March 13, 2000
The Age of Access
We're entering an era in which lifelong customer relationships are the ultimate commodities market.
By Jeremy Rifkin
The capitalist journey, which began with the commodification of material goods and places, is ending with the commodification of human time and duration. E-commerce and networked ways of doing business are giving rise to the "Age of Access," a new economic era as different from industrial capitalism as the latter was from the merchantilist era that preceded it.
The transformation from the old economic era to the new has been long in the making. The process started in the 20th century with a shift in emphasis from manufacturing goods to providing basic services. Now the commercial sphere is making an equally important shift from service-related to experience-oriented.
In the Internet Economy, the commodification of goods and services becomes secondary to the commodification of human relationships. Holding clients' and customers' attention in the new fast-paced, ever-changing networked economy means controlling as much of their time as possible. By shifting from discrete market transactions that are limited in time and space to establishing relationships that extend in an open-ended way over time, the new commercial sphere assures that more and more of daily life is held hostage to the bottom line.
The Customer Is the Market In the industrial economy, with its emphasis on mass production and the sale of goods, securing a share of the market was utmost in the minds of every entrepreneur. In the Age of Access, with its emphasis on selling specialized services and providing access to expertise of all kinds, the role played by suppliers changes markedly. "We are shifting from being box sellers to becoming trusted advisers," said Hewlett-Packard (HWP) 's Wim Roelandts in Don Tapscott's The Digital Economy.
The new idea in marketing is to concentrate on share of customer rather than share of market. What these ideas boil down to is the commodification of a person's entire lifetime of experiences. Marketing specialists use the phrase "lifetime value," or LTV, to emphasize the advantages of shifting from a product-oriented to an access-oriented environment in which negotiating discrete market transactions is less important than securing and commodifying lifetime relationships with clients.
Automobile dealers estimate, for example, that each new customer that comes through the door of a Cadillac dealership represents a potential LTV of more than $322,000. The figure is a projection of the number of automobiles the customer is likely to purchase over his or her lifetime, as well as the services those automobiles will require over their lifetime. The key is to find the appropriate mechanism to hold on to the customer for life.
To calculate the LTV of a customer, a firm projects the present value of all future purchases against the marketing and customer-service costs of securing and maintaining a long-term relationship. Credit card companies and magazines, which rely on subscriptions and memberships, have long used LTV cost-accounting projections. Now the rest of the economy is beginning to follow suit.
The commercial potential of capturing a share of customer is directly proportional to the projected duration of his or her consumer lifetime. For that reason, many companies try to capture customers at an early age to optimize their potential LTV.
Hyatt Hotels features Camp Hyatt and a newsletter aimed at its youngest LTV customers. A&P provides children's shopping carts to accustom youngsters to making their own selections in the store.
Determining a person's LTV is possible with the new information and telecommunications technologies of the networked economy. The Web's continuous flow of consumer behavior information, combined with retailers' ability to track their every bar-coded purchase, give companies detailed profiles of customers' lifestyles – their dietary choices, wardrobes, states of health, recreational pursuits and travel patterns.
With appropriate computer modeling techniques, it is possible to use this mass of raw data on each individual to anticipate future desires and map out targeted marketing campaigns to lure customers into long-term commercial relationships. Many in the information sciences suggest that these new technologies be thought of as relationship technologies, or R-technologies, rather than information technologies. "We need to turn away from the notion of technology managing information and toward the idea of technology as a medium of relationships," said Michael Schrage, codirector of the MIT Media Lab's eMarkets Initiative, in Kevin Kelly's New Rules for the New Economy.
French economist Albert Bressand in 1996 was quoted in Wired saying that R-technology is an appropriate way to describe the new technologies because "relations rather than material products are what is processed in these machines."
What is becoming clear to management and marketing experts, and a growing number of economists, is that the new computer software and telecommunications technologies allow for the establishment of rich webs of interconnections and relationships between suppliers and users, creating the opportunity to quantify and commodify every aspect of a person's experience in the form of a long-term commercial relationship. Says Bressand, "The time has come to shift from the engineering approach of information technology, which was totally warranted at the beginning, to the human and relationship approach."
