This is a lecture Kevin Maney delivered at the Kenan-Flager Business School at UNC-Chapel Hill in 2009. Kevin talks through the trade offs we constantly make between fidelity and convenience. If you want more on this topic, check out his book Trade-Off.
Lots to digest here and some marvelous examples that will make you think. It’s a two part video, check out excerpts and links below.
What is Trade off? 00:14
What I’ve done with this book is essentially try to create a lens for looking at the way things work. It’s kind of like the tipping point or innovators dilemma.
It’s a way to look broadly, and maybe explain the way some things work and maybe the world works. It’s not an absolute. It’s not an answer machine. It’s not like Zoltan where you make a request and it pops out the answer.
But it is a framework that has resonated with a lot of people. And it actually helps you think.
That’s the idea here - to make you think about certain things you’re involved in or the way things work or the marketplace works.
A couple things fidelity is not.
Fidelity is not this idea of you and your spouse sticking together for 90 years or whatever. And it’s not about music or high fidelity music.
I want you to think of it, use this word with a bit of a broader meaning.
Fidelity is the total experience of something.
So part of that is quality, the quality of a product or service. It’s also something more, the way a product makes you feel or giving you some sense of identity about yourself.
When I was doing research for this book, I got turned on to a 1930’s philosopher named Walter Benjamin, who added to me an interesting aspect to this.
He was writing at the dawn of time when machines could actually reproduce things. He started thinking, if a machine could reproduce a copy of a Picasso painting, exactly as the original Picasso painting, why is the Picasso worth more?
He wrote about this concept called aura. The original Picasso has an aura. It was touched by him, painted by him, it actually gives the owner a certain sense of who they are because they own it and display it.
It is that sense of aura that makes it valuable.
That figures into this idea of fidelity. The total experience, the aura, the identity is part of this concept of super high fidelity.
The other word here is convenient. Again, a couple things we’re not talking about with convenience.
It’s not your local 7-Eleven. And not necessarily the TV dinners you can make easily.
Convenience is just this whole idea of how easy it is to get what you want.
Part of that is ease of use. Part of that is ubiquity, how available is something.
A lot of times, but not all the time, cost is a factor. Because is something is really low cost, it’s naturally easier for someone to get it.
Putting it together 04:13
Think about these two concepts broadly. Fidelity being the total experience of something and convenience being how easy it is to get or do that experience.
And you put it together, we’re constantly going through these trade-offs in our life between the quality of the experience and the ease of getting it.
You’re often going to do something that is high fidelity even though it’s inconvenient to do.
And you’re often willing to do something that is convenient, even though the fidelity is not that great like shopping at Walmart.
So if you plot these two things on an axis like this, kind of representing the trade you’re willing to make - one easy way to explain this is the music industry.
There are two parts of the music industry that are doing really well.
One part is the super high end concerts that cost a lot of money. Think of a U2 concert, it’s the whole experience of the band being there and seeing them live. The crowd around you and the ability to tell your friends later that you went to this U2 concert, it was all part of your identity.
It’s a super high fidelity experience and they charge $200 a ticket, and they sell out. Even though it’s tremendously inconvenient, going there, parking, fighting the crowds, and the high cost of the ticket.
The other end of the music industry that is doing really well is the iPod and iTunes downloads . That’s very convenient.
It’s easy to do, it’s pretty inexpensive, you get to carry 10,000 songs in your pocket.
The fidelity or the sound fidelity of an mp3 is like 10 times worse than a compact disc. You’re willing to give up or trade off that fidelity for that experience.
Fidelity Belly 07:01
But in music, what is the one thing that’s not doing great? Compact discs.
Compact discs tend to fall into this zone where they’re neither a tremendous fidelity experience or tremendously convenient, so you’re not willing to make the trade for one or the other.
It falls in this so-so zone where it gets a lot of consumer apathy. That’s why compact disc sales have been plummeting.
