Home
I use Google Alerts to tell me when there has been some mention of Dilbert or me on the Internet. It's the digital equivalent of being a fly on the wall because no one really expects me to be one of the six people reading their blog.

Yesterday I came across a blog post about a prediction I made in 1998. I will link to it because I think the post is well written.

http://riskman.typepad.com/perilocity/2008/12/confusopoly-or-scott-adams-prophet-of-finance.html


My prediction about confusopolies was better than I imagined. For example, I keep reading articles about entrepreneurs starting their own electric car companies. When the barriers to entry for starting your own car company come down, you know we're in a commodity world.

Thanks to the Internet, relatively efficient capital markets, and the fact that some company in China can make just about anything, anyone with drive can start just about any kind of company. The interesting part is that in the near future it can never be profitable to do so, because a hundred other people will start the same company next week and drive down your margins. Your only defense is to be confusing, so customers believe, incorrectly, that your product has advantages.

When I started my first restaurant I was surprised how easy it was for someone with no experience to succeed in that business. I hired the right people or companies for every facet of building the business and my operating partner put all the pieces together. The restaurant was an instant hit and lines wrapped around the block when it opened.

But you know the rest.

The fact that it was easy to enter the business is exactly what eliminated the margins. Scores of independent restaurants opened in the general area in the next few years and all cannibalized each other. With our current economic downturn, I predict 40% of the restaurants in my area will shut down within three years. Their margins had disappeared even before the economy imploded.

My theory of confusopolies had a lot to do with my involvement with dilbertfiles.com. It's a business with lots of competitors, and the options and features are confusing. Most of the comments on this blog about the service took the form of "Why would you need a car when a horse can do the job!" In other words, the competing services had confused people about exactly what they offer to the point of equating a horse and a car.

My involvement with dilbertfiles.com is different from the typical celebrity endorsement in an important way: I actually use the service for my own work, and did so long before I had the notion to partner with sendyourfiles.com for a Dilbert branded version of their product.

When you see a tennis star endorse a tennis racket, there is no chance that star uses that actual racket. Pros use heavier rackets, tricked out for their preferences. You couldn't buy Roger Federer's actual racket if you wanted.

I could give other examples, but the point is that you rarely see a case where the celebrity was already using the product before the endorsement or licensing deal was initiated. Sure, he might play professional games in the sneakers that have his name, but there is little chance he would have chosen that particular shoe if his name wasn't on it.

Obviously I could be risking my reputation and lying about a product I use, trying to make a few bucks, but my incentive to do that isn't high. I see my role with dilbertfiles.com as "a guy you know (sort of) who is already using the service and is happy about it." If you don't want to wade through the confusion and do the research yourself, that can be helpful to know. And realistically, no one has time to research every little decision.

 
Rank Up Rank Down Votes:  +8
  • Print
  • Share
  • Share:

Comments

Sort By:
Dec 9, 2008
Actually, here's a case for you, Scott:
Asafa Powell, who until recently (until Usaion Bolt's vistory in Beijing) was the fastest man in the world several years in a row, attributed his success to religiously taking the Double X vitamin supplement made by Nutrilite (an Amway Global affiliate). The story goes that Asafa lacked the energy necessary to complete his strenuous training sessions (he aspired to claim the title of an Olympic chamion and to officially become the fastest man in the world). His brother, also a runner, clued him to the Nutrilite line of supplements. Adding the double X was the only factor that Asafa has changed in his regimen, so, you can say that the purity of the experiment was properly attained and controlled.
After his victory, Asafa reportedly was impressed enough to approach Nutrilite and Quixtar (the wholesaler) to be a spokesperson and to endorse the brand officially.
Check it out if youhave time.
 
 
Dec 8, 2008
Sounds like Adam Smith to me.

Low barriers to entry generally mean low capital costs. It also means that people who get into that business are going to be more prone to competition than business types with high cost of entry. The higher the cost of entry into the business, the more likely that money must be borrowed to get into the business. That means that people wanting entry into that business need to sell their plan to those who have access to capital.

You mention that a number of restaurants opened near yours once you had established the market. The ones that survive will have two things in common: first, they planned for how they would handle an economic downturn (people tend to eat out less when times get tough, either perceived or real). Second, they provide some value-added features that their competitors don't.

