I recently had the opportunity to read anew some of Bill Gates’ comments and my notes in his book “Business at the Speed of Thought”.One of my many higlighted paragraphs states:
“In the traditional business model, suppliers have often been merely tolerated for what they provided but were not treated as an integral part of the overall business process to serve customers”.
I enjoyed being reminded in this fashion that above all a business makes money as a result of building systems and processes that best serve customers. In addition, I also found a recent Business 2.0 article entitled “The CTO in the GTO” to have been a fascinating read.In it General Motors’ CTO Tony Scott describes the many issues confronting technology businesses today and in an opening quote he states:
“Listen to your customers or risk losing them”
Although Scott discusses B2B environments his comments should be given careful thought as the implications within a B2C context are identical and all players in the digital entertainment convergence space should pay particular heed to this.He goes on to say:
“We’ve been dilligent about making our pain known in that space [interoperability] – it’s very costly to make incompatible technologies work well together.[This incompatibiltity has] been the full employment act for contractors and consultants.It’s silly.These things should just work together.”
Naturally when GM - with its $3 billion IT budget - makes its ‘pain’ felt you can be pretty sure that someone will soon take notice and try to be accomodating.However when it comes to the typical B2C customer it would appear that companies often consider that it’s too ‘complicated’ to take their individual needs into account when designing and delivering a product or service – the fact that without satisfied customers there is no business does not appear to play a big part in this equation. Thus while the ‘Voice of the Customer’ is paid some lip service, customers’ pain can go completely unchecked even though their budget is orders of magnitude larger than GM’s.Furthermore, although customer technology ‘consultants’ such as Best Buy’s ‘Geek Squad’ is a much welcome exception most companies will more often than not be content to let customers ‘figure it out by themselves’.
In this vein, Shoshana Zuboff, a professor at HarvardBusinessSchool and regular columnist at Fast Company, discusses in ‘Small Insults, Heavy Toll’ some of her own – increasingly regular – customer pains.She describes some of the most common product and service practices among businesses today which she places in four distinct categories below (my comments in brackets):
Work is off-loaded to customers (delusionally thinking that this will save costs instead of understanding that it reduces overall revenues).
Instead of the price going up, the original product shrinks (the standard becomes ‘premium’, customers are not fooled, revenues shrink, death spiral begins).
Take it or leave it (transaction based processes with no regard for the long-term value of the customer relationship. Companies who do not understand the compound value of each customer’s spend over many years will suffer the financial consequences).
The transaction is dressed up to look like a relationship (we’ll treat you nice as long as no effort is required. Can you tell when someone is being honest?Your customers can – very quickly.).
So why should B2C companies care about identifying and addressing customers’ pain and serving them better?Well, stated bluntly, because there’s a bundle of money to be made for those who can successfully remedy customers’ pain.
In following with Zuboff’s themes, I would like to use her idea of ‘Transaction Starvation’ to help describe just how much more money is to be reaped by those companies who are able to deliver effective customer solutions – what I term the ‘Customer Efficiency Ratio’ (CER).
As you may recall, in my previous post ‘Confronting Change’ I discussed how my company had developed a financial model to help illustrate how two competing businesses could achieve financial results orders of magnitude different from each other with only very minor variables at play.
The chart below is a highly simplified representation of this financial model and does not take into account many other important variables such as client acquisition rate, client acquisition cost, client retention rate, pricing and other operating costs for example.For our purposes here we have considered all other competitive elements to be identical across both players.Also, this chart does not take into account the compound growth effect that the more customer efficient business would benefit from.
In this case, our point of departure is one single process that customers need to use to get a desired result – such as to buy a product, subscribe to a service, look up information, etc.The customer centric organisation (Biz1) has facilitated this process by allowing customers to complete this task within 1.5 minutes while the same task completion time at the product centric organisation (Biz2) is 2.0 minutes.Therefore Biz1’s customer efficiency ratio is 75% that of Biz2.The rule that we then apply is that Biz2’s CER – in effect the business’ competitive disadvantage – is directly proportional to Biz1’s CER - his competitor’s competitive advantage.In this case 75% x 75% = 56%.
