Tuesday, May 19, 2009

VRM 1 - What is Vendor Relationship Management

I was very fortunate to attend the 2009 VRM Workshop last Friday and Saturday in Silicon Valley. This is a group of passionate and intelligent folks from technology and business who have been working to make the Cluetrain Manifesto-inspired visions of Doc Searls and others a reality. I want to thank Doc here for inviting me to join and participate this group and to meet him face-to-face for the first time, which is a wonderfully unique experience when it's someone you've followed and had some dialog with in cyberspace for a long time. This is also a good place for me to also give credit to Steve Gillmor - who I also had the pleasure of meeting this weekend - for introducing me to Doc through his Gillmor Gang podcasts and for introducing me to the idea of web-based attention and gestures as a source of value.

As a technologist, VRM is something I'm now (afterwards) feeling an even more passionate enthusiasm (imagine!) for and want to make continued contributions to. It's essentially about humanizing commerce. So in the spirit of initial contribution, I thought it would be a good idea to blog out an N-part series on VRM to capture and clarify my understanding. Thanks and a hat tip to Tim Bray for the N-part format I often enjoy in his blog.

Without further adieu, here's my take...

What is VRM?

Vendor Relationship Management is a concept (I wanted to say “business model” and “technical architecture” but they seem too limiting so I’m going with the fuzzy term for now) that is centered on changing the relationship between customers and sellers. (And even these terms are too limiting, but are probably illustrative enough for this introduction.) Sellers are typically called “vendors” in order to provide a contrast with Customer Relationship Management (CRM), but as Doc points out this is a term of art from the technology business, so "vendor" isn't perfect either.

For the purposes of this discussion the current state of the art of the customer-seller relationship can be characterized by the following two points:

1. Sellers broadcasting promotion information about their products and services via advertising. But advertising is:
  • An extremely inefficient way to link buyers with sellers. Most users ignore and resent online ads, perhaps even – or especially in some cases - “contextual” ones. The fact that paid advertising subsidizes the cost of providing products and services in the world of electronic (and now digital) media and “content” is fairly abstract to people (despite it being around since the early radio and TV days) in that it’s usually not “front of mind” when making decisions about what media products to pay attention to.
  • Difficult at best to correlate with individual actions – in particular purchase events - that may have been influenced by the campaign
  • To the extent that correlation can be enabled through technology (such as location-based advertising for example) it is done through appropriation of the customer’s valuable personal information (notably location, attention) without corresponding compensation.
2. Sellers each represent their own model of individual buyers through CRM systems. This is not only redundant, but it also:
  • Helps to foster a “siloed” business model and interaction process that is painful for users since they need to provide their personal data (minimally name, address, credit card) to each vendor in order to facilitate e-commerce. That this process of “silofication” also helps to lock in consumers by making it annoying at best to switch to a competitor only reinforces and builds inertia into this model on the vendor side.
  • Inaccurate, which is a consequence of most CRM attributes being generated analytically and in ad hoc vendor-specific ways).
There is a potentially quantifiable belief that this state of affairs results in considerable Money Left On The Table (“MLOTT” in VRM parlance). This is at least partially due to the considerable friction of CRM models of individuals and the inefficiencies of advertising, but is perhaps more a consequence of the failure to leverage the considerable value (through better quality and timeliness) that willingly provided personal information can provide to commercial transactions.

VRM aims to change this state of affairs (“level the playing field”) first and foremost in order to empower individuals and “re-humanize” the marketplace. But there are powerful incentives to business:
  • Connecting sellers with buyers more efficiently
  • Improving vendor’s supply chains to lower costs (matching production and distribution to demand)
  • Opening new business opportunities to match sellers with buyers on the individual’s behalf. This latter role is often referred to as a “fourth party” role (where the individual is the “first party”, the vendor or supplier is the “second party”, and agents who work on the vendor’s behalf, such as advertisers (or advertising search engines) are “third parties”.
As implied at the outset, VRM is not restricted to the buyer/seller relationship (for example donating to organizations like NPR is fraught with the same issues and inefficiencies), but e-commerce (and even “e-enabled” brick-and-mortar commerce) is a major focus.