This is simply economic Darwinism. It is how capitalism works. It drives down prices and allows the best businesses to survive. Growth in itself does not mean your business isn't going to fail. Growth sometimes (or often) means stratification and an inability to adapt to change. Take a look at the top 100 businesses in the country, and compare that to the list from twenty years ago. 80 of the top 100 companies (roughly) in 1988 are no longer in the top 100. Look at the auto industry for a great example.

Government can hurt but can't help. Shoring up failing businesses to keep labor union contracts in place does not help the consumer, nor the businesses in the long run. It's like putting makeup on a boil. It makes it look better, but it's still festering underneath, and will continue to get worse until it is fixed.

The way to make a commodity into something that is not a commodity is to add value. Food is basically a commodity, and your restaurant provides food. But people come to yours over others because of the value-added services you have implemented. People will pay a premium for a commodity if they gain something else they want as well. This is how you can avoid confusopolies - provide better services than the other guy, and you'll come out on top.
 
 
0 Rank Up Rank Down
Dec 8, 2008
Hello Scott,

Somewhere there is a Scott Adams - blog post in this article:
http://news.bbc.co.uk/1/hi/health/7767877.stm
Title: 'Intelligent have better sperm'.

 
 
Dec 7, 2008
According to statistics, only one of ten businesses survives more then 10 years. So, no confusopoly, but absolutely normal selection. I think, that something like confusopoly works well in the original mentioned sectors - financials (banks, insurances) and network services (gas utilities, mobile phones). But in production sectors, there is always many ways how to offer different product (lunch in Thai restaurant is not the same as lunch in McDonalds).
And even if we neglect differences between different makes (in car industry, for example), say Ford and Toyota, it is obviously not as easy to manufacture with the same costs - while Toyota prospers with gross profit margin about 13 to 15 %, Ford is in trouble with only about 10 to 13 %. (The two percent are few billions here...).
 
 
Dec 6, 2008
Yeah it's broken for me too - shame I was hoping to see how many people reckon that their doctor isn't quite google but rather a spam merchant who made a "lucky guess"
 
 
Dec 5, 2008
I see the same pattern in many areas. Grocery shopping would be another example - supermarkets discount some advertised specials to confuse customers that they are cheaper overall etc.
The alternate angle on this is the whole subject of patent protection, but clearly you are presenting a valid argument that it is unnecessary.
I'm afraid that people don't buy things because they are confused, or even for any rational reason. For the most part it is because they think they want it but they don't know why, so they choose the one they like the most. Advertising is the biggest reason people buy things.
You really have to think, why, when there are 5 billion people, does everyone need to work? What is the point? People are naturally drawn to it like a hibernation instinct - where they save up money to live off later, or a fight instinct - where they spend money they don't have to get an edge now. At the end of the day everyone wants it and the only way to get it is to work. Then they have to work out what to do with it, while 5 billion other people are trying to figure out how to get their turn with it.
I predict in future people will recognize it as an addiction and give up the money habit. The quality of life available to everyone will be acceptable, and the lifestyles will be better without it - less stress related illness, less theft. People will give up their reputation addiction too, then there will be less fighting and killing.
 
 
0 Rank Up Rank Down
Dec 4, 2008
Your segue to DilbertFiles was nicely done but logically must be a lie. After all if you wrote about Confusopoly in 1998 how could your experience with DilbertFiles contribute to the idea? As this sentence implies: - "My theory of confusopolies had a lot to do with my involvement with dilbertfiles.com."

I read Freakonomics book recently and Confusopoly is just another example of information asymmetry. The scale is just bigger.

[Or do you have a problem with reading comprehension? -- Scott]
 
 
Dec 4, 2008
HI Scott, I'm one of those people converting cars to electric, starting with my own commuter vehicle.

The blog is at http://ev-pulsar.blogspot.com - I'm about 50% complete and should be able to get a lot done over Christmas.

One day, I just realised that buying petrol was funding all kinds of sad, nasty people who generally wish harm to the rest of us. All the technology we need to run on battery power is available right now, and there is a growing group of people in my position who either have, or are in the process of converting their cars to electric.

I still need two thousand dollars or so to buy the electric motor, so if you'd like to do something that makes you feel good, helps the environment and the economy, please donate a few dollars to my project. You can use the PayPay Donate button on my blog.
 
