Our subject this month is friction and the importance of a lack of it. If that sounds obtuse – well, just wait until you have read the rest. Just my little joke; all will become clear.
After the excitement of Apple’s iPhone 7 launch (said with a straight face), rather less fuss was made of Amazon’s Echo speaker, which hit the UK on 15 September. This funny looking black or white cylinder sits on your worktop or wherever and does … what, exactly? It does not charge up and move around with you; it is designed to stay where it is. It does not have a GPS or an accelerometer, or a gyroscope; it is designed to stay where it is. It does not even have a screen.
It just sits there, taking up space, which makes its £150 (£100 if you are a Prime member) price tag hard to swallow.
Ah, but what the Echo is doing is listening. Specifically, it is listening for you to say “Alexa”, which is the Amazon AI assistant – its equivalent of Siri, or Cortana or Google Voice.
Say “Alexa” and the Echo can act on more than 3,000 commands, including playing music from Amazon Music or Spotify, controlling any smarthome/Internet of Things devices and, of course, ordering stuff you do not need from Amazon.
What earthly use is that? Who wants a cylinder lurking malevolently on their worktop – eavesdropping on their conversations and possibly waiting for the signal to spark into life and destroy us all? Have these people not seen 2001? Or I, Robot?
The answer, of course, is Jeff Bezos: the main man at Amazon. Amazon is built on simplicity. It is easier to buy stuff on Amazon than anywhere else.
People will, when faced with a choice of vendors on the site itself, pick the one that says “fulfilled by Amazon” even if it is not the cheapest. They will even pay a chunk of money each year to be Prime members and get even quicker delivery and various other benefits.
The reason, Bezos posits, is that every time you hit a break in a process, the friction it causes gives you a headache. Specifically, it raises the emotional price you pay for whatever it is you are doing.
That price is arguably much more important to us as individuals than the actual monetary price of something. It is the reason we hate Ryanair, but tolerate BA.
It is also the reason that Ryanair and Easyjet went back to giving seat reservations. It is why John Lewis and Marks & Spencer can charge what they charge and stay afloat.
Echo that emotion
What the Echo does – or will do – is make certain basic things easier. It removes or reduces friction. As an example, it will shortly integrate with the Sonos range of wireless speakers. Why? Because saying, ‘Alexa, play Vanitas by Anaal Nathrakh in the kitchen’, is easier and less frictional than getting your phone out, opening the Sonos app, navigating to Spotify, typing in Anaal, selecting the album you want from their many fine offerings, selecting the room you want it to play in, and then settling down with a coffee to enjoy some fine Midlands death metal.
To put it another way, we have got used to controlling our environment in lots of ways with our phones. What if we did not have to?
Apple Watch and the new iPad Pro range have something similar with the “Hey Siri” function, which wakes the assistant up, but in the main the commands Siri can help you with are still designed to get you to interact with the phone, watch or ‘fondleslab’ in whatever way. The Echo is much more stark than that.
And no, the Echo will not change your life at the moment – but it and things like it will, sometime in the next 10-20 years, or maybe even sooner. And all of what it does will be about removing those little points of friction and reducing the emotional price we pay for doing what we are doing.
Technical friction
This theme is not the Echo, though, it is friction; specifically friction inside the technology we all use in this business we call show, or financial services.
I have been thinking a lot about this recently because at my company we have been putting together our 2016 advised platform guide, which will be out by the time you read this at a frankly derisory price, whatever the price is. Naked punting there, but I do not get paid for writing this column and a cat’s got to eat.
One of the things we have been looking at in depth is client reporting and how clients can interact with their investments. We have been thoroughly depressed by what we have found. Here are a few of the low-lights:
• On most platforms, clients cannot find out what investment growth they have had; which is to say reporting is time-weighted, not money-weighted. They can see fund performance stats, and they can see if they have got more or less money than this time last year or half-year, but they cannot see what the change in value in their portfolio is.
• Still only one platform – True Potential – offers goal tracking, even for retirement savings.
• Few platforms have a client mobile offering, and fewer, still have a decent one.
As amazing as it seems, there are still advisers who maintain that clients are not interested in their money and that they should have to contact an adviser to get a valuation. This is daft on many levels, but for our purposes today let’s just say that putting friction in the process for clients and increasing the emotional price someone has to pay is a pretty bad idea.
Add tech to grow profit
Eventually, getting this stuff wrong can be really value destructive. We know what friction looks like in a business – breaks in processes, poorer client outcomes and, eventually, lower profit figures. This is why – among other things – platforms need to keep evolving and keep reinventing themselves.
If we look at Cofunds, which has not been able to do that, it is no surprise that even off an enormous asset base of more than £70bn, its latest profit figures are a less than zesty read.
Hopefully, Aegon will concentrate on removing that friction. When they are doing so, they could do worse than look to Jeff Bezos and the mute white cylinder on their worktop.
Mark Polson is principal of platform and specialist consultancy, the lang cat