In marketing circles, using R-technologies to commodify long-term commercial relationships is called "controlling the customer." Continuous feedback allows firms to anticipate and service customers' needs on an ongoing, open-ended basis. By turning goods into services and advising clients on upgrades, innovations and new applications, suppliers become an all-pervasive and indispensable part of the experiential routines of customers.
To borrow a Hollywood term, companies serve as "agents." The goal is to become so embedded in a customer's life as to become a ubiquitous presence, a customer's appendage that operates on his behalf in the commercial sphere.
Agents in the new schema are "systems integrators," a phrase coined by Robert C. Blattberg, professor of retailing at the Kellogg Graduate School of Management, and Rashi Glazer, professor of marketing at the Haas School of Business. Systems integrators coordinate an increasing share of the commercial life of their clients. In a sense, agents serve as go-betweens. They manage the continuous flow of information between the global economy and end-users. The function of the agent is a marketing one – to find the most effective way of establishing, maintaining and enhancing relationships with clients.
The kinds of relationships these technologies conjure up are, by their very nature, one-sided. Despite the fact that the Internet provides a modicum of counter-surveillance power back to the individual consumer and allows for interactivity, the company knows far more about the customer than he will ever glean about the company. The algebra of the new electronic marketplace still favors the corporate players.
Critics of the indiscriminate use of R-technology argue that potential customers should be compensated by any firm that uses their personal data for commercial purposes. James Rule, a sociologist at the State University of New York at Stony Brook, has proposed that everyone has a right to "withhold, sell or give away rights to commercial sale or exchange of information about himself or herself."
In the old industrial economy, each person's labor power was considered a form of property that could be sold in the marketplace. In the new networked economy, selling access to one's day-to-day living patterns and life experiences, as reflected in purchasing decisions, becomes a much sought-after intangible asset.
>From Production to Marketing
The shift from manufacturing and selling products to establishing and
maintaining long-term commercial relationships brings the marketing
perspective to the forefront of commercial life. The production imperative,
which reigned supreme in the industrial era, is increasingly viewed as a
back-office function of marketing.
Establishing relationships with consumers is critical when goods become platforms for managing services and services become the primary engines driving global commerce. Marketing in the new networked economy becomes the central framework, and controlling the customer becomes the goal of commercial activity.
Controlling the customer is the next phase in a long commercial journey marked by the increasing wresting away of both ownership and control of economic life from the hands of the masses and into the arms of corporate institutions. Recall that in the early stages of a production-oriented capitalism, economic tasks in the home and craft shops were spirited away and placed in factories by capitalist entrepreneurs.
Frederic Taylor introduced his principles of scientific management to the factory floor and front office, revolutionizing the organization of production. Using a stopwatch, Taylor timed workers' movements with an eye toward improving their efficiency. The goal was to gain near-total control over the worker in the production process.
Today, as the marketing perspective gains ascendancy and commodifying relationships with consumers becomes the essential business of business, controlling the customer takes on the same kind of import and urgency as controlling the worker did when the manufacturing perspective prevailed. In the new century, organizing consumption becomes as important as organizing production was in the last century.
In the industrial economy, discrete market transactions and the transfer of property between seller and buyer afforded the customer a high degree of control over each consumption decision. In the Age of Access, however, customers risk slowly losing control over the process as short-term market decisions give way to long-term commercial relationships with trusted intermediaries; and the purchase of goods gives way to the contracting of a range of services that extend to virtually every aspect of one's life experience. The customer becomes embedded within a dense web of ongoing commercial relationships and may become totally dependent on commercial forces that he little understands and over which he has less and less control.
Consider financial planning. Many investment companies have begun to make the transition from trading stocks and bonds and managing customer portfolios to becoming a full-service provider – a systems integrator. Clients are looking to companies like Merrill Lynch (MER) to help them create customized investment packages for their specific needs and goals. Some financial institutions are acting like customer agents, providing complete financial-planning services that include yearly business plans, personal budgeting plans, retirement income plans, estate planning, tax and accounting services, legal assistance and other services.