Thanks to its higher customer efficiency ratio Biz1 is able to attract more customers (and faster), to generate a higher level of business patronage with more visits per year per customer, to deliver a better customer experience which translates into more customer spend and finally to do so consistently year after year achieving a much higher average customer retention rate. The results speak for themselves, the customer centric organisation is able to generate revenues 1,000% above those of the product centric organisation.
Within this context perhaps our earlier rule about performance in the age of digital convergence below will gain a renewed resonance:
“The overall use of a system is directly proportional to the ease-of-use of that system”
Hopefully our financial model and the illustration of its very tangible rewards will be used to help stimulate the required changes within organisations to deliver better, faster and cheaper customer processes.In the end it is worthwhile to remember that everything flows from the customer and that when we are able to make him or her happy(er) the rewards will follow naturally.
If your organisation is a Digital Entertainment Convergence player and you would like to learn more about alteraxion’s model and its ongoing Digital Foresight program and to discuss how we can apply these to your organisation please fell free to contact me - Andrew Carton.
Furthermore, I will be happy (limited to the first 10 companies) to extend a free one hour telephone consultation to those organisations wishing to explore the ideas discussed here further.Please send me your contact details along with a short description of your business (in strictest confidentiality) and your area(s) of interest and I will aim to respond to you within 24 hours.
I was surprised to read earlier today how 'content' and 'community' appear to be gaining a renewed life with online retailers in a NYTimes article entitled "More E-Commerce Sites Aim to Add 'Sticky' Content". How could content and community ever not have been a central component of online retailers' strategy?
As I had mentioned in our study of Netflix last week, I see the fundamental 'service strategy' of any digital player to comprise of content, commerce, community and communications all built around the customer in a customer-centric model. Combined these form the C5 service strategy that I advocate.
Interestingly on the Content front, Stuart MacDonald, a senior VP at Expedia states that "We've always seen content as very important, but recently we've taken it to the next level. For a lot of people, the trip almost starts when they start to plan. To the extent we can make that easier and more fun, it's good for business. It's a significant investment but the reson we do it is that we get the return." I find it particularly relevant to see how a player like Expedia continues to expand upon delivering end-to-end solutions and his statement about involving the company at the earliest stages of the purchasing decision process will in my view have some very significant financial rewards in both the short and long term.
Meanwhile, Elaine Rubin a senior VP at 1-800-Flowers.com and chairwoman of Shop.org said that she had "seen a resurgence of interest in how to do community. Not message boards or chat rooms, but new ways to get consumers helping others. The idea with community is that people who post things to the site will come back more frequently because they're more engaged. They've left a piece of themselves behind." Stated in this manner one could argue that blogs would form an extremely complementary functionality to any company's community implementations. As she goes on to mention this is just "another dimension of how we can build value for customers", which in a customer-centric model is what must matter above all else.
One of the most frequent questions that I've received since starting this blog was asking me why I did not have an 'About Me' page. I could justify or excuse this lapse in many ways but there would be no real benefit to me or you in doing so. I do however apologise to those who may have found it rude or otherwise impolite of me not to have properly introduced myself before...
I will take a short moment to introduce my 'About Me' page and provide you with an added perspective on the overall context and motivation behind this blog using the quote below by Eleanor Roosevelt that continues to inspire me:
"Great minds talk about ideas, average minds talk about events, small minds talk about people."
You will be the judge of what kind of mind I am ultimately deserving of but one thing that I can guarantee you today is that I will endeavour never to poison this forum with meaningless talk about people, events or any other 'things'. This blog is also not meant to be about me but about your ideas and those of others.
In this light, while I will be writing a great deal about ideas there can be no guarantee on my part that these will be any good. Furthermore, it is important for me to point out that I discuss ideas and not 'my' ideas as I would have none of my own were it not for the fact that I have and continue to absorb those of thousand others. The best that I can hope to achieve is to deliver a unique perspective.