VRM Architecture

The key technical or architectural idea behind VRM is the notion of the Personal Data Store (PDS). To understand the PDS idea, one first needs to understand what kind of information is maintained about you for purposes of building and maintaining a (currently one-sided) commercial relationship.

The sort of information that’s useful to a seller in a commercial relationship (especially an online one) and that is maintained in a CRM system consists of obviously essential stuff like your name and address (for creating a unique and persistent “identity”) and commerce-essential but sensitive stuff like credit card information. But other useful information includes demographic stuff like age, gender, “income level” and so on. This latter “model of you” information can be subcategorized in a myriad of ways some of which are unique to what a vendor is offering and others are the bailiwick of marketing professionals. I’m sure you can think of a handful. And often this isn’t directly asked for or provided but rather is derived from information you do provide such as where you live. Do you like being categorized this way?

But there is other, more dynamic personal data that is quite valuable to connecting sellers with buyers. Think of which websites you visit, in which order, and what duration is spent there. Think of your current location. Or a trail of location “breadcrumbs”. Or an accumulation of such paths from which patterns of your day-to-day life can be analytically gleaned.

Don’t think for a minute that there aren’t well funded organizations working hard to get this information in order to create “personalized” ads that (they think) will better fit your circumstances and “delight” you enough to incent a purchase event. Does this feel intrusive and creepy? Are you aware of how valuable this information is?

I used the term “identity” before to describe your name and address. All that other provided and derived “model of you” information is associated with your identity. But in the digital world, identity can be fluid. You can have multiple identities, one for work, one for play, one for personal business. Sometimes these identities can serve the purpose of anonymity (nobody online really knows that “WhiteSoxFan2121” might be Barack Obama for example). This is important because without some support for anonymous non-correlatable identity or identities, most people would be extremely reluctant to share some of the more personal and private static and dynamic information currently unavailable to vendors and only guessed at.

The “Personal” aspect of PDS turns this around. Instead of this information being spread around in the CRM systems of each of the vendors you interact with, there is only one PDS, only one “model of you”. One dataset of record that contains any and all of the personal static and dynamic information that was discussed above. A dataset that you maintain and control.

I’ll talk about control in the next paragraph. But first think about some other ramifications of a personal set of market-useful information that you create and maintain. One important benefit is that there’s only one such dataset. No need to enter your name, address and payment information on multiple sites multiple times. Another is that you maintain it. No analytically derived and presumptions sub-classifications. You can maintain your political affiliation for example. Even your medical records.

"Whoa, hold on now" I can imagine you saying. Not inclined to put stuff like that into a computer where it can be fluidly shared with other organizations on the internet for goodness sake? Can’t say I blame you. That’s where control comes in. The other key property of the PDS is that you control who gets to see what information. Not every piece of information is needed or useful in every commercial transaction. But for example if you’re looking for a restaurant, knowing your location and what food you like and dislike can be very useful. Note in particular that your name and address probably isn’t. If this is a transaction with a medical professional, your medical records may be essential. How this can work in a secure way – and probably in a more secure way that your medical records are handled now in some medical provider’s CRM-like system - brings us back to identity.

There’s been a lot of work in the last four years on the technology side in coming up with more secure and more easy-to-use network-oriented identity systems. This work is now coming to fruition and will allow individuals to create identities and associate them with a dataset like a PDS, along with sets of rules that govern which pieces of information are shared with which organizations. Mechanisms like selector-based Information Cards with encryption baked in, and emerging web-based location and data format standards like URL-based Extensible Resource Identifiers (XRI).

The adoption of these new identity models is accelerating. Selector based identity is provided in Windows Vista and is available for earlier versions, and open source versions are available for Linux and Mac and are working their way down to the mobile device space. This coming ubiquity is making the fine-grained control of personal information associated with individually maintained identities realistic. In other words network-oriented identity management is the key to a truly secure PDS.