The idea is to bring the client into an all-encompassing relationship with an agent. The financial institution handles every aspect of the client's financial dealings for a lifetime. The client gains access to specialized expertise and trusted advisers who act on his behalf, often as his agent, surrogate or advocate.
In the Age of Access, while the clients make the ultimate choice to enter into or leave these long-term, multifaceted relationships, the complexity of rendered services and the expertise needed to perform those services can become difficult to understand and even baffling after a while, especially if the customer cedes those tasks over to a third party early on.
Not ever needing to be personally engaged in the details of these services, the client often remains untutored and ignorant of the forces at work and may become increasingly dependent on the "expert" agents over time to manage his affairs. The agents, in turn, become the gatekeepers, controlling the channels of supply and distribution that connect each consumer to the global marketplace and the outside world.
One of the first to see the significance of the shift from a production to a marketing prospective was Peter Drucker, the father of modern business-management practices. In The Practice of Management in 1954, he wrote: "The customer is the foundation of a business and keeps it in existence. Because it is its purpose to create a customer, any business enterprise has two – and only these two – basic functions: marketing and innovation."
Business consultants began to urge their corporate clients to spend less time focused on production and more on marketing if they wanted to capture market share. In a landmark 1960 article in Harvard Business Review titled "Marketing Myopia," Theodore Levitt, professor emeritus at the Harvard Business School, argued that companies are too concerned with the products they produce and not concerned enough about their customers.
Levitt argued that businesses should develop their business plans backward from the customer rather than forward to production. The goal of business, he suggested, is to capture customers, not simply produce goods and services.
New Kinds of Communities R-technologies reach out to encompass the whole of a person's life experiences. The power of these marketing tools lies in the ability to create a comprehensive environment for organizing personal life and restructuring social discourse. Because they increasingly become a primary means by which people communicate with each other, R-technologies can be used to reconfigure the most fundamental categories of social existence.
Already, in marketing circles the talk runs to ways of using R-technologies to create new kinds of communities made up of like-minded people who come together because of a shared interest in a particular commercial endeavor, activity or pursuit. There's a growing awareness among management and marketing experts alike that establishing so-called communities of interest is the most effective way to capture and hold customer attention and create lifetime relationships. The companies become the gatekeepers to these newly defined communities and – for a price – grant customers access to these coveted new social arenas.
Marketing consultants Richard Cross and Janet Smith in Customer Bonding list several critical stages in the creation of communities of interest. Stage one is awareness bonding. The idea is to make the customer aware of your firm's product or service with the expectation of negotiating a first sale. Stage two is identity bonding. The customer begins to identify with your firm's product or service and incorporates it into his sense of self. It becomes one of the many ways he differentiates himself in the world.
Stage three is relationship bonding, which we've previously explored. The firm and the customer move from an arm's-length relationship to an interactive one. This is where R-technologies begin to play an important role. They help create what marketers call customer intimacy.
Stage four is community bonding. The company brings its customers into relationships with one another based on their shared interest in the firm's products and services. The company's task is to create communities for the purpose of establishing long-term commercial relationships and optimizing the lifetime value of each customer. "This bond is extremely durable," say Cross and Smith. "To break it, competitors must actually disregard social ties among friends, colleagues or family."
The key to creating communities of interest is to plan events, gatherings and other activities that bring customers together to share their common interest in your company's brand. Backroads is an upscale tourist company that organizes bicycle and walking tours to some of the most scenic areas of the world. The company provides tents, prepares food and shuttles guests to the various sites by van.
The value of the Backroads service, say authors Larry Downes and Chunka Mui in their book Unleashing the Killer App, lies in "the quality of its network of customers, who pay, in part, for the opportunity to interact with and be entertained by each other." Backroads, say Downes and Mui, is about "creating communities of value by valuing community."
Companies like Backroads will increasingly rely on R-technologies in the future to search out prospective customers based on consumer profiles, lifestyles and spending patterns. As software profiling becomes even more sophisticated, it will be possible to match specific lifestyle interests of prospective customers with particular trips, ensuring a more meaningful experience and the likelihood of creating effective community bonding among the guests.
