In a previous life as a branding analyst, I spent a lot of time focusing on loyal customers – and particularly the “evangelists” among them who just might recommend us to friends and family. In my current life as Director of Marketing Insight at nGenera, I spend a lot of time focusing on prosumers (customers that become actively engaged in the co-creation of value) and influencers.

It’s tempting to look at that and draw a simple conclusion – prosumers and influencers are the web 2.0 version of loyal customers and evangelists, respectively. Tempting, but wrong. This is not simply a case of using new technology to leverage similar types of relationships. Instead, it’s about new types of important relationships for companies to leverage, thanks to the new technology.

Over the next little while I’ll be explaining what I mean by this. Today I’m going to start with a particularly important contrast between loyal customers and prosumers.

It doesn’t take a rocket scientist to explain why loyal customers are so important to companies. They typically love a brand, and account for a huge share of profits (think: 80/20 rule, or some variant there of). Focus on them, and try to create more of them, and you make more money– simple as that.

In most cases, prosumers also love a particular brand – after all, they’re often volunteering their discretionary effort to help it out. Explaining why this isn’t always trued is a subject for another day. Today I want to focus on the fact that prosumers typically don’t account for anything more than a small fraction of revenue and profits – at least directly.

The main reason is that prosumers are often a very, very small group of people. While we’ve defined a wide variety of ways that companies can engage prosumers, the easiest one to understand (and implement) is simply sourcing ideas from them. MyStarbucksIdea.com is a great example, and they’ve received a lot of input from customers through the platform. But any way you run the numbers, the total participation on the site represents a very, very small percentage of Starbucks customers. There’s no way they can drink enough lattes to make THAT much of a difference.

However, the total impact that these prosumers can have is much higher than the profits they directly account for. In this case, one good idea sourced from a prosumer could improve the experience of thousands – or millions – of other Starbucks customers. In more advanced cases, where customers move beyond ideation to actually doing something, the impact might be greater still.

So the initial lesson here is simple. Prosumers are not the Web 2.0 version of loyal customers, and should not be treated as such. Companies looking at prosumer engagement, in general, should be focused on how insights and contributions from a small subset of customers can lead to better experiences for a much broader customer base – and design their strategies accordingly.

Put another way, loyal customers can have a significant impact on the bottom line – even if they have no impact on the experiences of others. Prosumers only have a significant impact if they are positively impacting the experiences of others.

Last week I wrote about The Hipstery, focusing on the concept of using data to create and leverage “blind spots”. This week I’m going to talk about SeatGeek – a relatively new start-up that uses existing data to empower customers, and potentially alter the dynamics of the secondary ticket industry.

What SeatGeek does is gather information from hundreds of different secondary market sites for event tickets, and apply an algorithm to it in order to predict where prices for individual events will go. The company asserts that it is directionally correct about 80% of the time (currently limited to MLB games and music concerts). The value for customers is rather obvious here – if prices are going to go down, you wait; if they’re going to go up, you buy.

How SeatGeek itself will perform is unclear – there are a number of business model challenges and contradictions I discuss in my research paper. But there’s one particularly important long-term implication, which spans industries, that’s worthy of more attention – the role of data in regards to the customer relationships.

In many traditionally B to B to C marketplaces, the Internet (among other things) is allowing the “middle B” to solidify their hold on the customer relationship, and leverage data to become ever-more popular. The challenge for the “first B” in many industries is to gain access to that data for their own competitive advantage. There are a variety of different ways to do this that my research team is currently exploring.

In SeatGeek’s case, professional sports teams, various musicians and others are the event originators – the “first B”. Companies like TicketMaster are the “middle B”. In the long-term, it may well be that SeatGeek (or a company like them) empowers the event originators at the current intermediaries expense. I’d hypothesized we might see the same process / battle play out in, say, the book industry as the Kindle (and other such devices) grow in popularity. This morning I was reading the Economist, and I found the following quote from “a Hulu for Print” quite interesting…

Publishers are irked at the prospect of formatting content for multiple devices with slightly different requirements—a problem that will worsen. They are even more irked at the current market leader, Amazon, which returns as little as 30% of the sale price of a digital magazine to publishers and provides less detail about customers’ reading habits than they would like.

For further reading on SeatGeek on the web, I recommend this, this, and this. An interesting overview of the secondary ticket market is here.

My job as executive editor at nGenera Insight involves doing a lot of research about new business models and start-ups tied to the Web 2.0. Over the next few weeks, I’m going to be sharing a high level overview of some of the work I’ve been doing recently. Today I’m going to start by talking about the story we see emerging from a little company called The Hipstery.

The idea behind The Hipstery is simple. Instead of offering a bunch of t-shirts for customers to pick from, the company invites customers to fill in a survey. They then take these results, apply an “innovative style algorithm technology” to them, and select a t-shirt that seems to suit the customer. Think of it as a way to surprise yourself with a gift.

We’re cautious not to overstate what The Hipstery is actually doing here – the humorous tone of the site makes it appear that the algorithm might be part of a joke. But there’s no reason it need to be. We think the idea behind it points towards an interesting opportunity popping up all over the web.

Without getting into the details of the framework (which is where the Johari Window, among other things, comes in), the idea is to create “blind spot” – things you can no about your customers, but they don’t know about themselves – and capitalize on them. Doing so requires data, and analytical capability. We’ve already seen this happen in online dating – while sites like Facebook offered certain advantages over services like Match.com, it’s eHarmony that captured the blind spot opportunity (and found a business model). If you squint a bit, you can make the argument that The Hipstery model is to Threadless in the clothing industry what eHarmony is to Facebook in online dating.

There’s of course much more to the story than that. But the overall message is that The Hipstery is a very interesting company to check out, and many organizations should consider looking for their own “blind spot” opportunities to exploit.