 
0 Rank Up Rank Down
Dec 4, 2008
Sounds like you've been reading Duncan Watts' work, Scott - there's no doubt cumulative advantage plays a huge role in this sort of thing. If the celebrity actually used the product prior, it is a different story.
http://www.nytimes.com/2007/04/15/magazine/15wwlnidealab.t.html
Products seem to have much shorter lifespans now. Unfortunately, marketers' expectations are that their fad will last forever, despite all the evidence to the contrary.
 
 
Dec 4, 2008
There are exceptions to the rule but most of us have observed many small business startups and their trials and tribulations. One of the easiest businesses to get into but the hardest to maintain a profit year after year is the food business. People are fickle and their taste and preferences change constantly. As you say, successful food places spawn more competition. There is only so much discretionary income available out there for a family's eating out.

So, I always wondered why more startup food businesses in their initial business plan (if they have one) do not go ahead and plan to fail. Now that sounds like a contradiction to go into business to fail. But is it?

Many restaurants, cafes, dinners, delis, food stands, carts, driveins, dives. joints, etc. if they have a good idea for something unique and different to offer are OK for the first year. Every one wants to at least try them. When they open it is hard to get into the parking lot.

After the first year now that they are not so new, competition enters the scene and they start loosing customers or not getting new ones. They usually make a lesser profit or just even for the second year. They start to struggle in the third year as more competition comes in, cost go up, expensive equipment breaks, labor cost rise etc. They then usually go bankrupt, operate at a loss and most likely close their doors probably owing money.

So why not do the following. Get a good idea, write a business plan designed to sell the business when it is profitable after the second or third year (the books look good then). Make the price based on the cash flow of the business. This will make you a big profit.

This is not all bad for the new buyers. Now that someone else has the business they can proceed to make the changes necessary, bring in their fresh ideas, seek new customers and try to make it successful.

There are many cases where smart entrepreneurs make more money starting and selling successful businesses than operating them. They are not emotionally attached to the enterprise. We call these people millionaires and billionaires.

No charge for the advice.
 
 
Dec 4, 2008
I use the K-Tour that supposedly Lindsay Davenport does & !$%*!$% Henin did - that didn't factor into my choice (in fact I didn't know till after I bought them) but now you're telling me the "girl rackets" (which I've heard from guys in the neighborhood) I use are watered down? next thing you'll tell me Danica Patrick's S2000 has NOS...

I am depressed... ;-)
 
 
Dec 4, 2008
As a designer I use a lot of file-sharing services. I think that dilbertfiles is a great way to do share and host files. They add a lot of value to the pool of similar services.

I do, however, think that you're beginning to sound like a "pitch man" by continually referencing your product. It is great, and through your endorsement and it's value people may adopt it, but I've been reading your blog for years and the funny quotient has gone down very recently due to the amount of sales-oriented posts. I miss the plain old funny... Just wanted to throw my two cents in.

[I am astonished that people are starting to realize I might mention Dilbert related products in this blog. -- Scott]
 
 
Dec 4, 2008
Plenty of pros use standard racquets, and any tweaks are often as simple as the use of lead tape and a "custom" vibration damper (e.g., Agassi's little rubber band knot). Eventually, some pros get famous enough to have the racquet manufacturers incorporate their desired weighting right into a custom "signature" racquet, which is then *sometimes* also actually sold to consumers. Often, as you wrote, a different racquet with the same name and appearance is sold, but sometimes it really is the same racquet. So there are indeed cases where a consumer can use the actual racquet as a pro uses, even if it sometimes means knowing where and how much lead tape to apply to a stock frame. And, of course, pros just starting out have to use stock frames like the rest of us. (E.g., Sampras when he was barely known, pre-US Open win. He probably had a racquet contract by then, but no signature frame, and no custom manufactured products from Wilson. Just an off-the-shelf frame plus some lead tape.)
 
 
Dec 4, 2008
People also mentioned high cost and unbusinesslike branding as concerns with dilbertfiles.com, Scott. In other words, they might recognize the value in the product but think it is poorly priced and offset by other factors.

It's not just about thinking a horse is as good as a car. Some of us are saying "I would like a car, but not the pink Escalade."

But it's hard to hear that message, when the only value you add via your branded version of the product is one if its main downsides.

[People who mentioned the high cost are comparing apples and oranges. That's how the confusopoly works. And Dilbert is one of the most recognized names in business. It has been the cover of Fortune Magazine a half dozen times, and licensed by scores of top corporations for internal and client communication. It's like saying Yahoo! is too frivolous for businesses. -- Scott]
 
 
Dec 4, 2008
The word “confusopoly” is itself confusing. Are you referring to business in which the products they sell are poorly understood, like those selling risky financial instruments, or to those deliberately misleading potential customers, like phone companies against net neutrality or overpriced electronics store offering cruddy sales?

