together. Yes, in both cases the news created snowballs where people did the commenting all over the place, it wasn’t like everyone signed a card or something like that.  It’s just nice to be able to say “Well done”.
Yet people who don’t know much about the blogosphere somehow imagine it to be this nest of vipers where everyone flames everyone else, much bitching is done, people get cut down to size, whatever.

That’s a lie.

We need to understand that it’s OK to say good things about people. That it doesn’t automatically become some sort of mutual admiration society, some cabalistic heresy. It’s OK to say Well Done. Don’t let anyone take away that right.

I’ve tended to devour everything that Peter Drucker wrote or said. One of my favourite Drucker sayings is this one:

No financial man will ever understand business because financial people think a company makes money. A company makes shoes, and no financial man understands that. They think money is real. Shoes are real. Money is an end result.

The first time I saw this particular quote was in an interview that Erick Schonfeld had done with Drucker in Business 2.0, maybe five years ago. And every now and then I’d see little gems from the interview being quoted, but began to get ever-so-slightly frustrated at being unable to find the original piece.

Now I’m a bit like Sean, we still read books, we still read hardcopy magazines, we tear things out, we scribble stuff on the torn-out pages, we squirrel them away. And sometimes we even find them. :-)
And so it came to pass, while clearing my garage, that I found the original October 2001 issue of Business 2.0, The One With The Interview In It. Entire of itself. Unexpurgated, unbowdlerised. [Erick, since your online archives only go back to 2003, may I scan the article in and post it here? Or do you have a link for me to use? I will e-mail you separately]

It’s a fantastic interview. I wish I could link to the whole thing, but instead, have restricted myself to just ten quotes out of the six-hour interview:

• During the Internet bubble, it was argued that because the internet is important, it must be profitable. That does not follow.
• The cultural impact of the Internet is far greater than the economic one. The important effect is on the middle classes in these half-developed countries. They don’t see themselves as part of their economy, but as part of the worldwide developed economy. This may be the next development: the emergence of psychologically global middle classes.
• The customer uses the Internet not to buy a car but to eliminate or reject. Now, when they come to the dealer, they know what they don’t want.
• Maybe on the Internet you need to be a buyer for your customer, not a seller.
• The computer is a moron. It can’t handle more than one logical system…..The human mind, on the other hand, can handle quite a few logical systems at the same time.
• There is a difference between a supplier that sees a quick buck and a supplier that sees a relationship. These things have not changed. Judgment, the computer cannot overcome.
• To me, management is a practice, and a practitioner needs a practice.
• You go ahead and do things. You don’t ask for permission because that implies the other fellow can say no. Yes, you risk ending up in jail. You have to take that risk.
• In fact, I don’t particularly like to read management. I read Shakespeare.
• What do you want to be remembered for? That I helped a few people accomplish my goals.

Somewhere within the seven pages of interview, Drucker sowed a number of very powerful seeds in my head. About what the internet really was. About the impact on the global middle class. About changes in marketing and in selling, about intention and recommendation. About relationships and judgment and empowerment and vulnerability and risk. About business. About life.

Thank you Peter Drucker.