There is this other part, which is the equivalent of having U2 play in your living room. Which I guess if your the president you can do, but it’s probably not a great business model for U2. And probably not a convenient model for most of us.
The model looks like this, and there is this spot in the middle, where products are neither enough fidelity or enough convenience to really get people excited.
I call this area the Fidelity Belly.
And then there is one other aspect of the chart, which is actually quite important. I put these two arrows at either end because I realize that technology constantly allows the borders of this whole model to change or move outward.
If the borders are moving out, the borders of that belly are constantly expanding also, which tends to mean if you have a product or service that stays static or sits in one place as the market keeps expanding, you’re eventually going to fall into that Fidelity Belly.
The compact disc is a perfect example. When it first came out it was the most convenient way to have music for a long time. The compact disc didn’t change, so as the borders kept moving out, it became more and more stuck in the middle.
Another example, and something I worked at for 27 years, is newspapers. It was the most convenient way to get news for the longest time. It landed at your door step, this big package of stuff.
And it didn’t change for all these years, and more convenient ways came along to do it and papers ended up getting stuck in this zone.
Netflix Example 10:31
This is Reed Hastings, the CEO of Netflix. I went to a conference in 2005. It was called Web 2.0.
It was 2005, and Reed Hastings was on stage and got asked why Netflix hadn’t started delivering movies on the Internet. Netflix is doing that now in a pretty aggressive way.
In 2005, they weren’t. The questioner was saying wouldn’t delivering movies over the Internet be a more convenient experience for your users. You don’t have to go to your mailbox or anything, it’s just there.
Hastings said, I constantly keep in my head this trade-off my customers are willing to make between the quality of the experience and the convenience of getting it. That is how I make decisions about what kind of products and services we offer.
For the mass market of people who like to watch movies, trying to get them to download movies on the Internet is actually an inconvenient experience for them right now . It’s too difficult, there is all this DRM involved.
For most of my customers, going to get the DVD out of the mailbox, is a more convenient experience. And I’m not going to make that change yet. [Again, 2005]
Washington, North Carolina 15:37
I got an email from a guy named Daniel Stevens in Washington, North Carolina. And Daniel runs an employment office in Washington for people with disabilities.
Daniel said he read my columns, and it made me think about what we were doing here and why were not having much success.
He said, to most employers in town, if we’re representing people with disabilities, we’re not offering them high fidelity employees or their ideal employees.
So we probably can’t compete with other companies on the fidelity spectrum. And at the same time, we’re not particularly more convenient than anyone else. So in this model, we’re kind of in this Fidelity Belly.
So we decided to try to be the most convenient employment agency in town. We let everybody know, the papers and the people who ran restaurants, if your dishwasher quits in the middle of dinner or on a Saturday evening, if you call us, we’ll have someone there in 20 minutes.
We will be the most convenient employment agency in town. He said it worked. It started to increase the number of placements they had. They had a lot more success.
This made me realize that this can be applied to almost anything.
Love vs. Needed 04:46
Ted Leonsis is the owner of the Washington Capitals. He was an old friend, and one of the people responsible for the fantastic growth of AOL.
I took this model to Ted, and he added something interesting to the conversation. For his entire business career, the model he kept in his mind was the same thing, but he used different words.
For him, fidelity meant loved.
And convenience meant needed.
He always believed that any business he was in had to be either loved or needed. And it was very difficult to be both, and if you weren’t enough of either one, you were in serious trouble.
When he bought the Washington Capitals, certainly nobody needed the Washington Capitals. For years since they were a rotten team, nobody loved the Washington Nationals either.
They were having trouble selling tickets, so they were stuck down here in the Fidelity Belly. He realized that he was never going to make the Capitals needed, what he had to do was make them loved.
So he invested in the team, not only to have a winning team, but a team that people could enjoy. And the past couple years, they’ve set attendance records.
Tesla and Electric Cars 06:41
Electric cars have been tried so many times over the years, but they’ve never been successful.
