Tuesday, May 11, 2010

Prosumer-Centric Capitalism

Irving Wladawsky-Berger has posted an illuminating piece titled Customer-centric Capitalism in which he convincingly argues the now dominant profit-driven businesses M.O. is in fact detrimental to society:
For the last thirty years, maximizing shareholder value has replaced customer value as the key objective of many companies.  But, a number of experts are now raising questions about this widespread business practice and the extreme preoccupation with short term profits that inevitably results from putting shareholders over customers. 
It is clear that our system of profit-driven capitalism must be modernized with a greater emphasis placed on the customer.  This is already happening.  A handful of companies, like Google, have adopted positive-sum or triple-bottom-line business models.  Many more are using data more effectively to improve customer service wherever it impacts profit.  Customer-centric capitalism is making a slow but steady comeback.

Now consider the spread of modern day analytics.

Thanks to the web information explosion and the social sharing boom it's become possible to track more complex behavior.  Among other things, we're compulsively piecing together this data into a more accurate picture of knowledge creation, sharing and value, and can now determine which members of a given network are more valuable than others.

So rather than advocating and rallying behind customer-centric capitalism as the next logical developmental economic step, perhaps we should expand or shift the concept to include this now visible network behavior.  We could call this "prosumer-centric capitalism".

What's a Prosumer?:  A prosumer is defined as a hybrid of a consumer and a producer.  Generally speaking, the vast majority of humans are not pure consumers, but rather prosumers that contribute more or less value to the companies and social systems they interact with.

You think Google is free?  Nope.  Google relies on all of the search queries we type in and then react to to generate its core value.  Same goes for Facebook, Yahoo, Aol, and other social media companies.  These companies all depend on prosumers for their bread and butter.

Other interesting prosumer-centric business models include iphone apps that turn street mapping into a reward-driven game, online stock markets that predict box office scores more accurately than experts, and social health networks capable of determining the effectiveness of new drugs years before clinical trials can accomplish the same thing.  The list goes on and on, largely due to the spread of modern social media.

It's not much of a stretch to imagine that these companies, and other traditional companies that undergo requisite webification, will be financially incentivized to return increasingly more value to their prosumers.  Those that can more effectively pinpoint, reward and tweak the conditions for value creation will have a distinct advantage. At the same time, keep in mind that the prosumers too will gain access to this data.  With quantitative data to point to, the tension between the prosumers and funders should create a healthy market for very specific micro behavior that could not have existed at any previous point in history (well, at least not without enormous expense).

Prosumer-Centric Capitalism: There is a gradient between consumer and producer called the prosumer.  As emerging systems get better at quantifying prosumer behavior, we will be required to adjust our consumer- and customer-oriented economic models and Excel spreadsheets (or Google Spreadsheets) accordingly.  Many companies are already doing this.  Defining customers as prosumers that add value in specific ways can help upgrade and bring more clarity to our understanding of our info-economic system and lead to more fair, balanced and/or efficient economic development.  When robust and foolproof prosumer accounting spreads to the masses we'll get Prosumer-Centric Capitalism, baby.