My conclusions:
• I don’t think it’s a stretch to say that VRM is the killer app of Identity Management.
• The Personal Data Store is the architectural cornerstone of VRM that provides an unassailable technical constraint to the unauthorized use of any and all personal information in e-commerce and thereby enables a user-centric model for efficiently connecting sellers with buyers.

VRM Adoption and Challenges

The VRM concept is now at a stage where technology that supports the PDS architecture is no longer the limiting factor to adoption. The most significant work now lies in making the case to individuals as well as to sellers that a VRM-infused commercial ecosystem serves their interests better than the status quo.

The tremendous inefficiency of advertising as a method for associating actionable buyers with sellers, the data cleansing and other lifecycle-oriented model fidelity issues associated with traditional CRM, and the consequent MLOTT ironically makes pitching the VRM idea to sellers (and “third party” agents working on their behalf) easier than making the case to individual buyers. There is an increasing amount of convincing qualitative and quantitative data
(traditional as well as VRM-specific) available to make a compelling case to sellers. The challenge here is the chicken-or-egg one: there needs to be a meaningful number of individuals providing gestures of impending purchase intent that sellers can associate with before traction on the seller side can take hold.

Before specifically addressing the individual side of the relationship, it’s worth noting that there are some models for promoting the VRM idea in a bottom-up way that can provide evidence of adoption to sellers in a low cost and low risk manner. One is to start with some trial communities and begin to cobble up “Personal RFPs” out of readily available web technologies like blogs and microformats, web spiders, Twitter/RSS/XMPP messaging and existing cookie-based identity. Another is to provide user-centric search capabilities that work on behalf of individual buyers (as opposed to the current search model of Google and others who work on behalf of the seller by mining personal information and creating paid “contextual” advertising) and connecting them with sellers. This is an example of a “fourth party” service working on behalf of the individual.

Another way the VRM community is working to spur adoption on the vendor side is to build and demonstrate a cloud-based PDS architecture that co-exists with existing vendor CRM systems. This particular architecture is being implemented by the Mydex Community Interest Company in the UK. It works by using user-verified known-good attributes from various CRM systems and incorporating them into a logical dataset of record that is federated from the vendor's CRM systems. This logical or “virtual” PDS is surrounded by a strong identity layer that allows the user to grant or disallow access to select attributes for select commercial transactions.

This evolutionary approach can go a long way toward reassuring vendors that their interests are being addressed in a way that doesn’t force them to rearchitect their e-commerce systems and in a way that lets them evaluate the business benefits of VRM in a low-risk way.

But challenges to adoption remain on the individual buyer side.

One challenge is that there is no single compelling benefit to the VRM PDS-plus-identity approach. Among the orthogonal benefits are:
  • A single point of creation and maintenance of one's personal information with an optimal incentive for high quality and timeliness.
  • The advantages of maintaining a digital record of rich and highly private information about oneself without concern about it being shared with anyone but whom one wishes to share it with.
  • A much improved experience in finding and buying products and services that better fits one's unique personal context and whose price takes into account the value of the personal information one provides.
  • The ability to keep transactions anonymous and uncorrelated with other transactions if desired.
  • An ability to build relationships of mutual respect and benefit with sellers.

Another big challenge is associated with devising and implementing a user experience that makes it easy to create, manage and share the fine-grained information in a PDS in an easy to use and easy to understand way. I still think this is the biggest challenge.

This leads naturally to the much-needed evolution of fourth party services in addition to or combined with user-centric search. A cloud-based model for trusted management and control of Personal Data Stores on behalf of a user seems likely to be part of such offerings and is a fruitful area for innovation in PDS management user experience.

An ability to combine online applications and services with shared PDS information in unique ways are still another “developer side” space for innovation in fourth party services.

So another key to adoption is the development of fourth party services allied with the individual but both driving and responding to the pace of adoption of VRM concepts on the vendor (and vendor’s third party) side.

And the key to successful adoption of fourth party services is Trust.