A big reason is every electric car that came out was kind of econobox version of cars. They were not cars that would make many people excited about buying them. They weren’t going to be loved.
And they certainly weren’t going to be convenient. Because you would drive around the city for 30 or 40 miles, and then you’d have to go plug it in to charge it overnight. Compared to gas cars where you pull into a gas station and refill it in 3 minutes.
Every electric car that came out was neither convenient or fidelity, neither loved or needed. As a new product it would come out and sit in the Fidelity Belly.
The insight that Tesla people had about electric cars was that you had to break out of that one way or the other. So why not break out of it?
Instead of making an electric sports car, make the best sports car.
Give people a reason to love and want this particular product. So they built the Tesla Roadster, it’s going to cost $100,000. But it’s a kick-ass sports car.
The aura and identity factor of it is so high. The waiting list for it is like Arnold Schwarzenegger, Larry Page, and George Clooney.
The classic example is you go to business school, you draw an X and Y axis, and the upper right is where you have to be.
The question mark here is, in this model, wouldn’t it be best to be super fidelity and super convenient at the same time?
I want to illustrate that question through Starbucks. If you think about these two concepts, fidelity and convenience, they actually have a very natural pull against each other.
If you’re a fidelity kind of product, and it’s all about exclusivity, high-end, and you start to try to make it ubiquitous and drive the price down, it’s pulling it down too much.
If you have something that is really high convenience, it’s about low cost and availability and ubiquity, and you try to start to add features and price, you’re pulling at that convenience.
Starbucks started out as a super-high fidelity brand of coffee. Howard Schultz bought this little coffee shop in Seattle and he was passionate about the quality aspect of the coffee. That’s what he talked about and wrote about.
To him, Starbucks was all about trying to create this great experience in the stores. It was some place that you felt like you were at home, that was special to you.
He wanted the brand to represent something to you. So that you felt is was part of your identity if you walked around with these cups with a little green label on it. The coffee has to be special and good.
It was all about a sense of identity. He created that magically, wonderfully. Starbucks took off, it became part of the public’s consciousness. It was the kind of coffee you aspire to, it cost 5 bucks.
As Schultz ended his tenure, and Starbucks took on with new management, it was all about driving toward convenience. They thought they could keep this fidelity and try to create something that was absolutely ubiquitous.
Store after store, across the street from each other. The joke in The Onion that I loved was new Starbucks opens in restroom of old Starbucks.
It got to a point where the wheels started to come off. Same store’s sales started to drop off, stock prices fell, and it put pressure on management.
A bunch of things had happened. The more they tried to drive out to the mass market, the quality of what they were offering declined.
They couldn’t train baristas fast enough, so the product wasn’t made right.
They switched to automated coffee machines to try to keep up with the demands. But the automated machines, most people felt didn’t make the coffee as good.
Starbucks had completely blown up this idea of creating an experience, of a place to go to, by opening little kiosks in grocery stores and selling instant coffee.
It started to dilute that brand until Starbucks became not so cool anymore. If you really wanted to be cool, you went to Caribou Coffee or some little independent shop.
I ended up calling this space the Fidelity Mirage.
It’s a place you can’t get to. If you try to drive for that spot of super fidelity and super convenience, the tensions between the two pull at each other until the whole thing falls apart.
Since then, Schultz came back and made all these announcements about getting back to fidelity. He shut down half the shops for a day in the US to retrain all the baristas. He started closing shops.
That’s the interesting question for Starbucks. On the aura and coolness side of things, once you lose it, can you get it back?
How can you use this? 18:01
It’s a way to think about things. It’s a lens. One way you can use this is to understand where you are.
If you’re managing a product or coming out with a product, or have a company idea, understanding what is is you’re offering and where it sits on this continuum for the market you’re trying to address.
This helps you understand what you need to invest in and what you need to do.
What trade-off are your customers going to make?
Thanks for making me think, Kevin.