At the core of Nicholas Lovell’s book The Curve is a central assumption: if the costs of reproducing and distributing a product drop to as near as dammit zero, then the price of those products will inevitably drop to zero. If you have a business that’s model is based on a markup percentage on sale price, and your products are trending towards a price of nothing, you need to find a new business model.
It strikes me that what Lovell ends up describing is a set of routes to move from being a supplier of products to a supplier of services, and that alone makes it an interesting read (there are a few of my former employers who could do with stocking up on a few copies). The outcomes may not be quite as new a set of ideas as he first makes out, but the contemporary context is very valuable, and it’s given me things to think about in my own business model, as well as how I help clients.
In a traditional product selling model, pricing and revenue per customer tends to get focused around medians. Think of a bell curve – the majority of your customers cluster around the middle, and the bulk spend an “average” (in both mean and median) amount. Product prices are generally fixed, the amount any one customer can consume is generally limited. It’s the mass production, FMCG model that has been around since the dawn of the industrial revolution, and one that Adam Smith would be somewhat familiar with.
The Curve of Lovell’s book breaks the link between mean and median: the majority of customers provide little or no revenue, but a small number of “superfans” create a massive proportion. Think tiering of high-end rewards on crowd-funding services like Kickstarter. Think music fans who will buy every lovingly-created 180 gram vinyl box set edition of their favourite artist’s material.
In Lovell’s view, and particularly in the world of media, content per se should be regarded as a thing to give away; it creates bonds with customers and then some can be helped on their way to become superfans, actually resulting in increased revenue overall (and he provides lots of evidence to support that case). His own background combines the worlds of finance and gaming, and the latter is a world where the move from product to superfan-funded services has happened at great pace (the primary model in the gaming world today is free-to-play as distribution costs have plummeted in the era of Apps).
Lovell’s theories have raised a few questions for me: the first is is this anything new rather than just new might to certain industries? Key account (read- “superfan”) management is well established in both B2B product businesses, and also services businesses. Conversely services industries like telecoms have spent the past 10 years trying to turn their flexible income models into more product-based ones to reduce the variability of income that they saw. The energy companies are doing the very same at the moment, encouraging customers at a time of price increases to lock into fixed price deals (although that latter one may be more about reducing customer churn).
The second is that if we are in a world where there are no longer great economies of scale (which seems at the core of the product, median-customer spend world), where does wealth (or value) get generated in the longer term? If intellectual property becomes only a way to gain a service-relationship with customers, there are questions for me about how any of those industries can scale. Investors in the start-up world (for want of a better barometer) are still product obsessed.
There is a more worrying element to Lovell’s book, though, which isn’t a criticism of him or his thinking, but more a concern for the future. In a world where you are attempting to get a few people to spend a massively greater amount of money than the general consumer, there will be a tendency to build morally questionable psychological motivations into services to encourage that obsessive spend. At what point does a “superfan” spending out of their own free will become a manipulated victim? Bookmakers around the country are already treading that very fine line; it’s something that the Office of Fair Trading is also keeping its eye on. The friction-free commerce of the internet does sometimes have a somewhat autistic attitude towards duties of care.
Looking forward, Lovell examines the world of 3D Printing, and puts forward the idea that physical objects could soon too become victims to the zero price-point revolution that has hit the broad media industry in the past two decades. In fact, it seems that maybe only consumable items (the FMCG domain) will remain impregnable to the forces of everything having a natural price of zero (with the exception of luxury goods, where you are buying prestige rather than the function of the item itself).
An interesting hypothesis, and a good read for anyone trying to make sense of a move from a world of products to a world of services (or wanting to set up a services business in 2013).