Asking “who’s the customer?”
If you’ve bought a ticket to an event in the past, oh, 15-20 years, chances are you got it from Ticketmaster. Chances are also pretty good that you think Ticketmaster completely sucks, mostly because of the unavoidable and exorbitant convenience fee they charge. And that probably has you wondering: if everyone who uses the service hates Ticketmaster so much, how are they still in business? Because ticket buyers are not Ticketmaster’s customers. Artists and venues are Ticketmaster’s real customers and they provide plenty of value to them.
Ticketmaster sells more tickets than anybody else and they’re the biggest company in the ticket selling game. That gives them certain financial resources that smaller companies don’t have. TM has used this to their advantage by moving the industry toward very aggressive ticketing deals between ticketing companies and their venue clients. This comes in the form of giving more of the service charge per ticket back to the venue (rebates), and in cash to the venue in the form of a signing bonus or advance against future rebates. Venues are businesses too and, thus, they like “free” money in general (signing bonuses), as well as money now (advances) versus the same money later (rebates).
Read that whole Quora answer again…there’s nothing in there about TM being helpful for ticket buyers. It turns out asking “who’s the customer?” is a great way of thinking about when certain companies or industries do things that aren’t aligned with good customer service or user experience.1
Take Apple and Google for instance. Apple sells software and hardware directly to people; that’s where the majority of their revenue comes from. Apple’s customers are the people who use Apple products. Google gets most of their revenue from putting advertising into the products & services they provide. The people who use Google’s products and services are not Google’s customers, the advertisers are Google’s customers. Google does a better job than Ticketmaster at providing a good user experience, but the dissonance that results between who’s paying and who’s using gets the company in trouble sometimes. See also Facebook and Twitter, among many others.
Newspapers, magazines, and television networks have dealt with this same issue for decades now.2 They derive large portions of their revenue from advertisers and, in the case of the TV networks, from the cable companies who pay to carry their channels. That results in all sorts of user hostile behavior, from hiding a magazine’s table of contents in 20 pages of ads to shrieking online advertising to commercials that are louder than the shows to clunky product placement to trimming scenes from syndicated shows to cram in more commercials. From ABC to Vogue to the New York Times, you’re not the customer and it shows.
This might be off-topic (or else the best example of all), but “who’s the customer?” got me thinking about who the customers of large public corporations really are: shareholders and potential shareholders. The accepted wisdom of maximizing shareholder value has become an almost moral imperative for large corporations. The needs of their customers, employees, the environment, and the communities in which they’re located often take a backseat to keeping happy the big investment banks, mutual funds, and hedge funds who buy their stock. When providing good customer service and experience is viewed by companies as opposite to maximizing shareholder value, that’s a big problem for consumers.
Update: I somehow neglected to include the pithy business saying “if you’re not paying for the product, you are the product”, which originated in a slightly different phrasing on MetaFilter.
Update: One example of how maximizing shareholder value can work against good customer service comes from a paper by a trio of economists. In it, they argue that co-ownership of two or more airlines by the same investor results in higher prices.
In a new paper, Azar and co-authors Martin C. Schmalz and Isabel Tecu have uncovered a smoking gun. To test the hypothesis that institutional investors gain market power that results in higher prices, they examine airline routes. Although we think of airlines as independent companies, they are actually mostly owned by a small group of institutional investors. For example, United’s top five shareholders — all institutional investors — own 49.5 percent of the firm. Most of United’s largest shareholders also are the largest shareholders of Southwest, Delta, and other airlines. The authors show that airline prices are 3 percent to 11 percent higher than they would be if common ownership did not exist. That is money that goes from the pockets of consumers to the pockets of investors.
How exactly might this work? It may be that managers of institutional investors put pressure on the managers of the companies that they own, demanding that they don’t try to undercut the prices of their competitors. If a mutual fund owns shares of United and Delta, and United and Delta are the only competitors on certain routes, then the mutual fund benefits if United and Delta refrain from price competition. The managers of United and Delta have no reason to resist such demands, as they, too, as shareholders of their own companies, benefit from the higher profits from price-squeezed passengers. Indeed, it is possible that managers of corporations don’t need to be told explicitly to overcharge passengers because they already know that it’s in their bosses’ interest, and hence their own. Institutional investors can also get the outcomes they want by structuring the compensation of managers in subtle ways. For example, they can reward managers based on the stock price of their own firms — rather than benchmarking pay against how well they perform compared with industry rivals — which discourages managers from competing with the rivals.
(via @krylon)
BTW, asking who the customer is doesn’t help in every situation where bad service and contempt for the customer rears its ugly head. See cable companies, mobile carriers, and airlines. Companies also have other conflicts of interest that interfere with good customer experience. Apple, for instance, does all kinds of things that aren’t necessarily in the best interest of the people buying their products. And as the Ticketmaster example shows, determining a company’s true customer isn’t just a matter of where the revenue comes from. It’s never simple.↩
This is a potential problem with kottke.org as well. Almost all of my revenue comes from advertising. My high regard for the reader keeps me pretty honest (I hope!), but it’s difficult sometimes.↩
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