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

Written by John Ellis on . Posted in Breaking News, Posts.

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 and name your price. Want to subscribe to The Wall Street
for 15 cents a day? Want to subscribe to The New York Times for
free? Go to the Web and sign up for or Want to cut the
"hard costs" of your small business? Go to 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 don’t say, "It’s a great place to
shop." They say: "I love" What they mean is that
they think 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 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. 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.