A few weeks ago I found myself in a conversation that stuck in my head that keeps coming up. Getting out of the conferences and networking events to engage in conversations taking place outside my own circle always proves to be enlightening.
FREE, FREE, FREE...Please Pass the Carrots
I had a wonderful opportunity to meet a fantastic group of people at a community event recently. My assigned task was chopping vegetables with other volunteers of all ages and diverse backgrounds.
As I washed the broccoli, the topic of television came up. I knew this was going to be good based on the energy in the kitchen. We were talking about the shows that everyone watched when all of the sudden the lightness in the conversation took a bit of a turn and within approximately 30 minutes I witnessed a cable company lose a customer. Wait a minute, what happened?
It all started with a gentleman who had missed one of the shows being discussed due to some ongoing issues he was experiencing with his cable provider. He provided some pretty horrific examples of the interactions with the customer service team, while having no problem revealing the name of the company throughout the discussion. Whoa. Ouch.
He went on to say he should just cancel because he had more channels than he needed anyway. But if he did cancel or change his subscription he would end up missing some of his favorite shows.
“I don’t have cable, and I watch everything I want,” said one of the girls next to me. Two others at the table chimed in with agreement. Wait, three of the five people I just met didn't have cable? By the end it was confirmed - the cable provider was about to lose another customer – and not to another cable company either. The cableless three were going to help by showing him how. Throughout their instructions and I kept hearing “it’s easy” and “FREE FREE FREE” and at times, "much cheaper.”
And then, the final resounding sound of, “You just don’t need all that anymore…that’s so old. Honestly, why deal with rude people over the phone who don’t really care anyway?”
SOLD (or so it seemed).
Now I am not sure if he actually followed through to make the switch, but I swear that this event walked right off the pages of Saul J. Berman’s new book, Not For Free: Revenue Strategies for a New World. In it, the author compares what we are experiencing in several industries to the music industry,
“The music industry continues to ignore the fact that its revenue model collapsed because customers hated it. Years of being forced to buy fourteen songs you didn’t want to get two you did bred a lot if ill will. Too many companies in other industries are repeating this same mistake. Sticking it to the customer may be profitable, but only as long as the customer lacks options.”
Our table had moved onto the carrots while three people were giving him more options that he was ready to take.
And the trend continues. Just yesterday, Gigaom published a story titled, Cord Cutters Survival Stories: Bye By Cable TV, which is part of its weekend series that shares stories of people’s "cord cutting" experiences. It reminded me of another page in Berman's book where he writes,
“TV everywhere and its brethren look a lot like what the music labels did with albums – they want to continue selling everything to everyone. We know where that leads. The longer the cable industry clings to a bundle-only pricing model, the wider the door swings open for nontraditional competition: single-show downloads from iTunes, or a newer a la carte streaming services available from iTunes, Amazon and Netflix.”
Not for Free – The Need for New Revenue Strategies and Innovation
My example is just one that focuses on cable but so many more examples exist. Not only with poor customer service interactions and increased competition, but with changes in expectations and what people are willing to pay for in the new world.
We have all seen the publishing industry struggle with this transition along with music, cable and so many others. Last week, the Wall Street Journal published the video below that discusses Cisco’s challenges with their core business, competition and pricing pressures. WSJ also talks about their consumer segments and the availability of similar products in video conferencing being offered for FREE over the Internet.
As we can see here, even the most innovative companies like Cisco who published Doing Both: How Cisco Captures Today’s Profits and Drives Tomorrows Growth that I wrote about last December is challenged.
As Berman points out and the market shows, is it becoming increasingly more important to focus in on segmentation (based on what people are actually doing today) and pricing, payer and package innovation. All on an ongoing basis.
Not For Free talks about the fact that the digital divide has certainly made it more challenging for organizations. He breaks these consumers into three behavioral segments with percentages and descriptions attached - Massive Passives (65%) Gadgetiers (15%) and Kool Kids (20%).
Berman reinforces our need to continually look at our own minority segments and to consider using separate revenue models for each - Especially as their behaviors become more mainstream. He says that for some this will require a different mindset,
“Namely executives look at their dominant audience base and find it difficult to understand why they should take on risk and expense of developing new models for minority segments when most of their current revenue and profit comes from a core customer base. They only realize their mistake when it is too late - after a competitor or new entrant has innovated a profitable way to take on the smaller segments and eat into the main revenue base of the industry.”
Berman provides case studies where organizations have been successful. He stresses our need to explore more options in seeking new revenue sources versus limiting ourselves to automatically looking to develop new products.
As much as innovation is discussed, he doesn’t ignore its challenges. He speaks to risks organizations assume with customers as well as with regulation.
The book is structured in a way that provides definitions of different revenue models with several examples, while presenting the reality of the challenges and pitfalls for each. He talks about the lessons learned and lists out questions for organizations to ask themselves to stimulate thought, action and experimentation.
For all of my reading on innovation over the past year, I was happy to find a recently published book that focuses on revenue strategies in the way that this one does. I highly recommend it.
So with this, I will leave you with a final quote from the book's author,
"The easy path, the normal path, is to find all the reasons not to innovate your revenue models rather than seizing opportunities for revenue innovation. Don't be normal. Don't take the easy way out. There are no second chances, and the clock is ticking."
Depending on whether you are a glass half full or half empty type of person, this post could take two entirely different tones. I myself am a glass half full type, so this is intended from the perspective that we are in a world full of opportunity and yes, one that certainly comes with risk, uncertainty and a heck of a lot of work to remain competitive and profitable.