How Twitter is going to drive up the cost of stuff and reduce competition

I was reading this blog post by Leah Jones. It is a thoughtful look at what happened with the #amazonfail twitterstorm and makes a case for journalism. I think it makes a stronger argument for why twitterstorms are going to drive up the cost of stuff and put small companies out of business. (it is long, but worth the read. I’ll wait for you..)

Read the part that starts with “Deep breath.” If you have never worked for a large company with deep pockets everyone wants a piece of, you probably can’t relate all that much, but trust me, Leah is dead-on accurate about what she describes. The legal opinions alone with no lead time on a weekend probably cost tens of thousands of dollars.

Consumers are demanding unlimited selection, lower prices, unlimited access to buy and increasingly, unlimited attention. Pay attention to me only when I want you to and then I want your full attention. For a large brand like Amazon, the cost to provide someone to monitor Twitter all day, every day and twice on weekends is an incremental cost on each product they sell, probably pennies. But for a small company who will eventually be held to the same standard, the cost is devastating. As anyone who has ever tried to compete against a Walmart knows, it is the crushing cost of customer demands that eventually puts you out of business.

Walmart is open 24/7, Joe’s hardware can’t afford to pay employees 24/7. Walmart has an unlimited selection of plumbing fittings; Joe’s hardware can’t buy in volume and has to special order parts. Eventually, the great service that customers rely on at Joe’s hardware is just not enough to compensate for Walmart’s convenience and low prices. Eventually, they are the only game in town. And prices rise; slightly, but nonetheless, they rise.

Twits are gleefully rubbing their hands at the awesome power they can unleash onto brands. Who wouldn’t get that rush! Media is eagerly reporting on how the new commerce puts the consumer in charge and the horrible brands are bending to their wills.

But, it is as fleeting as Twitter will eventually be. With each twitter storm will come the tedium of reporting yet another uprising of rage with this group of consumer and that. Eventually, the media will get bored with it all, but not before Twits will have destroyed hard-working entrepreneurs and benevolent brands just trying to make their corner of the world a little brighter and cheaper.

Am I crazy? Really? How much do you know about Katrina? Darfur? Iraq? AIG? Yeah, we all got bored with those “twitter storms in real life.”

The average Twit doesn’t care about any of this, but should. When companies are faced with possible litigation on what they perceive to be a cool product or service, a percentage of revenue goes toward legal fees and insurance. If Amazon perceives that every database change is going to bring about a twitterstorm, they will set aside money for legal and insurance. That won’t come from current revenue; that will come from processing fees or an increase in price.

Their insurance carrier will also probably look at their policy and rate the risk based on the volume and type of books they sell. If one author tends to create a larger twitterstorm than another, Amazon will either pay less in royalties or increase the price to offset the cost.

All sorts of secondary effects will be caused by twitterstorms. While consumers are smacking their lips in satisfaction that they have brought the mighty Amazon to it knees, they will eventually wake up to the fact that prices have gone up and competition has been put out of business.

And the media will not care because they will have moved on to something shinier. Twitterstorms are so 2009.

5 Replies to “How Twitter is going to drive up the cost of stuff and reduce competition”

  1. This is nice, and an acute observation of the way in which large companies tend to react to threats – with large post-hoc control systems.

    This puts me in mind of the reaction to the quality movement when it came over from Japan. Initially people said that it would cost much more to inspect everything for defects – of course what the quality movement is about is not mucking it up in the first place, thus radically reducing costs.

    In this case Amazon would have avoided the storm by not making the blunder in the first place. How? remove the philosophy of control inherent in many large company cultures, and instead empower people, encourage a culture where they think for themselves and step back.

    This is antithetical to the traditional command and control culture – it smacks of risk and of insubordination, it even requires servant leadership and everyone to work together on the continual improvement of the system of work.

    The new social media doesn’t change people’s feelings about brands, but it does make them communicable, and rapidly, which show up the cracks in the old-tech way that traditional organisations work. Command and control enterprises and the philosophy they embody are not sustainable and anything new that comes along will highlight this, as has happened with enabling social networking applications.

  2. @Dave large companies can afford to absorb the cost of change and service. It is the smaller companies with limited resources with really good ideas and products, but are now held to the 24/7, me, me, me standard Twitter is empowering folks that will suffer.

    If these small companies get twitterstormed by someone who has the EXPECTATION of something he/she thinks they are entitled to, but was never promised — either implicitly or not — and loses potential business as a result, what good has been gained?

    I think Twitterstorms will enable consumers to win battles, but eventually lose the war. The “old way” is going to win out because companies still get sued by people every day, with or without grounds. The cost of insurance and legal counsel is a business reality. If you can no longer afford to protect yourself from your “consumers” you close up shop, loved or not.

    I would posit more people love Amazon than hate them. This twitterstorm was a small number of people, yet it probably cost Amazon a lot of money to defend, even though I think they did it badly. I don’t think it would have cost them less if they had done it right and I don’t think the twitterstorm would have been less severe… Amazon is just too juicy a plum; it fed a lot of frenzied folks for a weekend 😉

  3. That is an interesting take on how small businesses could be affected. It seems like not a day goes by where I read articles discussing the pros and cons of small companies marketing themselves on Twitter. I personally think that Twitter offers local businesses a unique method of reaching out to consumers in their area and develop ultra-targeted fanbases. The negative side will always be there, but without any risk there wouldn’t be any reward.

  4. The problem with the theory is that “Joe’s Hardware” doesn’t offer the service it seems to think it does. I am no fan of Wal-Mart and I do not expect companies I buy from to monitor Twitter, but to act like the customer service isn’t enough to keep customers there is giving small business way more credit than they deserve. Small businesses want to answer to no one. They can rearrange hours, suddenly closing even though it’s during business hours. They can order that part you want when they feel like it, ignore you to talk to their friends when you are clearly waiting for assistance, and then when there is an issue they are happy to tell you to take your business elsewhere rather than solve the issue. The small businesses that are decent in my community are rewarded with my patronage, furthermore they have survived the Wal-Mart onslaught nicely, probably due to these very customer service skills other small businesses lack. I would strongly suggest to any business that is suffering to thoroughly re-examine its customer service policies. Coupons and discounts only go so far before you just want someone to be nice to you. Even as a Twitter user, as long as my experience with Amazon remains what it has been, people can say what they want and I will still buy. It always comes down to treatment of your customers.

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