Your future feedback and patronage of the blog will determine how well I am ultimately able to achieve this. Thank you for stopping by.
Take the easy routes that you may find but don't mistake this to mean that the journey is easy. Also consider that the route less travelled may be longer and more tortuous but you will have acquired a great deal more knowledge by the time you reach your destination which will serve you well as you embark upon your next journey.
Let me start by saying that I know next to nothing about fluid dynamics. However, the little that I do know has helped to provide me with a great many insights of the 'digital customer' and by extension a very good vantage point from which to evaluate the future of digital entertainment convergence.
You see, I have painted a picture in my mind of the millions of digital customers as one massive stream of water rushing downriver while digital entertainment businesses are the dams whose turbines generate revenues as digital customers come gushing through them.
While I use the above analogy to gain a better understanding of some of the dynamics of digital entertainment convergence at the 'macro' level, I similarly apply it at a 'micro' level when evaluating a particular digital business offering and also at the 'nano' level to determine the level of 'fluidity' of a specific functionality for example. Here I will discuss mainly the macro level.
So let's look again at the key elements which form part of this 'digital stream'. We have water (digital customers), the dams (digital businesses) and the turbines (digital systems & processes). Each element has a particular function and objective. Water wants to flow to the 'other side' and it will pass through the dam's turbines to get there (digital customers want to use or purchase a digital offering); the dams want to contain as much water as possible to power their turbines (digital businesses will grow and thrive in proportion to the number of digital customers they are able to attract) and finally the turbines will attempt to use the flow of water as efficiently as possible so as to maximize the energy produced in the process (the more efficient a digital system is the more revenues it will be able to generate, the more profits it will derive and the faster it will thus be able to grow).
Assuming for a moment that two competing parties are targeting identical markets (the location of the dam and its associated water flows) and that their 'construction and engineering' teams have matching capabilities, the key issue will turn to which of these two parties is able to maximise the returns from its activities through the superior design of its systems and processes (the design and efficiency of its turbines).
Unfortunately, I have repeatedly come across situations where people believe that the mere fact of locating and building their digital business within close proximity to a large stream of digital customers will automatically grant them untold riches. There are two issues that they fail to properly take into consideration. Firstly, they are not operating in a void but have many direct and increasingly indirect competitors who will fiercely attempt to divert as much of the digital stream for themselves. Secondly, they spend significantly more time looking at the big picture of the water and the dam than the minute details of the turbine where all the energy will actually be generated.
Again, I am often faced with instances where managers are not immediately concerned (or worse, aware) that while their dam may be generating 400 megawatts their competitor is also generating 400 megawatts but failing to recognise that this competitor is able to achieve the same level of output with a dam that is two thirds the size of theirs through the use of more efficient turbines. Within the context of a dynamic digital environment there is little doubt that the more efficient operator will rapidly eclipse the other.
In conclusion, while many digital businesses are in the right location and have developed a digital offering of one kind or another the ultimate winner will be determined by which player is able to design the most efficient and fluid system to exploit the Digital Stream.
I would like to thank my good friend Stephane K. for the many conversations which have greatly stimulated my thinking on this as well as other issues.
I will never forget the day that I met an old college buddy with whom I had lost touch a few years ago. During our conversation we naturally caught up on each other's professional pursuits and upon learning that I was an Internet strategy consultant he looked at me shocked and said: "But Andrew, you studied architecture! How can you possibly know anything about business?!". It's funny how we always complain about business people's lack of 'creativity' when it is just as apparent that many creative people lack 'business' sense...
I began to think about this episode again today as I made the wonderful discovery of cartoonist Hugh McLeod's blog and his post 'How to Be Creative'. Hugh's blog is aptly named 'gapingvoid' and in it he discusses business issues with a creative flair and creative issues with a business flair (as well as other plain funny issues about everyday life).
I'm interested in all of them but I'm particularly attracted by his ability to convey complex business concepts with his extremely simple 'cartoons drawn on the back of a business card' - which also complements his income as everybody knows that you can't make money by blogging alone...