The transformation in the nature of commerce from selling items to commodifying relationships and creating communities marks a turning point in the way commerce is conducted.
In the 21st century, the economy is the arena in which we live out much of our day-to-day experiences. In this new world, ownership of things, while important, is less important than securing commercial access to networks of mutual interests, webs of relationships and shared communities. To belong is to be connected to the many networks that make up the new global economy.
Being a subscriber, member or client becomes as important as being propertied. It is, in other words, access rather than ownership that increasingly determines one's status in the coming age.
The commodification of human relationships is a heady venture. Assigning lifetime values to people with the expectation of transforming the totality of their lived experience into commercial fare represents the final stage of capitalist market relations. What happens to the essential nature of human existence when it is sucked into an all-encompassing web of commercial relationships?
The growing shift from the commodification of space and goods to the commodification of human time and lived experience is everywhere around us. Every spare moment is filled with some form of commercial connection, making time itself the most scarce of all resources.
The fax machines, e-mail, voicemail and cellular phones; 24-hour trading markets; instant around-the-clock ATM and online banking services; all-night e-commerce and research services; 24-hour television news and entertainment; 24-hour food services; pharmaceutical and maintenance services – they all cry for our attention. They worm their way into our consciousness, take up much of our waking time, and occupy much of our thoughts, leaving little respite.
When every endeavor is transformed into a commercial service, we run the risk of falling into a kind of temporal Malthusian trap. Although a day is limited and fixed to 24 hours, new kinds of commercial services and relationships are limited by the entrepreneur's ability to imagine new ways of commodifying time.
Already, even in the early stage of the transition to the Age of Access, the commodification of time is becoming saturated. Every human being and institution is courted and connected to some form of commodified service or relationship. And while we have created every kind of labor- and time-saving device and activity to service one another's needs and desires in the commercial sphere, we are beginning to feel that we have less time available to us than anyone else in history. That is because the great proliferation of labor- and time-saving services only increase the diversity, pace and flow of commodified activity around us.
The networked economy increases the speed of connections, shortens durations, improves efficiency and makes life more convenient by turning everything imaginable into a service. But when most relationships become commercial relationships and every individual's life is commodified 24 hours a day, what is left for relationships of a noncommercial nature – relationships based on kinship, neighborliness, shared cultural interests, religious affiliation, ethnic identification, and fraternal and civic involvement?
When time itself is bought and sold and our lives become little more than an ongoing series of commercial transactions held together by contracts and financial instruments, what happens to the kinds of traditional reciprocal relationships that are born of affection, love and devotion?
The fact that marketing professionals and corporations are seriously engaged in developing what they call long-term "customer intimacy" and are actively experimenting with a host of vehicles and venues for establishing deep "community bonding" is disturbing enough. What is more worrisome is that these large-scale efforts to create a surrogate social sphere tucked inside a commercial wrap are, for the most part, going unnoticed and uncritiqued, despite the broad and far-reaching potential consequences for society.
We're in the middle of a grand experiment in which virtually every aspect of our lives is becoming a paid-for activity. We have yet to explore the implications of living in an era in which human life itself becomes the ultimate commercial product, and the commercial sphere becomes the final arbiter of our personal and collective existence.
Quick Take: Highlights of the Age of Access
* The exchange of goods and services through markets gives way to the establishment of long-term commercial relationships inside networks. * The commodification of human time and duration becomes more important than the sale of material goods. * E-commerce companies are turning information technologies into relationship technologies to create "bonds of intimacy" and "communities of shared interest" with customers. The goal: Make each moment of a client's life a commercial experience. * Life itself is becoming a paid-for activity in the form of memberships, subscriptions, leases and retainers, which in turn is transforming traditional social relationships. ----------
Jeremy Rifkin is an author and a fellow at the Wharton School Executive Education Program. He is president of the Foundation on Economic Trends in Washington. Excerpted from The Age of Access: The New Culture of Hypercapitalism Where All of Life Is a Paid-For Experience, to be published this month by Tarcher/Putnam. Copyright © 2000 by Jeremy Rifkin.
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