I agree with your logic to a point. Yes, the barriers to entry are generally falling. Yes, this leads to more competitors in the markets. Yes, this makes it more difficult to maintain high margins. Past that, I think you’re over-generalizing.

Consider the restaurant business. Those who offer clear advantages can charge more. Masa, the French Laundry, Alinea, El Bulli...all are much higher revenue than the average restaurant, because they offer a better product. Of course, they also have higher expenses - better-quality product, better location, and higher wages factor in (then again wages don’t have to be high; high wages improve employee retention, but a strong restaurant reputation can substitute). Still, since demand for reservations is so much higher than supply, they can afford to charge more, and still be continually booked (El Bulli could afford to charge MUCH more, but Adriá chooses to make up the lost revenue elsewhere). Another way to increase revenue is to follow trends religiously - always being ahead on trends like organic and free-trade ingredients or free wi-fi can allow a restaurant to set prices higher than competitors, or set comparable prices while offering better value to drive competitors out of business.

What about the purveyors? With more restaurants in the market, the market for purveyors grows too. But even if it didn’t, if they specialize, thus increasing quality and efficiency, they can offer similar prices to competitors with better value, or raise prices and get away with it.

This applies to other businesses too. If you develop better value for the customer, and advertise it, you can either charge more or charge the same amount to steal customers from competitors. The only space for confusopolies to exist is where your current competitors use the same strategy of confusing rather than increasing value, AND if the barriers to entry are so high that specializing competitors cannot enter the market. Like utilities or banks.
 
 
Dec 4, 2008
You may want to read Ronald Coase (Nobel prize in economics in 1991) on firms. Companies exist only because of an imperfection of the market: transaction costs are very high. And with internet, the market becomes more and more perfect on transaction costs. In this context, the transaction cost is what prevents you from establishing a micro-contract with an 100 individual producers, deliverers, etc to provide you with a single good (each of the parties having 1000s of other contracts fitting their own individual agenda). But with internet, this kind of things will become more and more common indeed.
 
 
Dec 4, 2008
I blame the pope for all this. Gimme a second because this actually kind of makes sense (at least as much as most of my posts do). I think all this is evidence that the world is getting severely overpopulated. Imagine, for a moment, that global population was only 500 million. When you go to start a restaurant, there are not 10 other people trying to do the same thing because those 10 other people don't exist. Only the most profitable enterprises are ever engaged in because competition for the prime niches is less. Likewise, competition for employees is greater so those employees will be paid more money. Unemployment and poverty are both reduced drastically. Ditto global warming, pollution and the need for a police state to control the unruly masses. Immigration worries are a thing of the past.

So why blame the pope? The Catholic church is one of the leading forces worldwide in campaigning against birth control (all forms, not just abortion) and thus promoting overpopulation. If the Pope came out in favor of small families, the world would be a far better place. Imagine a 1 child per family policy from the Catholic church. That would change some things.
 
 
Dec 4, 2008
Maybe this is just the transition we should expect. As business is commoditized, we need to realize that all businesses can really do is fulfill something people need or think they need. Some times, people will get more than they need or things they don't need. Mostly, these are just bubbles. You can ride them for a bit, but the normal should not be considered the big profits and top of the game. In the end, we all provide some of the services our society needs to function and thats it.
 
 
Dec 4, 2008
I'm struggling to understand your point, Scott.

Are you saying that in Darwinian terms, businesses exist by "Survival of the Biggest Liar" (or "Best Salsesman", if you perfer)? That's not a new concept, even if "Confusopoly" is a new term. People have always bought items based on values that they don't understand ("This was created by that great Russian designer, Itza Rippov"). Technology just confuses people more, that's all.

Or are you saying that when businesses act like lemmings, they hurt not only themselves, but the good, original Great Idea, too? That's also always been true, but what's the solution? A Planned Economy, like the USSR had? That's a two-edged sword. It manages resources effieciently, so that there aren't too many restaurants in a given area, but it protects businesses that aren't effiecient. In the long run, the inefficiencies outweigh the efficiency gains.
 
 
 
Get the new Dilbert app!
Old Dilbert Blog