Thanks Hugh, I will certainly be keeping a regular and watchful eye on your forthcoming cartoons and writings.
As I have stated previously, consumer attitudes and expectations have changed dramatically over the past decade and they continue to morph at an accelerated pace. In this environment, one of the critical issues facing CEO's is how to develop the right strategies to guide the efforts of their organisation to meet these new expectations and exploit its opportunities.
In order to help explain these and other changes, we developed an ongoing research program called Digital Foresight™ and although our focus has been primarily on digital entertainment convergence you will note that its relevance goes beyond this. The slide below is extracted from this program and illustrates in simple terms the changing communication dynamics between companies and their customers.
Traditionally in a consumer environment, companies have structured themselves so as to 'push' as many products or services out of the door as possible. Companies are essentially telling customers: "We have a million products/services." which in times past would probably have sounded mighty impressive but in the cacophony of messages today it becomes fairly meaningless. Confronted with this message a customer would attempt to ask: "Which one of your million products is right for me?" but unfortunately have no means to convey this message back to the company. So in the 'product centric' case, the company pushes products and there is no direct customer communication.
Today the technology exists to cost-effectively permit a communication between customers and the recipient organisation. Customers can then begin their search for a product or service by asking a question: "I am looking for a product with these characteristics" and the company can in turn respond by presenting the products that best match the stated customer criteria. Together they can further refine the search. So in the 'customer centric' case, the company responds proactively to a customer need by pulling information from him/her in order to develop a dialogue - thus creating an ongoing feedback loop.
I am always reminded of the title of one of Regis McKenna's chapters in his book "Relationship Marketing":
A product is a service and a service is a product.
Having had a good ten years to mull over this, another good way to discern the attitudinal differences between a product and customer centric organisation is to look at their sales mentality. Why? Because a product sales process ends when the product is purchased while a service sales process only begins when the product is purchased.
A good example to help illustrate the 'product centric' mindset that still plagues many organisations comes from my experience working on a large online banking project a few years ago - we'll call it MegaBank Online.
Like most banking organisations MegaBank had a number of independent business units [the 'products'] (checking accounts, credit cards, mortgages, personal banking, loans, etc.) all operating under one common branded umbrella. As the project got underway each unit began to convey its view of what its own independent online offering should look like. Each business unit was thinking about its own unique needs without much consideration for the other units and communication and coordination among these was minimal. The net effect of these early discussions was that we were asked to develop one credit card website, one mortgage website, one loans website and so on.
One of the issues that surfaced early was that nobody had taken the trouble to ask MegaBank's clients what they might be looking for in an online offering from their bank. As it turned out, our early client research quickly revealed that clients who had a number of MegaBank's 'products' did not particularly warm to the idea (an understatement) of having to, for example, repeatedly login online across the many proposed websites that they would have to use for each of the products that they 'owned'.
Quite rightly, the customer perspective was that they had 'one' relationship with 'one' bank and not multiple ones with a credit card provider, mortgage provider, etc. The customer essentially could not have cared less that what he/she perceived as one business entity - MegaBank - was in fact a multitude of independent business units. Clients demanded a seamless solution from MegaBank - one that would take a holistic view of their relationship with all the products that the bank offered.
With this customer feedback, MegaBank Online was eventually developed as a 'portal' of sorts (the umbrella) for all its banking offerings and it proved to be extremely successful.
So what, if anything, does this MegaBank example have to do with digital convergence? It has everything to do with digital convergence.
I don't want to waste time defining what digital convergence is or is not but in the most simple terms it could be stated that:
Digital Entertainment Convergence is the result of an integrated provision of hardware, software, content, services and connectivity that facilitates consumers' enjoyment of digital media.
As I stress above, the key issues are 'integration' without which digital entertainment convergence simply has no place to 'converge' on and 'facilitation' without which the entire convergence experience will remain too complex to appeal to a mass audience.
