Rogue Thoughts

“What has been will be again, what has been done will be done again; there is nothing new under the sun. Is there anything of which one can say, “Look! This is something new”? It was here already, long ago; it was here before our time.” (ecc.1.9-10)

Recently I had an interesting conversation with a colleague of mine. He teaches entrepreneurship at a business school. He told me about his students’ approach to business and entrepreneurship which is completely different from classical economic theory otherwise taught at the Business School.

The claim went something like this: Usually when you as an entrepreneur come across a new idea or make an invention, the first thing you will do is to protect it with a patent. Young people act quite differently. They publish it on the internet, develop it through different means of crowd sourcing, and then they offer it for free, but make money on associated services. The model, sometimes called wikinomics, has been hailed as revolutionizing and changing the economy fundamentally.

I admit that it is a new model, which is interesting. I also do admit that young people are inventive, and that I am getting older. BUT it is kind of not the first time we heard that the young generation is changing everything. The same was said of my parents generation in 68 doing away with war and stuff. Then came generation X (which I think is me or I just missed it) that was just overeducated and underpaid (yeah, I think that IS me), then came generation Y, who demands that the workplace adapt to their life.

The sad fact though is that, nothing is ever changed fundamentally by the current “young” generation. I will explain why the “young” generation is always revolutionary why it always comes to nothing eventually

The apparently innovative behavior of the young generation is powered by an intergenerational dynamic – expressed by the new categorical imperative “Act only according to that maxim whereby you can at the same time be sure your parents wouldn’t do it”, when this oscillation meets a certain economical climate (up or down) fun things happen: up led to hippie culture, down lead to punk – that is the reason why young generations are always revolutionary.

The reason why nothing ever comes of it is that being young carries less obligations and therefore much more individual maneuverability with it. Eventually young people grow up and face the same conditions that shaped their parents lives.

To return to the alleged fundamental change in entrepreneurship heralded by the new “young” generation: The apparently innovative behavior comes from behaving differently than their parents: Well, their parents certainly wasn’t on the internet, so that an easy one. They sit in their dorm typing on the Mac their parents’ economic fortune has equipped them with. They have no real need for money, either because their parents saved money for college or because they are fortunate enough to get state subsidies (as we do here in Denmark) or loans. Either way, they have no fear that they will not somehow be able to get money for the next pizza. This allows them to develop apparently radically new business models. These business models, however, are only competitive because the businesses only need to make sure that the next pizza can be paid when it arrives. They are not faced with greedy middle aged shareholders (such as their parents – whom they already moved away from!) demanding profit from their investment every quarter.

When this young generation grows up they will realize that a normal family life with wife kids and a house (as is still the most common) does not run on 14 hours per day spent writing wikipedia articles and an endless supply of pizza: you need to supply Nintendos and vacations to Disneyland and listen attentively for hours to your spouse and even occasionally engage in real conversation!

I may of course be completely off track, but can you really mention more than a handful of successful businesses founded on wikinomics?

In an earlier blog I discussed recommendation engines on the internet such as amazon’s and Itunes’ and the algorithms behind it. They usually do not take into account metadata about persons, such as demographic or psychographic data. That makes a lot of sense, because it would require the customers to fill in a lot of information about themselves.
Some effort is usually made in a classic segmentation paradigm (such as the one championed by Tesco) to incorporate demographic characteristics into marketing. That is the typical strategy of loyalty programs.
Not much has been made of psychographic data. First of al because it is more sensitive, but also because it is more intangible. However, the psychological science of today is reasonably agreed on the basic personality traits: the “Big Five” factors and there are standard tests to asses the score on these factors. It should be a reasonably straightforward hypothesis that your personality is a powerful predictor of your shopping habits such as product preference. Consequently the return on the marketing spend depends on the fit between the product and the personality traits. I would think that there is potential here.
One way to do it is to look at adopter categories. We know a good deal about these from the diffusion of innovations literature (the central work is Everett Rogers’ “Diffusion of Innovations”). According to this literature there are 5 basic types of persons related to the adoption of a new product: Innovators, Early adopters, early majority, late majority, and laggards.
The article in Wikipedia describes them thus:

Innovators
Innovators are the first individuals to adopt an innovation. Innovators are willing to take risks, youngest in age, have the highest social class, have great financial lucidity, very social and have closest contact to scientific sources and interaction with other innovators.
Early Adopters
This is second fastest category of individuals who adopt an innovation. These individuals have the highest degree of opinion leadership among the other adopter categories. Early adopters are typically younger in age, have a higher social status, have more financial lucidity, advanced education, and are more socially forward than late adopters (Rogers 1962, p. 185).
Early Majority
Individuals in this category adopt an innovation after a varying degree of time. This time of adoption is significantly longer than the innovators and early adopters. Early Majority tend to be slower in the adoption process, have above average social status, contact with early adopters, and show some opinion leadership
Late Majority
Individuals in this category will adopt an innovation after the average member of the society. These individuals approach an innovation with a high degree of skepticism and after the majority of society has adopted the innovation. Late Majority are typically skeptical about an innovation, have below average social status, very little financial lucidity, in contact with others in late majority and early majority, very little opinion leadership.
Laggards
Individuals in this category are the last to adopt an innovation. Unlike some of the previous categories, individuals in this category show little to no opinion leadership. These individuals typically have an aversion to change-agents and tend to be advanced in age. Laggards typically tend to be focused on “traditions”, have lowest social status, lowest financial fluidity, oldest of all other adopters, in contact with only family and close friends, very little to no opinion leadership.

Now, my point is that just as it is possible to make tests to ascertain the big five personality tests, it is possible to make tests to ascertain which of the five adopter categories you belong to.
With this knowledge it is possible to market new stuff to the innovators, who will appreciate it a lot more than the laggards, and old stuff to the laggards, who will appreciate it much more than the innovators. I guess what I’m trying to say is send me an offer for the new google phone and not the Nokia 6700…

The marketing effect wold be much greater for the company and the customers who will receive the marketing will get experience more relevant offerings.