The combination of Ning and WidgetLaboratory (WL) was a story that had wikinomics written all over it. The former is a platform that enables anyone to create their own social networks focused on anything they want, and they actively encouraged individuals and companies to innovate on top of the platform and make it even better. WL did just that, and in a big way – they sold a number of widgets (for around $30 / month) tied to the Ning platform, supporting somewhere in the range of 2,000 networks and 1,000,000 individuals. WL was the most popular widget creator on the platform.

If I was writing this post a week ago, it probably would have been a feel good story about wikinomics, but the wheels have recently fallen off the proverbial bus. This is a development equally worthy of exploring in relation to the challenges that come with embracing wikinomics principles – and particularly those that emerge when you only embrace a few of them. Of greatest interest to me – if more stories keep popping up like this, it could be a dramatic blow to more open, collaborative innovation processes. That would be a shame.

TechCrunch picked up the story on August 22nd, when Ning suddenly removed all of the WL widgets, without warning to anyone, from their network. This decision which clearly angered the company, as well as the thousands of customers who had spent time and money with WL in order to optimize their offerings. Based on the emails that WL has published on the web, this is the gist of Ning’s complaint:

Over the past few months, WidgetLaboratory’s applications have caused multiple and significant technical degradations to the Ning Platform. In point of fact, your code has broken numerous times and has negatively affected a large number of Networks in addition to the Ning Platform.

This sounds fair enough – having a single company break the platform repeatedly would seem to be a problem. However, WL vehemently disagrees with this assessment. If you read through the emails they point the finger for whatever platform problems exist squarely at Ning (particularly highlighting when Ning implemented Dojo changes that broke many applications without bothering to inform any of their partner developers in advance). They also indicate the shutdown may be more about anti-competitive behavior (a.k.a. they’re making too much money and Ning wants it, and/or Ning is worried they’ll lose customers and revenue going forward). From their POV, this was a win-win-win relationship, and they don’t understand why Ning would do this unless there were ulterior motives.

What’s the truth? it’s hard to say without knowing EVERYTHING that’s gone on, but it’s even harder to say Ning has went about anything in the right way. If you work through the email train, there is an ongoing (if occasionally heated) dialog through to August 7th between Spencer Forman at WL and CEO Gina Bianchini of Ning, at which point she indicates the communication will be handed off to Jay for technical issues, Bob Goorah (general counsel) for the terms of service, and Jason Rosenthal for business conversations (who was starting on the 15th). The next email in the chain is this:

Dear Spencer,
I am writing to inform you that your network (widgetlaboratory.ning.com) and third party applications have been removed for violations of our Terms of Service. Please direct all correspondence regarding this matter to my attention. Thank you.
Bob Ghoorah
General Counsel
Ning, Inc.

So much for business and technical I guess – only the lawyer now, and there appears to be no interest in finding an amicable solution. WL, as noted, has posted the email correspondence on the web. Ning’s initial public response, in contrast, was this:

This morning we removed WidgetLaboratory, a third party application developer, from the Ning Platform for violating Ning’s Terms of Service. WidgetLaboratory provided independently developed applications that could be added to a social network on the Ning Platform by a Network Creator. While we try to be as transparent as possible, it’s our long standing policy not to comment on specific cases where we remove networks or third party developers from the Ning Platform so we will not be providing any additional details publicly.

You have to love that – we try to be as transparent as possible… but we’re not going to tell you anything. How transparent. Lawyer Bob continued to respond to several emails from Spencer, and helpfully reminded him of the terms of service:

Ning has the right (at its sole discretion) to delete or deactivate your account, block your email or IP address, or otherwise terminate your access to or use of the Ning Platform or any Network, or remove and discard any Code or Content within any Network, without notice and for any reason.

While legally this is very clear, one has to imagine that setting a precedent of unilaterally shutting down the most successful widget provider on the platform might not be good for encouraging other developers, or encouraging customers to pay for premium services that could/ will quickly be axed. If you read through the responses on various blog posts (including this one on the Ning developer platform), you see this come up repeatedly – and you notice that most seem to be on WL’s side.

Gina later posted a more thorough response which has some more positive responses – though it’s interesting to note many users seemed to be asking for Ning to offer them the applications that WL used to offer them, which is a very slippery slope indeed. It’s even more slippery when Gina notes that:

Our focus at this point is in assisting Network Creators in finding alternatives to features that they may have been using from WidgetLaboratory. If we could fill these holes today, we would. We will start this effort shortly.

There’s no way around it – this looks really bad. It’s bad to have a model where 3rd party players are encouraged to get involved, grow a business with valuable offerings they develop and prove, and then get shut down while the “parent” company and customers clamor over replacements for them. Not sure how that can be sugarcoated.

There’s also another wrinkle in this – if you check out the August 7th email, you’ll note that one of Ning’s other complaints is that WL sometimes asks for user names and passwords, which is also against the terms of service. WL points out that they do this as a service for paying customers, who WANT to provide it to them, so they can go in there and… diagnose and trouble shoot problems with their licensed and purchased products. That seems perfectly sensible, and again to everyone’s benefit – but apparently Ning does not agree. Even while complaining that WL code regularly breaks down and hurts the network. Curious.

So overall there are a lot of disconnects here, and as more information comes out it might clear up – but I doubt it. I think it’s fair to say at this point that if you want to learn how to deal with such “open” development platforms and partnerships, do pretty much the opposite of what Ning did. Even if they had to shut down WL, they could have went about it in a far better way. Secondly, saying that you try to be transparent, and then sharing nothing, is dumb. Finally, if it’s the innovation of 3rd party developers that is helping your company so much, you really have to think about what the long-term implications are when you unilaterally axe your top performer and then very shortly after that talk about replacing their offerings being your top priority.