The Age of the Customer, and How Time Warner Screwed Up

And you thought New Coke was stupid. This wireless technology price-gouging scam may be the dumbest idea Coca-Cola has ever had. It offers Pepsi and other competitors an enormous opportunity to use wireless Web technology to cut the price of cold soda on a hot day and, in so doing, position themselves as pro-customer and Coca-Cola as customer-hostile.

The positioning is important because, above all else, what the Internet has wrought is the Age of the Customer. Never in the history of commerce has there ever been a better time to be a customer. You know this from your own experience. Want to get a cheap flight to the coast? Go to Priceline.com and name your price. Want to subscribe to The Wall Street Journal for 15 cents a day? Want to subscribe to The New York Times for free? Go to the Web and sign up for wsj.com or nytimes.com. Want to cut the "hard costs" of your small business? Go to Demandline.com and those costs will soften immediately. And on and on (and on and on) it goes.

Rule number one of the Internet Road is that power flows to the end user (or customer). And as end users get more and more accustomed to the new balance of power, their expectations adjust accordingly. Companies that don't adjust their behaviors to "fit" these new expectations invariably get into trouble. And it doesn't matter how big or well-established or powerful those companies might be. They get hammered just as hard as everyone else.

Take, for example, Time Warner. Time Warner is, among other things, the nation's second-largest cable systems operator. For the last year, the company has been negotiating with Disney about licensing Disney content (ABC Television, the Disney Channel, etc.) for carriage on Time Warner cable systems.

When AOL announced more than four months ago its intention to acquire Time Warner, Disney took a much harder line in the negotiations, fearing that AOL would (in the future) use its newly acquired Time Warner cable systems division for tactical advantage. As a result, the negotiations deadlocked. Time Warner, forming a circular firing squad, decided to play what they regarded as "hardball." Early last week, they tossed Disney-owned content off their cable systems.

It is hard to overstate what an incredibly stupid decision this was. It revealed to everyone, including government regulators with oversight responsibilities (for, among other things, the pending merger of AOL-Time Warner), that Time Warner couldn't care less about its customers. What the company said, at a time when people everywhere expect to be able to get what they want when they want it, was, We won't let you have it, if it doesn't suit our corporate agenda.

Reaction was as swift as it was predictable. The editorial pages thundered about Time Warner's heavy-handed behavior. Politicians and regulators said they would have to "reexamine" the AOL-Time Warner combination in the light of these new developments. And customers voted with their feet.

This last item was not inconsequential. Disney took out ads in the papers, offering free installation of satellite television to Time Warner cable systems customers. Over twenty-five thousand Time Warner customers took them up on the offer. Do the math (27,000 customers times an average cable bill of $40 per month, times 12 months, times 10 years, equals lost revenues of $130 million through 2010) and you get some idea of the price of arrogance.

What was most amazing, however, was that Time Warner was surprised by the public reaction. Apparently, it had not occurred to anyone in Time Warner management that denying customers access to content they had come to expect might create a public relations disaster. Think about that. Imagine thinking that part of your leverage in a licensing negotiation was stiffing your customer base, in the Age of the Customer!

Think about the context in which Time Warner made its decision. Everywhere one looks, there are companies that are doing literally unbelievable things to expand their customer bases. They're giving away computers, they're giving away Internet access, they're giving instant rebates on purchases, their cutting prices as never before, they're offering service contracts at no extra charge, they're partnering with airlines to give away frequent-flier miles, they're doing everything they can to get customers inside their tents. And it is considered right and just that all these companies are behaving this way.

They're behaving this way because in well more than one-half of all American homes is a personal computer. And in about one-third of all American homes is a computer with more computing power than NASA had when it landed Neil Armstrong on the moon. And when that computing power connects to the nearly infinite computing power of the Internet, the rules of the commercial game change forever.

And the most important thing about the combination of the personal computer with the boundless reach of the Internet is that it makes the end user feel like he or she owns it; that it's on his or her side. You hear this when people talk about websites they like. People who like Amazon.com don't say, "It's a great place to shop." They say: "I love Amazon.com." What they mean is that they think Amazon.com is on their side. It helps them fight their war against time famine. It helps them make smart choices. And it offers them a noticeably higher level of convenience.

A while back, my Fast Company colleague Bill Taylor was on a panel with Jeff Bezos, the chief executive of Amazon.com. Bezos was asked how much time he devoted to thinking about his competition. Bezos answered that he devoted very little time to thinking about his competition; he devoted virtually all of his time to thinking about his customers. What did they need? What would make Amazon work better for them? How could Amazon improve so that it would never lose a customer? Those are the right questions to ask. Companies that don't ask them might not be slapped around the way Time Warner was last week, but they'll be relegated to the same pile; the one marked "clueless assholes."

Companies are forever insisting that they put their customers first. The difference now is that you can go to the Web and actually feel who does and who doesn't. Amazon.com does. Time Warner doesn't. General Motors does. Chrysler doesn't. Sprint does. AT&T doesn't. Gap does. Bradlees doesn't.

This interactivity is the future of commerce and marketing. We're back to the bazaar. What we know and feel about brands and companies will come not from what we are told but from our interaction and haggling with those brands and companies.

Companies like Coke and Time Warner that continue to think they own the joint need to understand that in the Age of the Customer they're just companies on the Internet. The Internet is the joint and customers believe that they own it. This belief is not going to go away. It's only going to grow stronger, as more and more broadband delivers more and more power to more and more end users.

The Age of the Customer is not a fad, a bubble or hype. It's the way the world works now. If you have any doubts about this, just ask the management of Time Warner.

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