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Vendor Relationship Management workshop

Nobody knows you as well as you do. Or do they? Let’s run a test. Do you
know what percentage of your food bill went to processed products? Or
what type of coupons (store coupons, newspaper coupons, etc.) is most
likely to get you to switch brands? I bet someone out there knows.

This kind of data mining is the modern companion to Customer Relations
Management, which is the science of understanding customers and trying
to get repeat business. CRM can offer many valuable benefits, but
ultimately the control lies with the vendor, not the customer.

This bothers long-time marketing maverick and
Cluetrain Manifesto
coauthor
Doc Searls.
Several years ago he thought up an alternative that would put the data
and the control back in the hands of customers, and called it Vendor
Relationship Management. He’s been pursuing that dream for two years
as a Berkman Center fellow at Harvard, and this week he ran the second

workshop hosted by Harvard on the topic
.

I dropped in and out for a few hours and picked up some ideas,
annotating them (as always) with ideas of my own.

Success requires making both sides happy

Most consumers don’t think much about how they’re being managed.
Asking them to take control of their data would come up against blank
stares. And naturally, vendors hold on tightly to the CRM techniques
and data–no matter how flawed–that they’ve spent millions to
develop. So to go anywhere, VRM advocates have to offer juicy carrots
to both customers and vendors.

One approach is to ignore financial benefits to start off, and look
for data that customers are already collecting or would clearly
benefit from collecting. Customers might want to keep track of their
purchases, or what music they’ve listened to, or some other personal
information. A slick data-sharing system with adequate privacy
protections could persuade them to combine data with other customers
for the purposes of making recommendations or other benefits.

With customer behavior in place, VRM systems could then offer data to
vendors, who would rush to take advantage of this new channel for
accessing potential customers.

It would be particularly clever to replace costly vendor operations
with activities performed by customers. The classic example of this is
the displacement of boutiques by department stores. Instead of paying
a staff person to take out clothing or shoes, the stores laid out the
wares and let customers make their own choices.

Would VRM be better than CRM for either vendors or customers? Well,
consider this: today’s CRM places data in silos. If I book a hotel in
Expedia, I can rate it there but not in hotels.com. Amazon.com knows
the books I bought from them, but not the ones I bought at
Powells.com. By contrast, in VRM, each customer would maintain a
comprehensive data set on himself or herself. The big question is how
to get customers to combine that data and offer it to vendors in a way
that preserves accuracy and privacy.

Here’s a related problem: data maintained by vendors gets out of
date. They don’t know when you lost your job–or conversely, when you
finished a graduate program and received a 30% raise. Would a vendor
give up control over data in exchange for a right to access data that
the customer keeps up-to-date? I bet they would. What the two sides
need is the trust that each will behave honorably. And that requires
incentives for honorable behavior. In particular, the customer must be
able to learn about abuses of data and then be able to shut off access
to offending vendors.

VRM would supplement, not supplant, normal ways of doing business.
Companies could offer different sites with different terms of service
and privacy policies. Customers who care about managing their own data
and shopping experiences would choose the VRM-driven services.
One of Doc’s recent blogs optimistically suggests

“how VRM helps CRM”
–and in fact may lead to wholesale changes in
marketing and product design.

It really is all about the data

If knowledge is power, that power goes where the data goes. VRM
requires each customer to maintain control over his or her data–but
how can we ask hundreds of millions of technically naive people to do
this? And how do they make sure this data doesn’t get lost or
corrupted?

One feasible model at present is cloud storage. Customers could sign
up with a service that encrypts their data and stores it in Amazon’s
S3 or some other provider. But the service they sign up with becomes
another choke point, in place of the vendor.

Ultimately, VRM requires individual storage and peer-to-peer data
exchange. I brought this issue up recently in a

blog on social networking
.
Experimental systems for peer-to-peer data
exchange show some promise; for instance, I discussed Jesse Vincent’s
Prophet
with workshop attendees.
But the technical and social challenges are formidable. How do
people find each other? How do they form a community that can share
data in the first place? How do they weed out bad actors and prevent
vendors from setting up fake accounts to game the system?

Of course, ordinary web sites and online communities face these exact
problems now. To get visitors, online companies spend enormous sums on
billboards and TV ads. And when we check
Expedia, hotels.com, or Amazon.com, it’s completely possible that the
reviews we see are fake. The web should be able to do better, and
perhaps the solutions can usher VRM in along the way.

