Irreversible

2011 was shaped by a combination of social and technological change, and the separation between old and new is becoming more pronounced.

Doing business in 2012 will mean embracing and understanding the power of social, and not just the social networking part, but the social business part.

Our economy has gone global and social, and this is creating exciting new business models. A business is a community of employees serving a community of customers and interacting with a much larger community of non-customers – ones businesses hope to convert over time with the right influence.

Technology, particularly mobile devices, has brought us to the point where influence can move in an instant. The effect that influence creates is much longer lasting. Social isn’t a fad: it’s creating permanent change. I’m starting to call it “social warming”.

Defending the old models without integrating social will becoming increasingly expensive, even catastrophic for businesses. In many cases, institutions that haven’t already come to grips with this won’t even be able to respond now.

Bank of America and Verizon both learned that customer control is an antiquated idea. Verizon’s latest attempt this week to place a $2 fee on credit card payments over the phone or online shows how fast things are moving. It was pretty obvious:

It didn’t last 30 hours in the face of social pressure, and the prospect of review by the FCC. The Bank of America $5 monthly debit card fee took a bit longer to die, but met the same fate.

Lesson: businesses can no longer create behavior using financial disincentives.

There’s only one exception I can think of, and it’s got hugely extenuating circumstances. Airlines have gotten away with baggage fees, hiding behind the cloak of the TSA and the specter of horrible images burned into our collective memory. Southwest is a maverick and doesn’t have quite the influence to swing the entire industry, but they have carved out a position of strength to go along with their astute management of fuel costs, efficiency, and fun. Meanwhile, American Airlines took the mainstream approach of punishing customers, and still slipped into bankruptcy.

Netflix tried a similar maneuver, but with a twist. While streaming video is the future, the bulk of the company is still physical DVD-by-mail. They reached the erroneous conclusion that they had crippled Blockbuster, so they must own that segment and have pricing control. Position a 60% rate increase inside a cool name and PR, except … “we underestimated the strength of our brand”, which was code for they didn’t expect customers to push back so hard. In an amusing social faux-pas, they forgot to cross check their cool new brand name with a Twitter handle. This effort didn’t last long, either, about three weeks.

There are the folks at HP, launching the TouchPad tablet and then killing it 47 days later when it didn’t immediately sell billions of units. That, followed almost immediately by an ill-timed trial balloon on selling their PC business cost the CEO his job, and while the damage had been done to their mobile business, Meg Whitman has reversed course and stood firm on the PC business.

Lesson: even strong brands can get fooled into huge mistakes trying to defend profit centers instead of listening to customers and creating value.

What’s that you say? The title of this post is wrong? All these decisions were reversed.

What’s irreversible is the power of social business in getting these bad decisions undone, rapidly. These things are no longer taking years to unfold, they’re taking weeks, even days. Had these folks been listening to the social network, understanding where the levers of influence lived, these ideas would have never taken hold. Instead, these examples were trying to operate by the numbers.

The next lesson of irreversibility is the hardest to take, and it’s the one that is going to have the longest lasting impact from the emergence of social business.

In the movie Super 8, there’s that scene where the sheriff stares at the contraption on the head of the convenience store clerk, who proudly explains his Walkman. The sheriff shakes his head and says:

Kids walking around with their stereos. It’s a slippery slope, my friend.

The sheriff didn’t like the change and was defending the establishment. We have the benefit of history to see just how that change unfolded. But folks will still tell you the existing model just can’t go away.

When cars came into the mainstream, horses didn’t go extinct. Anyone left trying to operate in the mainstream transportation model using horses was left at a huge competitive disadvantage. Instead, horses reverted to their traditional uses: recreation, rural work, ceremonial and special-purpose applications.

We’re now faced with a similar disappearing “there” for many businesses. TV news has turned into entertainment first, biased commentary second, and rare journalism a distant third. Print will survive in “lean-back” mode where people have time for deeper dreaming with richer content and visuals, but it’s rapidly disappearing as a source of near real-time information. Retail continues to shift as Walmart and Amazon and others integrate social more deeply.

Lesson: businesses can’t defend a “there” that’s no longer there.

Borders lost their battle and completely threw in the towel on the book business. This was totally a social phenomenon: a weak e-reader strategy sealed their fate.

Quiznos is losing the battle, having closed 1/3 of their stores in the last couple years. A lot of that stems from bad franchising and prohibitive operating costs. But they are also staring at an increasingly social model coming from Subway, who has embraced technology such as Google Wallet.

The next obvious casualty is Sears, which announced they are closing 120 stores combined across the Kmart and Sears brands after a dismal holiday season. They got out-socialed by Walmart and Lowes, but this is just the start. What this will do is punch 120 large holes in malls and shopping centers across the country. We have a microcosm of that here in Arizona, where our local grocer Bashas’ closed a wave of stores in 2009 and the retail centers sit, mostly crippled with their anchor gone.

The next victim of change is the US Postal Service. I blogged previously about the plight of closing half of the mail processing centers. The domino effect of reduced mail service and increasingly unpredictable delivery times will reshape entire communities over time. Postmaster General Donahue said it himself: there is no company in the world that will take a letter, deliver it anywhere, next day or not, for 45 cents. The irreversible part of this story is that once the postal infrastructure goes away, it will stay gone. There’s only one maneuver that will save the USPS, but neither government nor consumers will stand for it: raise the cost of first-class mail to 99 cents, right now. Instead, unable to cover costs and unable to respond to create value, their fate is sealed, although it will take a long time to play out. What will probably happen over time is the companies that will survive, UPS and FedEx, will develop new services (but at a higher cost) to replace mail as we know it today.

What’s that you say? Bad management to blame for these? Maybe, if you go back far enough in time and undo things like bad pension and healthcare and real estate deals. But you can’t undo the effect that social has had. Keep in mind that management is paid to protect the mainstream, as I posted recently about Microsoft and Intel and their mobile strategies, and for large businesses that’s crucial. But the type of change social business is bringing on now is on a scale that management who hasn’t embraced it can’t stop. While Microsoft and Intel work the mainstream, they have fully engaged with social.

Unfortunately, the next steps in this progression will hit communities harder and harder. Schools and libraries will close. Local newspapers, radio, and TV stations in many markets will close. Physical outlets for government services will move online and leave physical locations unavailable. Life will change from the physical community we’ve known to the online, social community that we’re developing.

Businesses who view social as a fad, or just a consumer thing, should take note. Once permanent change is underway, it’s irreversible.

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  • 2012 is going to be the year of the tablet, we will see a lot more tablet computers coming out and more people using them as their main computer

    As for social networking, it’s going to start being the authority for a lot of things. I see kids in my school posting negative or hurtful things online and sadly they don’t realize how much this can come back at them. Everything on the internet is indexed and even if you think something is deleted, there’s a server somewhere that it will never get deleted from.

    Companies are going to realize that if they aren’t social, it’s going to be harder for them to reach out. What’s the first thing you do when you are considering doing business with a company? You see what other people have to say about that company

    Thanks for the blog post, nice thoughts!