As Doc Searls explained:

“VRM, or Vendor Relationship Management, is the reciprocal of CRM or Customer Relationship Management. It provides customers with tools for engaging with vendors in ways that work for both parties … With VRM, the customer is in charge of the relationship. Not the vendor. We will be able to manage vendors at least as well as they manage us.”

This vision however has not gone unchallenged and Graham Hill has argued that there are four fallacies that combine to scuttle the VRM project even before it’s operational.

Graham Hill:

“The problem I have with VRM is that it suffers from a number of obvious fallacies. Each one by itself is probably fatal for VRM:

1. The Fallacy of Ceding Control

For data rich companies like mobile telcos, credit cards and utilities, cutomer transaction data is a source of huge commercial advantage. It creates literally billions of dollars of incremental revenues for them. Why would these companies and the many others like them give up their expensively collected data and the power it confers, to a rabble of customers? Would you if you had paid millions to collect it?

Fallacy One: Companies are just not going to cede control over customers’ data.

2. The Fallacy of Wanting Control

Which customers actually want control of all their transactional data, have anywhere to put it or would know what to do with it? What are they going to do with all those gigabytes of telephone CDRs, supermarket transactions, credit card transactions and all the other myriads of on and off-line purchase data?

Fallacy Two: Customers way want more control over the marketing which is sent to them, but not their actual transaction data.

3. The Fallacy of Managed Markets

VRM seems to rest on the assumption that it offers a superior way of deciding what products, services and expeiences to offer to customers than the current free market system. Marketers are currently free to offer their wares to customers through advertising and targeted marketing to the market as a whole. They are not perfect at it, but by and large it works. Customers are offered a huge range of products and are perfectly able to decide what they want and what to ignore. I am not sure why customers reqesting that companies make specific offers to them is in any way better. The customers ends up with all the work of researching the products they want. Each tin of beans, each torch battery, each litre of drinking water. Customers would end up limiting their own choices of product, choices of company and that would only lead to one thing. Higher prices!

Fallacy Three: The customer-managed market upon which VRM is built is not viable.”

4. The Fallacy of the Economic Model

Transaction cost theory suggests that companies only exist as a bettter way of organising to produce standardised products than markets of individuals. If everyone wants an iPod then better that a company does all the work to design, make and market it than individuals themselves. What do I know about integrated circuits and memory chips? Precisely zero! And what did I know about the iPod until Apple designed, made and marketed it? Precisely zero! By and large the current system works well and has allowed a huge range of products to be available to you and I. The free market system has driven unprecedented prosperity in those allowed to participate in it too. I don’t see many people queueing up to enter into planned market economies these days? Why throw all that away for a transaction cost heavy model whose economics hasn’t even worked out, let alone tested and proven?

Fallacy Four: There is not a viable economic model underneath VRM.”

Doc Searls responds, arguing that Graham Hill has essentially misunderstood what VRM is about:

“First, we’re not asking companies to give up data they control. We’re creating ways to share data that will be tood both sides of the relationship. This will take time. It will also probably follow the same realization and adoption curve as open source code acceptance has followed in enterprises.

Second, customers should want control over their sides of relationships with others. Those relationships should include vendors. VRM is not just about controlling (or restricting) marketing stuff that vendors send out, nor is it just about transaction data. Both are relatively small potatoes. What matters are actual customer wants and needs, along with seemingly trivial yet important stuff, such as having a way of gang-notifying many organizations (inluding vendors) that one’s address has changed, instead of notifying one at a time.

Third, we need to get stratight what “free market” we’re talking about here. Graham writes, “VRM seems to rest on the assumption that it offers a superior way of deciding what products, services and expeiences to offer to customers than the current free market system.” That’s not correct. VRM rests on a number of assumptions, none of which is that. One of them, however, is that it’s good for vendors to know what customers actually want rather than just guessing about it. Huge amounts of money are wasted by vendors on guesswork. Reducing that would be a nice payoff, wouldn’t it? I think Graham believes we’re a bunch of socialists or something. Far from it. Many of us are free-market advocates of the first order. Not that it should matter. Good ideas should stand in their own proven pudding. We don’t have that yet. Just wait.

Fourth, there is no new economic model underlying VRM. Graham writes, “The free market system has driven unprecedented prosperity in those allowed to participate in it too. I don’t see many people queueing up to enter into planned market economies these days? Why throw all that away for a transaction cost heavy model whose economics hasn’t even worked out, let alone tested and proven?” Two problems here. One is that Graham assumes that VRM opposes the free market system, or that it advocates a planned market economy. It does neither. In fact, we look forward to taking advantage of the free market system by getting better information into it. The other is that Graham seems to assume that the free market and the mass market are the same thing. They are not. The free market encompasses the mass market but is not reducible to it. VRM will improve both the mass market and the market for more individuated products and services.”