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The Revolution In Contracts Is Happening .. Now

April 12, 2010

Take a look at the business and technology sections in any serious newspaper today and you cannot help but be overwhelmed by the way that information flows are transforming our world – and how surely this will revolutionize the way that we form and manage trading relationships, no matter which market sector we operate in.

I will take just a few examples from today’s press.

Facebook is once again cited for the pressure it is placing on regulators around data privacy rules. Its attitude that users must opt-out rather than opt-in has already resulted in action by the authorities in Canada and has now raised the concerns of regulators in Germany and Switzerland, who claim that photos of third parties must have their approval before they are posted. Facebook’s director of public policy takes the view that ‘There seems to be a real disconnect between the regulators and the people .. they are embracing sharing with one another’. And the evidence suggests he is right.

In reality, how do people react to be being ‘targeted’? It is an issue raised by the British election campaign, with claims that cancer sufferers are receiving specific mailings which attempt to create fear about health service policies. If true, this is clearly an example where personal records are being built by someone who can then make money from their knowledge. Of course the politicians cry ‘Foul!’, but how much do the wider public really care?

The magazine ‘Business Life’ is just the latest to suggest that the issue is largely generational – that the ‘oldies’ seek to protect bygone principles and sensitivities, alien to today’s tech-savvy youngsters. For those who have been raised in the internet world, ideas of privacy and secretiveness are from another era. They thrive on the latest gossip; they admire those who push at boundaries; they are the first to view confidential information and intellectual property rights as concepts to be breached. Raised in a celebrity world, reputations are here today, gone tomorrow  ..  but also perhaps restored at some future date.

In this new world, loyalties are short-lived. So when Twitter needed to plug gaps in its capabilities, it was delighted to have the contribution of voluntary application developers, who in return were able to advertise their offerings at no charge. But once established, Twitter has turned its back on these developers and is formulating a new charging and advertising model to monetize its potential. The exciting, open forum innovator becomes instead the revenue hungry predator ….

And as mobile devices become the new face of technology, Apple increasingly challenges many of the incumbents. Its devices –the iPad and iPhone – offer instant access to data and to software as a service (SaaS) applications, such as customer relationship management. This enables suppliers to obtain instant information – especially in areas related to personal or business information – which guides on-the-spot decisions. These may range from a credit check or buying history, to decide whether to do business, to instant guidance on patient treatment, which may save your life.

As i read all of this, I think about how it will impact the way we construct and manage our contracts. The answer will of course vary depending on the nature of the product or service being provided, but all relationships will be impacted by the availability of real-time data. A current example that will affect all of us is the switch in the iron ore industry from annual pricing to quarterly priced contracts. Technology has made it possible to monitor and analyze spot market trends in a far more dynamic way. Might this be a future trend in commodity pricing generally, perhaps ultimately spreading even to consumer markets?

To take another example, to what extent may suppliers use customers to assist in the development of new product or services and then start to charge a higher price for the ‘enhanced’ product? In primitive forms, this concept has always existed (from informal feedback, through to the more structured ‘beta testing’), but the advent of message boards and instant messaging has made the potential for ‘joint development’ far more immediate and dynamic – and of course challenging to traditional concepts of intellectual property rights.

Future profitability will increasingly depend on smart contracting, whether it is a Facebook model that pushes at the boundaries and tests acceptability of new standards, or Twitter that successfully exploits the work of others, or Apple that creates new go to market models and partnerships to marginalize incumbent technologies. The information age is still in its infancy; the winners will be those who are ready to challenge traditional policies and practices, to formulate new commercial relationships and offerings that leverage the flows of information and knowledge to drive proactive update and change in their trading terms. The contracts community must be at the forefront of this change in order to ensure its strategic relevance.

2 Comments
  1. Petra permalink

    With regard to data privacy and how young people think about it, I suggest to have a look at
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1589864

    This study indicates that also young americans are concerned about data privacy, just as older people are.

  2. Petra, thanks for this useful reference. I guess it is a little like the ‘immortality of youth’ – when we are young, we want a long life and good health, but tend to ignore many of the things that can help keep us that way. So in the end, whether we actively wanted it or not, we eventually find ourselves living with the unwanted consequences ….

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