Consumer Power Drives Today’s E-conomy

OK. So on one hand we have Congress actually doing a smart thing for once and approving a digital signature law that should make many of our e-biz lives a lot easier in the future. But on the other hand, we’ve got the Motion Picture Association of America (MPAA) and a bunch of industry cronies suing the living daylights out of David Simon’s for so-called “copyright violations.” Totally unrelated issues from last week? I think not and here’s why (and why you should care).

The e-signature decision represents a major step in the right direction on the road for turning “e-business” into just plain business. For the first time, electronic transactions are moved out of the margins of “nifty add-on” and into the mainstream, recognized as a legitimate way of doing business.

More than that, the decision is a landmark in our societal acceptance that digital is different but just as “real” as the physical. While it may seem a subtle point, it’s this realization and shift in mindset that will allow many of our other legal systems copyright, privacy, and commerce to move forward into the new realms opened up by the Internet.

While the digital signature decision is one that’s going to move us forward, some of the more recent rumblings from the MPAA and other TV-, movie-, and recording-industry groups against entities such as iCraveTV, RecordTV,, and Napster, all show how far we’ve gotta go.

While the government (the government!) is making the cognitive leap into the realization that “Hey! What’s going on represents a big change, and we’ve gotta deal with it,” the intellectual-property dinosaurs in the entertainment biz still haven’t gotten over the fact that the web isn’t just another way to deliver more TV channels or music stations under their control. Instead, they’re seeing the web as a major drain on their residuals, cutting into their enormous profit margins based on control of the physical distribution of media (or the control of a limited number of electronic media outlets). The “500 Channel Future” has turned out to be a monster, not a cash cow, and they’re scared.

But maybe they shouldn’t be. A new study by Yankelovich Partners shows that the old rules might now apply when it comes to the free distribution of digital content. Not only that, it points out that “piracy” (as defined by the entertainment biz) might actually be good.

How? The study found that almost 60 percent of the 17,000 under-40 music fans surveyed went out and purchased a physical recording from an offline retail outlet after having first downloaded the music off the web. In addition, more than 60 percent said they’d buy a song if they could, as soon as they heard it, with four out of five saying that they’d be more likely to buy the song if they immediately knew the artist and title. The same ratio said that they’d be willing to purchase songs individually if they had the chance. Finally, almost half said that they download music off the web (or through Napster) to hear stuff that their local radio stations don’t play.

Whoa! Pretty counterintuitive, huh? Not if you think about it. The software industry’s been operating like this for years shareware and “try-before-you-buy” demos have become a fact of life in the gaming and software business. I don’t have any fact to back this up, but I bet you’d be hard pressed to find a gamer these days who’s willing to plunk down 50 smackers on a game they haven’t seen a demo of. It’s the same with most commercial software I wouldn’t buy before I could try.

Over the past decade or so, an interesting trend has changed consumer marketing. As more and more information becomes available to consumers, and as consumers have become more jaded, cynical, and savvy about marketing, the balance of power has been steadily shifting from the manufacturer to the retailer, and now down to the consumer.

Today, the consumer is truly in charge when it comes to buying, comparing prices on the web, picking and choosing brands, and researching major purchases online. Nobody believes ads or takes marketing at face value. New millennium postmodern cynicism has long replaced the 50s-era belief in slogans and “better-living-through-chemistry” consumer naiveti.

While so much of the new economy has been based on 24/7 access to information and shopping, the real driving force in today’s e-conomy is the consumer’s demand to “Show me why I should buy from you!” It’s a demo economy, one borne of the ability to move beyond the limitations of physical distribution to simulate and demonstrate products in order to allow consumers to make their own decisions. The software industry (an industry always based on bits, not atoms) was confronted with this realization years ago. Now it’s time for the rest of us (including the entertainment industry) to catch on.

As consumers get more and more used to shopping and living online, they’re going to start demanding more and more in terms of service, ease of use, and information. We need to start responding.

Another recent study, this one by Creative Good, shows that as online marketers and retailers we have a long way to go. Shopping-cart abandonment rates are as high as they were two years ago, usability still stinks, people still can’t find what they’re looking for, and checkout processes are still Byzantine at best. According to Harris Interactive, banner ads are one of the least-effective ways of getting people to sites, yet as marketers we still keep pumping money into them.

Like it or not, the web has given them the tools, and consumers ARE now in control. Whether it’s going to be through rapid information interchange, digital signatures, encryption, file sharing, or music downloading, today’s consumers are going to choose for themselves whom they do business with, when they do business, and how they’re going to conduct that business.

They’ll rely less on big media channels for information and more on informal networks of friends, fellow consumers, and online “experts” (just witness the boom of online “opinion sites”). They’ll share their experiences through email and discussion boards. They’ll band together into ad hoc buying services. They’ll be in charge.

Sure, this isn’t going to happen overnight, but it will happen it’s happening already. To survive, marketers are going to have to learn how to deal with this new sense of empowerment, moving to models that are lighter on persuasion and more dependent on information. Demonstrating products, offering pricing comparisons, and providing people with the tools to make up their own minds are just some of the methods that will work.

In the future, you may be able to fool some of the people some of the time, but next time, they’ll do their homework on the web and go somewhere else… and tell all their friends to follow them.

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