Posted on: Monday 10th of November 2014
Can PIMS really earn their keep? We’re often asked this. Sceptics say consumers won’t really use PIMS unless they are free, and if PIMS are free they will struggle to achieve financial viability.
To see why this may be mistaken we need to consider four things:
- The things consumers are already paying for; payments that PIMS could reduce, thereby freeing up funds to be paid.
- The important distinction between the person who actually pays for something and the person who writes the cheque.
- Costs that are very real but not counted/monetised – but which could be.
- Non-consumption: the sometimes-huge latent demand for services that don’t exist yet.
Put these four things together and we find potentially enormous demand – and revenues – for PIMS. Let’s see how and why.
What consumers already pay for
It’s easy to forget that the price we pay for things is often quite arbitrary – the product of conventional divisions of labour rather than anything fundamental and unalterable. Take a simple example.
Traditionally, in the grocery industry, when manufacturers sold to retailers the price they charged included the cost of delivering products to retailers’ distribution centres. Then, retailers introduced ‘primary’ distribution, where the retailer collects the goods from manufacturers’ factories. Now retailers were only prepared to pay the ‘factory gate’ price. They stopped paying for a task previously undertaken by their supplier, because now they were doing it for themselves. And they did it for themselves because they could do it more efficiently.
When we look at the price consumers pay for products and services, it covers two very big buckets of cost: the cost of producing the product or service in question (the factory gate price, if you like), and the cost of bringing it to market; the cost of its ‘marketing’ (in the broadest sense of the term).
But our current seller-push systems of marketing aren’t the only possible way in which buyers can connect with sellers. As with primary distribution, instead of sellers pushing their products at consumers, consumers could present themselves to sellers – thus reducing the seller’s selling costs.
By creating new ways for consumers to go to market, PIMS are repeating the retailers’ trick with primary distribution and factory gate pricing: they are taking on tasks previously undertaken by the supplier, triggering a redivision of costs and payments as they do so. And, by making the process as a whole more efficient they free up funds from which they are paid.
The difference between paying and writing the cheque
There is a big and important difference between paying and writing the cheque. Taxpayers pay for the NHS and other public services, but the Government writes the cheque. Very often, the person who writes the cheque has more power than the person who actually pays, because the cheque-writer can decide whether to write the cheque or not and what to write cheques for.
The same thing happens with consumers and suppliers. Consumers are already paying for all the things suppliers do to sell to them – all advertising and promotions for example. But because they don’t write the cheques they don’t get to choose what they pay for, and often what they end up paying for doesn’t add a huge amount of value for them.
For example, consumers pay for every penny that’s spent on advertising, including all the spam that irritates the hell out of them and those creepy ads that follow you around the internet. If consumers were writing the cheque, is this what they would choose to pay for? If cash were freed up by consumers not paying for these things, it could be used to pay for other things, such as decision support services.
Costs that aren’t counted
In these two examples, money is freed up for PIMS in two ways: 1) by PIMS taking on tasks previously undertaken by suppliers (a redivision of labour) and 2) by eliminating non-value adding activities. These relate to suppliers’ processes. The other side of the coin is consumers’ processes.
Many of the costs consumers incur in their lives are never monetised – but they could be. When you wash and iron your own clothes, or clean and tidy your own house, no money changes hands, so you are not creating a ‘market’. But if you pay somebody else to undertake these tasks then suddenly, apparently out of the blue, a new ‘market’ emerges.
Take another example from the grocery industry: the prices consumers pay for food in retailers’ stores in no way registers the full costs consumers actually incur. These prices ignore, for example, the money consumers pay to travel to and from stores and the considerable unpaid time and effort invested in shopping and cooking. Because these costs are not counted they usually don’t register in people’s calculations. They remain hidden and ignored. But they are real.
Recently, grocery retailers have started home delivery of groceries. In doing so, they monetise an activity that was previously un-monetised: consumers’ travel costs. PIMS do the same over a wide gamut of consumer activities: personal data management, decision-making and life-management tasks that have hitherto remained un-monetised and therefore overlooked and hidden.
But PIMS do more than this: they also open up new markets.
Non-consumption is the final key piece to this jigsaw. If somebody were to ask 20 years ago ‘what is the demand for search?’, they would have found it hard to believe that Google alone now earns more than $50 billion a year from it. Ditto with the motor car, TV, mobile phones etc.
It’s incredibly hard to see – and value – demand for markets that don’t exist yet.
There was no ‘demand’ for search 20 years ago because, 20 years ago, nobody had found of a way of offering it in a way that was simple and cheap enough for millions of people to use every day. Likewise with PIMS: in the past there was little recognised demand for personal data management, decision support and life management services because nobody had found a way of offering them in a way that was simple and cheap enough for people to use on a mass scale. Now that’s changing – and as it does so entire new markets are emerging.
Barriers and opportunities
So how will PIMS earn their keep? The answer is, by a combination of the above factors:
- turning non-consumption into consumption (creating new markets like Google),
- monetising previously unmonetised tasks and activities (turning existing hidden costs into new services, as per home delivered groceries) and
- reallocating existing costs and responsibilities (as per primary distribution)
- eliminating unnecessary costs, aligning ‘he who pays’ more closely with ‘he who writes the cheque’.
The transformational power of PIMS lies in the combination of these different drivers.
To be sure, none of it is easy. Existing cost structures, processes and divisions of labour are deeply embedded into ‘how things work’ and have massive in-built momentum. They won’t change overnight.
Change is further hampered by perceptions and assumptions. Today’s arbitrary divisions of labour, cost allocations and market definitions – crystallised into ‘the prices we pay for things’ – seem natural to us because things have worked this way for so long. It’s hard to comprehend how completely different arrangements could work just as well (as per retailers with primary distribution and the price adjustments that followed).
On other hand, precisely because PIMS are meeting consumer needs that have never been addressed before, and because they improve the efficiency of the system as a whole, they have the ability to prosper, big time.