Over the past few years, a cadre of “independent” analysts have set up shop and started to speak frankly about the enterprise application vendors, in their blogs and tweets. You know who I’m talking about: Vinnie, of course, and Dennis, and the Enterprise Irregulars, and Brian , and many, many others. These people were really good analysts to begin with–I’ve known them for years–and they have found their more-or-less independent status freeing, so they write the best stuff that is out there.

So if they’ve got a better mousetrap, why is it that the big guys, Forrester and Gartner, just seem to roll on and on, happily enough? Why haven’t they folded, the way the portable CD player did when the iPod came out? In the free market, after all, shouldn’t consumers pick the best quality at the lowest prices?

I got an interesting answer, yesterday, when I attended a talk at Harvard by Marc Flandreau, who is at the Graduate Institute of Development and International Studies, Geneva. Marc is an expert on bad-mouthing, or as we like to say in English, “blackmail.” And he has a fascinating historical explanation of how pay-to-play can emerge in information markets.

Marc’s focus is the wild and woolly bond market in Paris pre-World War I, a market that was deeply affected by the emergence of a free (or at least libel-free) press in France, post 1880. At the time, it was so easy to start and print a newspaper cheaply that a new kind of blackmail emerged. It was, essentially, “Pay us, or we’ll say bad things about you.” The very relaxed libel laws at this time made this a genuine threat, and people (Marc shows) really did make money doing it.

In the financial markets, the threat took the form, “Mr. Russian Government, pay us, or we’ll publish an article saying that you’re losing the then-active Russo-Japanese war.” And, as it turns out, the Russian Government paid up. The records, which were published in the 1930s, show that the government’s expenditure on publicité went up by a factor of two or more during that period, over what would “normally” be expected.

The interesting thing, though, is where the money went. Essentially, a set of what we would now call unscrupulous PR men (possibly, a redundancy, I admit) who took the blackmail money and distributed it among the press.

Now, here is the rub. Most of the money apparently went to the most reputable, most stable, and most expensive financial journals, not to the blackmailers. What these people tried to do with the bribe money was to make blackmail expensive, by “supporting” an alternate, established, reputable forum, which people would look to for authoritative information, and the existence of this forum brought the threat of blackmail from the cheap-sheet vendors down to acceptable levels.

Flandreau demonstrates fairly convincingly that while some money did go to throw-away (sometimes one-issue) newspapers, most of the money went to those journals and was a significant source of income for them.

“So if I may paraphrase,” a Harvard professor said, after hearing this, “The National Enquirer is one of the things that keeps The New York Times alive.” Marc replied in the affirmative.

Marc’s broad conclusion is that a pay-to-play industry will emerge whenever there is a significant threat from “badmouthing.” (He cites Moody’s as a modern-day example of the same phenomenon.) In all these cases (I think movie stars of the 1920s are another example), the best strategy for coping with badmouthing is to support cooperative, but reputable mouthpieces who will then be a permanent counter to whatever bad things are said by the smaller, less reputable people. In his analysis, the accuracy of what these smaller, less reputable people say is irrelevant; it could be true, it could be false. What matters is that you can exert some control over the best people in the industry.

Anybody who has ever taken a PR class already knows this, of course. But what Flandreau contributes are two simple, but odd facts. The premiums are in fact very large, and MOST of the money goes to the larger, more reputable firms.

So what does this mean for Dennis and Vinnie and Brian and Michael Krigsman and Helmuth Gümbel? Well, pretty much it means that their efforts are enriching Gartner and Forrester far more than it enriches them.

Dennis says in a recent tweet, “Pay to play doesn’t cut it.” Sorry Dennis, in this case you’re just wrong. If Marc is right (and I have no reason to think he isn’t), what you’re really doing is supporting the pay-to-play industry.

Home Depot and Twitter

October 20, 2009

Some thoughts on how (at least one) corporation is reacting to the promise of social networking, in particularly Twitter.

The story begins at Home Depot late one rainy night. I am standing in the only manned checkout line, waiting and waiting for a teller who is checking and rechecking and rechecking. I can see the many self-service checkout lines, but I know better than that, and as all the other customers try those lines and #fail, I smile a little secret smile, as the line behind me gets longer and longer.

I am buying some containers and a cheap hedge trimmer, for my little, tiny hedge. The teller very carefully, painfully carefully checks the containers and then says to me, “ZASDFn avaerpih, awern p[i oubioub esters?” I have literally no idea what he’s saying. I say, “Pardon,” and I get another stream of syllables in some language I don’t know. “I don’t understand what you’re saying.” Again. “Just ring it up.” Again. “No, no, no, just ring it up.” Again. “I do NOT understand what you’re saying.” Again. “No, yes, whatever.” The word, “Yes,” works like magic. Up goes the hedge clipper and, as it turns out, up goes a warranty charge on my bill.

I can’t say at that point that I was the model of decorum and common sense that I try to be in my blogs. It is very late; the only reason I was there was that a neighbor had persuaded me to give him a ride to Home Depot. I will draw the curtain of charity, as Mark Twain says, over the rest of the scene, except for one moment. After I get in my last comment, the teller straightens up and says, “Thank you very much, sir; we appreciate your business,” in English that has only a trace of an accent.

This sounds unbelievable; I wouldn’t believe it if it hadn’t happened to me. I can only assume that tellers got a bonus for each unnecessary warranty they sold and that he had figured out an unbeatable technique.

So, the next day, I Twitter about it. I can’t tell the whole story in 140 characters; it was more a, “You can get ambushed anywhere” sort of tweet.
I don’t think Home Depot is listening, but in seconds, there was the response. “We’re so sorry we failed you; how can we help?”

A happy ending, an apologetic store manager, an upgrade offered on my hedge clipper? Of course not. You see, Home Depot wasn’t actually geared up to deal with my experience, weird and truly troubling as it was. It was only geared up to respond quickly when somebody twittered a complaint.

Now I understand this. I know that Home Depot is going through a tough time, that it is a troubled company anyway, and that thinking about the opportunities that Twitter suddenly offers is the last thing on their minds. I bet they’re patting themselves on the back just having somebody on staff who can read tweets and respond to them, and who knows, at this stage, maybe they should be.

All I’m saying is that they missed an opportunity. Obviously, they have a problem in their store operation, a pretty extreme problem. Obviously, it’s the sort of problem that might take a long time to ferret out. Here was somebody who had found a way to tell them at least that the problem existed and who would have been willing to explain. But all they did was view this tweet the way some politician’s handler would view it, as potentially bad publicity, which needs to be countered right away.

They could have done better.

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