In this respect, the MegaBank Online example serves us well because of how it managed to bring together 'divergent' business units. By using a 'virtual integration' model where only the backend systems were brought together MegaBank was able to leave the independent business units to operate as they had previously. In the end, this delivered a win-win proposition for MegaBank and its clients.
Within the context of digital entertainment convergence however, we could at present not be further away from achieving a win-win proposition. In fact, many of the players in the industry are currently engaged in an all-out internal war, a war among themselves (Apple & RealNetworks but the latest salvo) or worse against their customers (RIAA rings a bell...). With the notion of integration, harmonisation and standards so anathema to the actual debate - a few but not very serious exceptions notwithstanding - one is left to wonder yet again if the entire discussion of digital convergence is nothing more than the flavour of the moment and if it will really ever come to see the light of day.
Furthermore, many people have confused the debate by promoting the notion that 'convergence devices' - devices that can play or manage multiple forms of digital content - is equivalent to digital convergence. It is not and should not be labeled as such. For example, the personal computer has been a convergence device for decades but it is clear that it has not delivered digital convergence as per our definition.
Until many of the players can work together to deliver an end-to-end customer solution there's little more than zero chance that digital entertainment convergence will ever take off. To deliver the required integration, I predict that we'll either see an absolutely massive amount of consolidation across industry players or a real entente developing to promote a faster customer adoption. Hang on tight to your seats, this one promises to be a wild ride...
Please contact me if you would like to learn more about our Digital Foresight™ program and how we can adapt its learnings to your organisation's particular requirements.
Aside from today being my birthday, I promise you that I've had absolutely nothing to do with the following story...
Saturday, 31st July 2004 12.31pm I receive an SMS message from my brother who is in on holiday in Switzerland visiting my Dad with his girlfriend. Message reads: "Your birthday present is on Google.co.uk... Type in 'happy birthday andrew'." I'm thinking, whaaaat!?!?
I'm thinking... My family bought me a freakin' Google search ad for my birthday!? That's it, we're doomed... All gone completely and utterly bonkers...
12.34pm I follow the sponsored link which takes me to this blog page where an audio greeting is waiting for me...
12.39pm I recover from laughing my head off and almost wetting my pants...
12.40pm Beging thinking about suitable reply and... of course!... I'll blog one!
13.00pm Blog's done.
13.02pm Send SMS message to my brother: "Glad to see that you haven't lost your sharp sense of humour! My reply is waiting for you on the blog..."
Thanks guys, you really, really made my day!!! Wish you were here in London... Love, Andrew
Now if this is not an example of 'digital convergence' I really don't know what constitutes one... Also, please note that because of some technical issues I could not post this earlier as should have been...
As we suggested in our previous post 'Treo 600 Music Quest' consumers should be able (and want to be able) to repurpose their digital media content on any platform so the recent announcement by RealNetworks of the introduction of its 'Harmony Technology' came as a welcome surprise.
As I discussed two weeks ago:
"While we're on the subject of music, I really thought that I should bring up an idea that I have been thinking about for some time and which Photo Matt recently wrote about that I think is a superb (if perhaps somewhat impractical) idea. Essentially the suggestion is that if you buy an album on iTunes or another digital music store that you also get a hard copy of the CD shipped to you (or vice-versa, buy it at Tower Records and get the MP3 download version as a bonus for free!).
Take this one step further and you wonder why this is not being used to promote the faster adoption of eBooks (which as I've stated before I'm beginning to find addictive) by allowing you to purchase a digital copy of a book like 'The American Prophecies' for $1.00 if you purchase the hard-copy for example.
You must consider that the implications of this go well beyond just music and could impact the entire transition from physical to digital entertainment products. Why for example could we not buy a DVD of say the Star Wars Trilogy and then for a small additional fee (or subscription) get a Palm version to watch on our Treo 600 or a Portable Media Player.
