A recent article in Wired provides the best explanation I've ever seen for how the digitization of commerce can start off in the best of directions but gradually get perverted into an unholy mess. While digitization in insurance is still in the "best of directions" phase, it's worth understanding the full lifecycle of failure so we can learn from the mistakes of others and not have to make them all again ourselves.
I'll summarize the Wired piece -- it's quite long -- and then end on a happy note, drawing on a column in the New York Times that suggests how Barnes & Noble could be an exemplar for the digitization of insurance. After a near-death experience, the bookstore chain seems to have found the cherished Goldilocks combination of efficiency and humanity. Not too hot, not too cold, but juuuuust right.
The Wired article coins a scatological term (one I won't repeat in a family-friendly newsletter) for the three stages that digital platforms -- like those now in their very early stages in insurance -- go through and neatly explains how they shift from great promise to near-uselessness:
"Here is how platforms die: First, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die."
The hope is that, after massive numbers of users have been attracted, the abuse won't feel quite so onerous that they take the time and effort to find an alternative. Likewise, the hope is that businesses, once huge numbers are drawn in by that huge customer base, won't feel quite so put-upon that they'll take the time and effort to invent an alternative way of going to market.
The result isn't exactly what we were led to expect when Google promised to organize all the world's information, when Amazon promised to build a hyper-efficient "everything store" or when Facebook promised a warm and fuzzy community where we could connect with old friends and relatives.
And, as the article argues, the progression only works for shareholders for a time. Eventually users and business customers get pushed too far.
"Think of Amazon," the article says. "For many years, it operated at a loss, using its access to the capital markets to subsidize everything you bought. It sold goods below cost and shipped them below cost. It operated a clean and useful search. If you searched for a product, Amazon tried its damndest to put it at the top of the search results.
"This was a hell of a good deal for Amazon's customers. Lots of us piled in, and lots of brick-and-mortar retailers withered and died, making it hard to go elsewhere.... And Amazon sold us Prime, getting us to pre-pay for a year's worth of shipping. Prime customers start their shopping on Amazon, and 90 percent of the time, they don't search anywhere else....
"Sellers had to sell on Amazon. That's when Amazon started to harvest the surplus from its business customers and send it to Amazon's shareholders. Today, Marketplace sellers are handing more than 45 percent of the sale price to Amazon in junk fees....
"Searching Amazon doesn't produce a list of the products that most closely match your search, it brings up a list of products whose sellers have paid the most to be at the top of that search.... The first five screens of results for 'cat bed' are 50 percent ads."
In other words, an unholy mess.
The same thing happened at Facebook, which built a humongous audience, then sold us to businesses that gunked up our feeds with ads and promoted materials, then systematically ratcheted up the fees on those businesses. I, at least, find so little of value that I rarely check in any more. Google is so thoroughly milking the businesses that are advertising to its massive user base that the Department of Justice has filed an antitrust suit. Meanwhile, we users have to wade through promotions to get to what we want -- if we can even find it.
The Wired article argues that TikTok has now moved into the abuse-your-users phase, and I'd say that Twitter took a major step in that direction under new owner Elon Musk, when he decided to try to charge for blue check marks -- even though those people are the sorts of power users that draw most of us to Twitter.
Now, I'm not saying the "unholy mess" strategy for platforms isn't profitable. Alphabet/Google and Amazon both have market caps of more than $1 trillion, and Meta/Facebook is still valued at nearly $400 billion, even after a 60% plunge over the past year and a half.
I'm reminded of a conversation I had in the early 1990s with Scott McNealy, at the time the CEO of Sun Microsystems. We were discussing IBM's PC business, which had the dominant market share but which couldn't figure out how to make any money. "Hurt me with that problem," McNealy said. And loads of executives would be delighted to be "hurt" with the problems facing the platform giants as they try to maximize profits while not alienating their user bases -- at least, not alienating them too much.
But, as I suggested up top, I think Barnes & Noble is a better long-term model for the insurance industry. Yes, platforms will be important in insurance as an efficient way of matching buyers and sellers -- and they'll be even better if we learn from the over-commercialization that the Wired article highlights and can avoid it. But this column in the New York Times about Barnes & Noble explains how it provides the sort of human touch that insurers need to provide as they offer advice and assurance to guide people through an often-daunting process, while still responding adequately to the pressure for low cost and efficiency that Amazon forced on it.
The author, Ezra Klein, writes: "That was the lure of Barnes & Noble for me. It wasn’t so much a place to buy books as a place to be among them, for as long as you wanted. Unlike [the cramped local Crown Books], Barnes & Noble had space to sit, and it seemed to want you to sit there. Unlike the library, it was open till 9, sometimes till 10. I hated school. I wasn’t invited to parties. I loved Barnes & Noble."
While "love" is a word not often heard among insurance customers, I think we can emphasize the human connection (while paddling as fast as we can to increase efficiency) and leave the "unholy mess" strategy to others.