Category Archives: micro-Segmentation

Targeting customers one-by-one based on the particular nature of their situation.

Banking Services and User-Defined Policy 2

by Richard Veryard
Who is going to want the kind of user-defined policies I talked about in the podcast (link to soundfile, transcript extract)? Is it just the higher-end type of customer, as Ron suggests?

Hypothesis One: The better-off customers have the more complex requirements. Their financial arrangements are more subtle, their consumer electronics are more sophisticated, and there is much greater scope for interoperability.

Hypothesis Two: The technically literate consumers are most able to articulate the more complex requirements. They are more willing to experiment with the available options, and to learn to express their requirements in an appropriate policy language. In consumer electronics, they are the ones who know the difference between an Ethernet cable and a USB port, and how to tweak the firewall.

Hypothesis Three: The lead times are getting shorter. Even if it is currently the better off and technically literate consumers who are the early adopters of this complexity, service providers should anticipate the possible mass adoption of some aspects of this complexity within a fairly short timescale.

Hypothesis Four: Although the better-off and technically literate customers may be the ones who currently understand and express these complex requirements, that doesn’t mean that the rest of the customers don’t have these requirements. Everyone needs security; and the less money you have to start with, the more you suffer if someone steals a hundred dollars from your account.

Hypothesis Five. Where end-users are not able or willing to engage with the technical necessities (such as writing their own policy statements in some technical mark-up language), there will be intermediate services that will do this. For example, financial advisers may start to see their role as helping the client to orchestrate and manage a complex set of financial services from a range of service providers, instead of simply helping to select financial products. There are also opportunities for self-help groups and communities to emerge, where the complexity is managed collectively at group level, rather than at the individual level.

Hypothesis Six. Ultimately, the complexity is supported by a platform of composable services providing the right balance of flexibility and efficiency. The strategic question now becomes one of platform dominance. (The banks may be privately thinking about this question, but I haven’t seen much evidence of it yet.)

Hypothesis Seven: In the short-term, banks might be tempted to focus on the higher-end type of customer if they really were the most profitable. But there may not be enough of them to cover the costs of supporting them effectively. A more strategic reason for focusing on the higher-end type of customer might be because of innovation. But there may be just as much innovation (and greater social benefit, as well as reasonable long-term profitability) from supporting a “long tail” of lower-end customers, either directly or through appropriate communities and intermediaries.

Banking Services and User-Defined Policy

by Richard Veryard
Transcript from Podcast [34:30-38:38]

[Richard] Let me talk about the relationship I have with my bank. As a typical banking customer, I get a very simple set of services from my bank, and quite frankly it’s not really what I want, but all the other banks offer me pretty much the same services, so I don’t really have much choice. What I would like from my bank would be for me to define my own data model, which would be more complex and more fitted to what I need than the data model the bank gives me. What I would like is to be able to define my own policies on the bank account – give me a policy language, I’ll code my own policies, I’m happy to do that – and let the bank execute them. But no, the bank’s not interested in doing that, the bank can make money just giving me a standard one-size-fits-all bank account, and so they’re not going to do that, and they’re probably not going to do that for some years to come. But other industries are starting to respond to that kind of asymmetric demand.

[Ron] That sounds really interesting about the bank, but I can’t even imagine or conceive of how a bank could possibly allow me to define my own policies, or the kind of data that’s going to be related to those policies. Can you give me an example of something that might work that way?

[Richard] Yes, let me talk about security policies. At the moment, my bank gives me a simple choice: either everybody with my password can access my internet bank account, or my bank account simply isn’t available over the internet. And so it’s a very crude binary: either it’s open or it’s closed. Now what I would like is to define much more precise security policies on my account, that says for example I can take money out of my account to these specific destinations up to these amounts of money, but if I want to pay vast amounts of money to an overseas company that I’ve never dealt with before, I do not want that to happen over the internet, I’m quite happy to go into the branch and do that over the counter, and sign all the paper that I need to give myself the extra security. I could write those policies over and above the policies the bank itself has, and the bank would be able to execute my security policies in composition with its own security policies, and that would give me greater security and me greater control over my account, without taking anything away from the bank. And if everybody had their own security policies it would make it a lot harder to have mass attacks on bank accounts, which would make everybody safer. And so there seems to be a win-win-win all round if banks were able to provide just simple kinds of user-defined policies of that kind.

[Ron] Okay, I can imagine how if that kind of thing were possible, that a bank who was willing to offer that might attract the kind of customers that would result in more profitability. I would imagine that might appeal to a higher-end type of customer than a typical customer that maybe doesn’t care that much about the bank’s security.

[Richard] But you see with SOA, the technology is all there to do that. Technologically, that’s very easy to do now. It’s purely a question of whether the bank is willing to manage that additional complexity.

For further discussion, see Banking Services and User-Defined Policies 2, in which I discuss who is going to want these kind of user-defined policies, and what are the strategic implications for banks and other service providers?

BlockBusters and SlowBurners

by Richard Veryard
On the Longtail blog, Chris Anderson produces some data that he interprets as evidence for The Decade the Blockbuster Died. Many comments (including mine) suggest alternative interpretations of this evidence.

An album (or film or other entertainment product) may achieve massive volumes when it is first released, or it may become a perennial best-seller. In theory, there are two routes to long-term success, so that a slowburning quality product might achieve parity with a flash-in-the-pan popular hit. But in practice, products are deleted from the catalogue or become effectively unavailable – either because the sales volumes falls below some threshold defined by economies of scale, or because of some arbitrary decision by the record company (such as a dispute with the artist). In the former case, such thresholds assume an economics based on there being a symmetry between the supply model and the levels of demand directly addressable by it.

So the statistics cited on the Longtail blog don’t reflect the “pure” behaviour of the market but reveal the distortions caused by the behaviour of the record companies. This is an example of large companies imposing arbitrary restrictions to suppress the longtail.

In recent years, the internet has apparently provided opportunities for record companies to exploit the back catalogue more effectively, but there are still many classic records and films that are not available in the latest formats. Pundits or rigged elections produce lists of the 100 greatest products in various categories (special thanks to Channel Four) and this promotes sales of these older products. But the market remains distorted, and the evidence for the longtail remains patchy.

Similar considerations apply in the pharmaceutical industry. But in the same way, a business model reliant on blockbuster drugs is looking increasingly problematic, while the industry has not yet made a satisfactory transition to the longtail.

The strategic challenges in these (and other) industries can be understood in terms of meeting the challenge of asymmetries of demand, and the need, therefore, for a business model that can use a micro-segmentation of demand to address the needs of customers one-by-one.