Projecting into the future where we can watch movies on our television, mobile phone, laptop, desktop, portable media player, portable games device and probably countless others that don't yet exist, will we really buy a movie that can only be played on one device? Of course not, once it's digital we should be able to easily choose which device we want to play any digital media on without tedious restrictions of file compatibility or other. This is the same reason that people are unlikely to buy two copies of the same movie but one on DVD and the other on VHS - now really what would be the point of that?! If consumer and computer electronics companies want to increase the sale of their devices they need to sort out the digital content equation first (and fast).
Yes, I agree with you, what a wondrous mess this whole digital convergence is likely to be... but eventually smart entrepreneurs will come and provide us all with a great solution and we'll be able to finally enjoy our music, movies, games, etc. anytime, anywhere and on any device we want."
However, at present this idea of 'repurposing' content is exactly what content owners absolutely, positively, 100% do not want us to do. Why? Because someone somewhere dreamed a beautiful business plan (but deeply flawed in the practical aspects of business) where we would be buying a DVD for our DVD player, a digital copy for our PC, yet another for our Treo 600, and on and on ringing a cash register at every step... As I've stated before, can anybody genuinely tell me how many people will go for this nonsense? I guess that common sense is not something currently being imparted in business schools!
One of the most intelligent commentary that I have read on the topic came as Richard Wolpert the Chief Strategy Officer of RealNetworks recently higlighted at the Jupiter Plug.IN conference: "Incompatible media players are becoming a drag on adoption rates and growth curves. The music industry still has to focus on making sharing music among a variety of devices as easy on the consumer as possible. No more if you buy this, you can only play it with this device -- that's confusing for people and a concern of music labels. Current device/store incompatibility will slow adoption." Thank God, at least someone is thinking straight...
Strauss Zelnick, the CEO of media company ZelnickMedia, also had some extremely insightful comments when he stated that: "the four main trends that are driving true media convergence have begun to accelerate along with the economic recovery: digitization of media, globalization of that media, consolidation of media ownership, and conversely, fragmentation of audiences with the proliferation of new media channels." He goes on to say: "[Digital Convergence] will link billions of people, not just with words, but with music, video and other media. This will usher in possibly the most creative and disruptive time in the last 50 years of the media business."
Judging by all the dis-harmony that Real's 'Harmony' is generating it is obvious that companies are still not focusing on the key stakeholder: the customer. All the battles to create technology 'lock-in' diminish the focus on delivering superior value propositions and customer experiences by other means - everyone wants to take the easy route...
1. Articulated clearly and succinctly 2. Capable of stirring emotions 3. Versioned by many and regularly 4. Repeated often 5. Demonstrated by ongoing 'small wins' 6. Refined with time and changing conditions 7. Nurtured and encouraged 8. Provided with nutrients 9. Given time to germinate 10. Followed by actions
Early last year my company, alteraxion, explored the possibility of launching an online DVD rental service (such as the one offered by Netflix) in the UK. We invested a significant amount of time studying the market and developing a business plan for it but in the end decided that proceeding on a standalone basis instead of in partnership with Netflix would be taking a risk that we were not prepared to assume.
Aside from the fact that Netflix had stated its resolution to proceed independently, one of the key issues influencing our decision at the time was the fact that with over 100 competitors Netflix controlled some 95% of this market - it still does.
We have since continued to give a lot of thought to the question of why and how Netflix has managed to maintain its dominance against other equally well-funded competitors such as Wal-Mart. In the end, we concluded that there can only be two reasons to help explain Netflix' success: 1) it is the very best at what it does and executes flawlessly or 2) its competitors are executing poorly or simply don't 'get it' thus handing the market to Netflix on a silver plate (for example, by contributing marketing funds which raises the awareness for online DVD rental services in general without first having developed a service of its own that can stand up to Netflix'.)
More recently we completed a short analysis assessing the impact of Netflix' forthcoming UK market entry to share our learnings and raise awareness among local players. Some of the points raised are excerpted below. Please note that while we had UK players in mind when writing our report it is evident that many of the issues apply equally to the hundred odd Netflix contenders in the US. Our conclusion is that we continue to view Netflix' leadership as unassailable with current competiting offerings (in either the US or UK).
You can read the report by following the link below.