Hal Stern's thoughts on the economy, software, services, technology, and snowmen. Hal Stern: The Morning Snowman

I'm participating in a technology roundtable for one of the services industries this week; it's a closed-door session with some pretty heated discussion. The economy is definitely hurting this segment and one of the recurrent themes is that personal (low volume) customers are going to be the growth engine, not business (high volume) users as companies cut back on their spending. Without disclosing industries or players, here are the themes I presented as ways to reshape the services experience for a broader range of current and potential customers:

1. Open up interfaces to what you do. It's a time-honored tradition to think of a business' data as its very own. But what if that data can create new ways to think about the service, new market segments, or new demand for the service? Web mashups are interesting if they have useful data sources to draw from; this doesn't mean that services companies should expose personal data but they can provide interfaces to widely useful, logistics, location, or inventory information. The New York Times has done exactly this with the Times APIs, a set of services that let you search Times content by keyword, context, or specific parameters like dates and by-lines. It doesn't create new newspapers; it creates new ways of using the news that hopefully driver readers back to the Times site for additional information or context. It's not sufficient just to think about consumers as the endpoints of a transaction. Which brings me to...

2. Determine the value of social networks. In the words of Tim O'Reilly, it's not the network radix, it's what gets shared. What experiences are valued, or not valued? What are people saying about you? What does a Twitter search on a hash tag or keyword associated with your service turn up? Simple example: the 3rd generation of my family's cousins have a group on Facebook; every time we think about having a reunion somewhere we end up discussing air fare, hotels, meeting rooms, babysitting, photo sharing and mass quantities of food (it is my family, after all). All of those services businesses could find a pre-aggregated demand pool if they'd build a "Book Your Family Gig" application in Facebook.

3. Create an inbound channel. More informally, this is "listen" but it's the corollary to using the social network to get a pulse on what people think of your service. What are the limits on elasticity, choice, price, and user generated content that demonstrates new uses or specific value add to your service? Far too much services marketing is outbound only; I'm awash in email promotions, coupons, special codes, and one-time offers. But very rarely am I asked what I'd pay for something, or what my trade-off points are. Even more direct: just watch Twitter for "brand name #fail" and see where the exceptions are happening. Reach out and address, listen indirectly, because that creates....

4. Pleasant inconsistency drives loyalty. Give -- don't offer -- me a better seat, better room, nicer car, or 9 holes on the course that I'm going to bludgeon with a golf club that I can't control (this is in fact how my golf badness started). The first time I experience something out of the ordinary flow, I'm likely to decide whether or not I'm willing to use it again, pay a premium for it, or arrange my brand loyalties so that I'll get the benefits of being a repeat customer. Obviously, bad inconsistency, or consistently bad experiences, drive loyalty to other players.

All of these conversations have to happen with input from multiple demographics: Millennials, Gen Y, Gen X, Boomers and now Gloomers, crossed with various degrees of online experience, social networking utility and trust. If you don't figure out how to meet the demands of the Millennials, you won't be in a position to sell, serve or employ them in 5-10 years when they are riding the economic recovery as the core of the spending and working public.

My father retired from a long career as a dentist to become at various times a painter, fisherman, gardener, cook, runner and Klezmer fan. I don't have his aesthetic sense or attention to fine artistic detail, which is why my art ends at geometric doodles on hotel note pads. But my father spends good chunks of the New Jersey winters painting in his basement studio, working off of pictures that various family members and friends email to him as potential e-muse-ments. A few times a year, he frames a cross-section of his work and submits it to a show, or occasionally finds a gallery owner willing to take a few pieces.

Last week I got a smile-generating email from Pops: He sold a painting. On the home studio scale, it's a nice deal; it's as much a boost to the artistic ego as to the weekend (and weakened) cash flow. The second line of my father's email put it in context, though: He was proud to sell a painting when the "real art" market seems to have tanked worse than the local housing market. Sotheby's and Christie's can't move the "name" artists now, with nearly a third of recent auction pieces going unsold.

More than ever, we need art. I'm tired of graphs that go down and to the right; I don't want to look at red numbers on a screen because there's only a backwards-looking story in them. Art is healthy. Art is something that makes us laugh, think, feel uncomfortable, or remember what it was like when we took that picture we consider postcard-worthy. Supporting local, small-scale artists will do more for the economy than buying a museum piece because you'll help a starving artist fund supplies or entertainment, pumping that money right back into the economy. My contribution this week: one not-so-scary Bear Monster shirt from Jeph Jacques' repertoire. Topatoco, Jeph, UPS, and wherever Jeph spent some of the proceeds on art-enhancing food and drink get small-scary benefits; I just look more bear-like. Both are good things.

I'm pretty uncomfortable with the sum of money being given to the US banks as part of an economic recovery plan, because I haven't seen any proposals for the banks that outline what they'll do differently, better or more quickly this time around. If the Obama administration wants to inject liquidity into the housing market, it has to make the market function, which means ensuring there is a rebalancing of supply and demand. In areas hardest hit by the economic crunch, there's little supply at a reasonable price (because people are holding on to over-priced assets) and not enough demand (because there are too few buyers entering the market, due in part to holding on to those houses in losing positions).

Part of this stagnation is due to the IRS provision that precludes you from recognizing a loss on your primary residence. Quite simply, if the IRS would allow homeowners to deduct the loss on a primary residence up to (hypothetically) 50% of your taxable income, up to $100,000 year, for up to 5 years (a $500,000 loss could be written off over 5 years provided the homeowner has AGI of at least $200,000 in each of those years). The reduction in income taxes immediately creates disposable income at the local level, in individual's hands, where it can be invested in local goods and services. That's how you stimulate an economy; you get people to buy things they've been avoiding. It effectively creates additional buying power for people looking to trade houses (up, down or sideways), and above all, it encourages homeowners to price their houses at the market, to sell to new buyers at fair prices, and to re-invest themselves with the implied tax benefits of selling at a loss. This even fits the current trend in the mortgage market of pushing 5-year ARMs; consider taking each year's tax savings and making a balloon payment on the principal, forcing the mortgage to be re-evaluated or setting it up for a re-financing before the first major adjustment.

The best part: it doesn't depend on any outside forces or new business models; banks will originate mortages; real estate agents will drive buyers around; all of the infrastructure services that benefit from a robust housing market will get a local boost. Isn't that how government is supposed to help us?