The Internet may well be the most important technological innovation in my lifetime, the engine that’s been pulling the economy and society from the industrial age of the past 200 years to our 21st century digital age. But, it’s important to remember that in addition to their many benefits, technological revolutions are also highly disruptive.
The Internet’s transformative impact is being felt in industry after industry and company after company. Despite high profits and stock valuations, many companies are feeling the stress of our fast changing business environment. Advances in technology and new competitors are constantly threatening their market shares and business models. Adapting to the ongoing digitization of the economy is the most challenging transformation every business is facing. And arguably, no transformation has been more challenging than meeting the service expectations of digitally empowered customers.
Digital technologies enable companies to better engage with their customers and offer them a superior experience at affordable costs. But, providing such an experience to increasingly savvy, - and fickle, - customers, is getting harder. New offerings are hitting the market faster than ever, brand loyalty keeps decreasing, and the increased competition is continuing to shift power from institutions to individuals. Consumers have more choices than ever in virtually every category of products and services as well as in the channels used to acquire them. Customers are taking advantage of all the information at their disposal to search for the best possible values.
Even in industries where consumers have few choices, social media has been shifting the power dynamics. Internet-age consumers now have ways of getting back at companies they feel stuck with but don’t trust because of poor service, high prices and/or low quality. The relationship between Internet service providers (ISPs), - many of which are cable TV distributors, - and their customers is a case in point. Let’s look, for example, at the recent collapse of the planned Comcast - Time Warner Cable (TWC) merger.
Their agreement to merge was announced in February, 2014. The merger would have combined two of the nation’s largest cable companies and ISPs. Comcast argued that the combination would not reduce competition because the two don’t overlap in any markets. A number of legal experts felt that, after tough government reviews, the deal would likely be approved. The Washington Post backed the merger given a set of conditions to ensure market fairness.
“When it was announced a little more than a year ago, it felt to many like a sure thing,” said a recent NY Times article. “After all, government regulators had approved Comcast’s acquisition of NBCUniversal in 2011. Comcast had an army of registered lobbyists, more than 100 strong, in Washington alone. The company’s chief executive, Brian L. Roberts, golfed on Martha’s Vineyard with President Obama. Its executive vice president, David L. Cohen, hosted three fund-raisers for Mr. Obama, two at his home in Philadelphia, raising a total of more than $10 million.”
What caused the collapse of a deal that was once viewed as a near sure thing? Many factors were involved, from serious regulatory concerns to the strong opposition of consumer advocacy groups. But a sure thing in the industrial economy may no longer be so sure in the Internet age. Another major force was at play. From the very beginning, the proposed merger was strongly opposed by consumers, especially the very customers of the two companies involved. They didn’t trust either company, and they now had ways to make their feelings known. Their negative feelings in turn influenced and amplified media and policy opinions.
“Cable subscribers don’t give Comcast and Time Warner Cable good grades when it comes to customer satisfaction,” noted this article. “So after Comcast announced its $45 billion purchase of Time Warner Cable Thursday, it didn’t take long for consumers to start venting their frustrations over high prices, spotty service and fears of a monopoly… J.D. Power said in September that in multiple surveys about pay TV service that it conducted over the previous year, Comcast and Time Warner Cable ranked below the industry average in every region of the country. Time Warner Cable ranked dead last among providers in every region but the West. The telecommunications industry as a whole places 9th out of 10, above only utilities.”
In fact, right around the time that its planned merger was announced, Comcast was voted America’s worst company for the second year in a row in an annual poll conducted by Consumerist, - a not-for-profit subsidiary of Consumer Reports. Similarly, last year TWC was voted the most unpopular company in America in the University of Michigan’s American Customer Satisfaction Index. Comcast vice-president David Cohen acknowledged that widespread complaints about customer service contributed to the public’s opposition to the merger, but argued that such concerns should not be relevant to the government’s final decision on the deal.
But, in a stroke of bad timing for Comcast, the proposed merger was being debated around the same time that the Federal Communications Commission (FCC) was reviewing its stance on net neutrality. And, as this article said, once the focus of the merger shifted from a debate over cable TV to one over broadband, the deal was essentially sunk. “[T]he air of inevitability that once hung over the deal had been dissipating for months, as the debate over net neutrality - in short, the question of whether Internet providers should be allowed to charge content providers for speedier service - played out in Washington. And a merger that had at first seemed to be primarily about cable television turned into something much different.”
“The government’s verdict on the merger and its stance on net neutrality were separate issues, but they were very much intertwined. At the end of the day, the government’s commitment to maintaining a free and open Internet did not square with the prospect of a single company controlling as much as 40 percent of the public’s access to it. All the more so given the accelerating shift in viewing habits, with increasing numbers of consumers choosing streaming services like Netflix over traditional TV. In this sense, it didn’t really matter if Comcast and Time Warner’s cable markets overlapped. The real issue was broadband.”
Net neutrality ended up framing the debates. Consumers were much more dependent on, and even more dissatisfied with their broadband than with their cable TV service. Nothing captured for me the public’s negative sentiments about broadband than the comments of a young Brooklyn woman in this article. After complaining about her slow and expensive Internet service from Time Warner Cable, she added that her terrible broadband was even an issue in a relationship: “A guy I was dating never wanted to come over because he couldn’t stream.” Broadband undesirable had now joined the list of potential relationship problems to watch out for.
A number of powerful companies and organizations opposed the FCC’s net neutrality rules, and so had several prominent industry experts. But, the more the general public learned about net neutrality, the more they supported it, hoping that it would increase competition and lead to higher bandwidths, lower costs and better customer service.
In June of 2014, comedian John Oliver devoted a 13 minute segment of his HBO program Last Week Tonight to explaining the intricacies and importance of net neutrality to his millions of viewers. At the end of the segment, he urged them to contact the FCC. Tens of thousands did, crashing the FCC’s online comment system. Oliver’s segment then went viral, and over the next few days, millions of additional comments in favor of net neutrality flooded the FCC website.
In a 2009 paper, “Trust and Reputation in the Age of Globalization”, Mark Eisenegger of the Institute for the Public Sphere and Society at the University of Zurich wrote that trust “is the most important operational resource in our society… The more we have learned to trust an agent (for example, a company), the more comfortable we are likely to be relying on that agent in the long term. For trust is based on the experience that an agent has fulfilled our expectations in the past. And trust creates confidence that that agent will also fulfill our expectations in the future. For this reason, trust cements existing relations and at the same time acts as a magnet for future relations.”
Companies, - no matter how big and powerful, - need to work particularly hard to earn the trust of their digitally empowered customers. The public’s strong support for net neutrality and opposition to the Comcast-TWC merger show what might happen when that trust dissipates. In our Internet age, - when information now travels around the world in milliseconds, and its ensuing impacts propagate almost as fast, - good customer relationships are more important than ever.