The Transparency Revolution and Why Business Is About to Change

Bono Speaking at The Forbes Philanthropy Event Last Week in NYC

I recently attended the Forbes Philanthropy Summit in New York where Bill Gates, Warren Buffet, Bono and others talked about the state of various global social inequalities.  In one interesting session, Bono gave his take on what he calls the “Transparency Revolution” and how information transparency is the key to fighting the corruption sustaining these social inequalities in Third World Countries.  The idea is that if corrupt political manipulations were known to the public, those behind them would be deterred from such practices fearing they could face the consequences of their actions.

Just as information transparency is working to expose and deter corruption in the Political World, it is also beginning to expose customer exploitation in the Business World.  But few seem to grasp the magnitude of what it is about to mean.

For those of you in the Information Technology Industry, there is a famous saying that goes something like this — “No one ever gets fired for buying Cisco”

I first heard the phrase when I was in college and assumed it to reflect wide-spread customer endorsement of the great value proposition of Cisco’s solutions.  That was my understanding anyway from an “Outsider” point of view.  Later on, in my professional career (designing Information Technology), I began to see things entirely differently — this time as an “Insider.”  I soon realized it was not Cisco customers promoting this saying, but rather it was an instrument designed by a collusion of the company’s own “Insiders” working together to strengthen their profit hold on their customers.

So, who are these “Insiders”?  They are a collection of different groups brought together by a singular aligned common interest — to make the customer pay as much as possible.  From huge sales, marketing, and business development organizations to multi-tiered distribution channels, to complex user experiences and certifications, professional system integrators, and post sales re-occurring support and licensing parties.  Whether they know it or not,  customers have been largely paying for a set of “relationships” that have nothing to do with technology value of the product they are paying money for.  They are essentially getting ripped off.

The Old Model vs. The Future Model

Traditional company business models aren’t built to empower customers and pass on value to them.  They are built to extract profitability from them.  And information asymmetry gives them the perfect cover.  But, with an increasingly connected world paving the way for more and more information transparency to the customer, all of this is about to change.   No longer are “Insiders” able to control the flow of information.  If a product is great, soon customers will tell other customers on the Web and rave reviews spread like wild fire.  Similarly, if a product is bad or customers realize they are being ripped-off, relationships will provide little recourse to contain that information from being widely disseminated.

What does this mean moving forward?  As an Engineer first who enjoys building great products, and a Businessman second who has no patience for politics and inefficiencies, I feel very fortunate to be at the early stages of my career in this point of time.  Moving forward, I can say with certainty that the most successful tech companies of the future will be the ones who deliver the best products and technology value first and foremost which empower customers.  This is very different than the traditional business model which leverages relationships to control information asymmetries and extract profit from customers.

Three companies that I believe are positioned well in an increasingly information transparent world are:  Tesla (Electric Vehicles), Xiaomi (小米科技; Smartphones), and Ubiquiti Networks (Enterprise/Carrier Technology).  What is important to note is that although these companies deliver technology value very efficiently, all take concentrated R&D approaches to produce leading edge performance products which in turn generate evangelism for their brands.

 

6 Responses to The Transparency Revolution and Why Business Is About to Change

  1. Jeremy Califano June 17, 2013 at 11:07 am #

    Very intriguing topic. I believe you are right on the money in your analysis. Great to know that Ubiquiti is heading in the right direction when it comes to bringing value and transparency to its customers. This is definitely the future.

  2. Nick prudent June 17, 2013 at 11:11 am #

    Another great post. I totally agree with Bono here. In my 1st startup, whenever I felt I was getting ripped off by someone (investor, service provider, etc), I told them that I ran a transparent business and that everything I signed had to go through a group of outside advisers.

    I had only 3 such outside advisers, but they were well known in my city’s business community & that prospect scared off a lot of dishonest people — or kept a lot of people honest.

    Basically, crooks are like critters under a rock: as soon as you lift the rock & shine light o their activities, they scatter around. Fairness cannot exist in secrecy.

  3. Chris Faulkner June 17, 2013 at 11:51 am #

    Great post, Robert. This articulates so much of the frustration I’ve experienced as a consumer.

  4. David June 17, 2013 at 3:07 pm #

    As a fellow designer in the tech industry, I agree with you. I’ve been trying to tell people they’ve been getting ripped off, but I’m not sure they care…speaking generally.
    You can probably split the impact to the market in two ways. Immediate impact: does this transparency of information impact someone’s opinion immediately. Impact over time: does the transparency impact how our children will interact with the market.
    To put it simpler: Will this transparency change the way my mom or my brother will buy product, or will it impact the way my daughter will buy product. I’m not so sure that transparency will impact those that are used to a traditional method…it being tradition to them.
    In effect what Cisco had done is a mind trick. Does telling someone they’ve been fooled, prohibit them from being fooled again? They are already used to being fed information in certain ways. Perhaps they have been trained to be susceptible. Also getting fed marketing takes little effort from the consumer, and has a lot of money behind it. Searching for consumer feedback takes effort from the consumer. I always hear “they don’t build them like they used to”. I’ve never heard anyone follow that with “so I don’t buy them anymore.”
    Just a couple thoughts from a believer in concentrated R&D, transparency and value products.

    Did you end up getting the Tesla? :)

  5. Maximilian Gora June 27, 2013 at 8:08 pm #

    I agree that the future model is the ideal model, but I don’t think it’s as simple as you make it out to be. Note “marketing and sales” in the traditional model. In the future model that will be extended to encompasses a larger share of the pie. Companies will pay for reviews, profiles, tweets, likes, etc. Social media sites will also enable companies to market discreetly (think Facebook and promoted ads).

    Providing 100% value to the consumer is too much for the middle men to back down. No matter how much technology gets invented, different technology will be made to counteract transparency.

  6. Sally December 14, 2016 at 7:09 am #

    The traditional model existed for a reason, I think they were the most efficient model given the technology constraint, otherwise it would have already evolved to more efficient model before internet came. Sales and marketing help educate customers about new products, but when products are widely accepted and new customer can learn about the products from existing customers (internet speeds up this process), the significance of sales diminishes, but Inertia makes it very hard for sales people to evolve and be removed from current positions, so they work their best to extract profit from customers to justify their salaries. That’s my understanding of what happened at Cisco.

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