Could VRM mean Victim Relationship Management?

A good Vendor Relationship Management could totally change the
consumption of goods and services. Savvy customers could:

  • Choose the companies with whom they share their data. They couldn’t
    prevent a company from passing data on to a partner–only laws can do
    that–but they can use a technology such as
    OAuth
    to selectively release categories of data. For instance, they won’t
    have to surrender their whole purchasing history to a bank in order to
    get a loan. The bank just won’t know what’s being withheld.

  • Create new criteria for signaling needs and judging vendors. If hotels don’t list the
    quality of the chairs as criteria, customers who need good ergonomic
    support while working in their rooms can create their own RFPs (there
    are services that allow this sort of thing already) specifying that
    they need a good office chair in the room.

  • Search their own data using whatever sophisticated tools arise in the
    community, thanks to data stored in standardized, programmer-friendly
    formats.

That’s for savvy customers–but what about all the rest? Flexibility
brings complexity, and complexity brings the dark side. Many customers
are already sitting ducks for phishing and other social engineering
attacks. VRM that moves too fast and gets too far ahead of the users
can lead them to make decisions they’ll regret later.

VRM will have to backed by strong legal protections. This doesn’t
necessarily mean regulation. A VRM public organization could define
criteria for fair terms of services and privacy policies, and place a
trademarked seal of approval on sites that follow them.

Where to start VRM?

It’s clear by this point in the article why there are no real VRM
systems yet, although a few progressive web sites demonstrate bits and
pieces of that approach. Much of the Harvard workshop was devoted to
finding industries that might be good candidates for VRM. Likely
criteria include:

  • A highly fragmented market. If there are only a few vendors, they’ll
    have little interest in trying new things that reduce their control,
    and will instinctively band together to squash innovation in this
    area.

  • A fast-moving, diverse industry whose products vary across many
    dimensions. This gives customers something interesting to research and
    rate. Commodities don’t offer enough differentiation.

  • A product or service heavily used by computer programmers and other
    technically focused people who will make up the first adopters.

I don’t expect to see actual VRM in the marketplace for a long
time. Having been following similar peer-to-peer efforts (most of
which have shriveled up) since 2000, I’m not impatient. The questions
raised by the Doc and the VRM community are important for all of us.
He points to efforts going on by a number of online projects, and says
“I think we’ll see some good examples within a year or so.” But
even if VRM remains a thought experiment, it will pay off in spades.

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  • http://makemarketinghistory.blogspot.com John Dodds

    Having been actively involved in VRM in the Uk for a couple of years now, I think your final paragraph is right on the money.

  • http://tim.oreilly.com Tim O'Reilly

    In some ways, personal finance sites like Wesabe (disclosure: I am an investor and on the board) provide the most substantial VRM offerings yet. Since so many of our purchases are by credit card, a site that lets you see how and where you spend your money, tag it however you like, and gather collective intelligence from other users, is a good step in the right direction.

  • http://doc.searls.com Doc Searls

    Andy, thanks for coming by, participating and giving an excellent report.

    Tim, Wesabe is a good example of what we’re calling a “fourth party” service: one that roughly does for customers what “third parties” do for vendors, helping customers improve the way they buy and relate with vendors. It helps vendors too, but in ways that are secondary to how they help buyers — in this case of financial services.

  • http://thehappeningworld.com Charles Andres

    Andy, it is all about the data, but the data does not have to be in stored in one place for an individual to control it.

    But to make life simple for people, all each of us need is a single access point.

    Imagine a service that links to data stored wherever and whenever it needs to. All each of us would need is a centralized repository of links to that data. Then each of us could determine which data would be shared with whom we choose.

    To do that, we need a standard method to allow our link system to access that data across any silo — Facebook, Bank of America, etc. Then we can wield our data with authority to the relying parties we entrust with the minimum disclosure necessary. For example, as long as the wine merchant gets affirmation from a trusted party that I am of legal age to buy wine online, I do not need to share my specific age or birthday. In essence, that is what happens in the physical world — the wine merchant looks at my government-issued driver’s license for proof, but does not record my actual age or birthday. They believe my license is legitimate.

    Of course the service cannot be exclusive to a single company — we all need to have choice to determine which service we entrust with holding the links to the data.

    The standards for doing this are already defined. What is needed now is deployment.

    With at least part of the U.S. Govt agreeing to accept OpenID and Information Cards created by non-government providers, the momentum for this movement has begun.