Empirical Rationalism and Other Oxymora
Innovation
Development of Open Product Platforms
Feb 14th
On Monday, Karl Long over at Experience Curve talked about “2.0 Ideas Executed with a 1.0 Mindset“. As an example, he cited the new Nike/Apple appliance that converts your iPod into an accelerometer. In a nutshell, he thought that the ‘black-boxing’ of the application was a lost opportunity for both companies. Rather than producing a “polished, monolithic” product, “real power could be unleashed with a couple of API’s … to use [the data] in other ways”. With this particular example, there is a fine line between providing an open application and addressing security/privacy concerns (recall the University of Washington student that hacked the device, igniting stalker fears). However, clearly (and sensibly) Apple developed the iPod in such a way that it could easily extend its capabilities and functionality — at this point, they’ve regrettably chosen not to make the platform “open” to external developers.
This example does highlight some of the challenges that companies are going to have to face as they adopt a “platform” approach to product development. First, you need to figure out how much of the platform to expose? In his new book, Wikinomics, Don Tapscott writes:
Conventional wisdom says that being open is rather like inviting your competitor into your home only to have them steal your lunch. But in an economy where innovation is fast, fluid and distributed, conventional wisdom is being challenged.
Winning in a world of cocreation and combinatorial innovation is all about building a loyal base of innovators that make your ecosystem stronger, more dynamic and more expedient than the ecosystems of your competitors in creating new value for customers. To achieve this, your organization — regardless of the sector or line of business — needs to identify and open up platforms to enable mass collaboration.
This is all fine and well, but if you open your platform up too much, you may loose control of it. As a business, you need to decide what to keep as proprietary and what to open up. In the case of Apple, they have decided that the iPod is a closed system and sees unauthorized hacking of the device as a threat to the business (according to Tapscott, p. 134). In contrast, other businesses such as Salesforce.com, Google, eBay and SAP are aggressively trying to become platform players.
The next challenge is to figure out how to commercialize your platform. As a platform provider, you have to think differently about the nature of your business. It is no longer about selling new features and capabilities to prospects and customers; it’s about creating a massive installed base of users. Except for a base feature-set that initially ensures a wide distribution of the platform, you leave the development of increasingly niche products, services, features and capabilities to partners (and, in some cases, even customers themselves) From a product development standpoint, your job is to enhance the platform thus ensuring lock-in for both the customers and developers — your profit comes from charging both groups for access to the resulting ecosystem.
A contemporary example of commercializing an ecosystem is Salesforce.com’s introduction of AppExchange. Over the past seven to eight years, SFdC has developed an installed base of over 25,000 CRM customers. About a year and a half ago, they launched AppExchange to enable third-party developers and value-added resellers (VARs) to create new features and functionality for the installed base using their platform. When AppExchange first launched, one of the criticisms was the apparent lack of an ability (for either Salesforce.com or its partners) to make money from the platform. According to James Governor’s Monkchips:
AppExchange really needs to be a market, not a platform. What matters most is creating opportunities for folks to make money.
So, that brings us to the last challenge — how do you engage and reward platform partners? Although the platform provider stands to gain from the widespread diffusion of their open, but proprietary, tools and technology (i.e. “the platform”), there are significant risks for third-party developers. If you can create a product or service entirely on someone else’s platform, you’re left with no stand-alone intellectual property. Furthermore, chances are the the barriers of entry are pretty low. As a result, you are entirely at the mercy of the platform provider. This suggests that platforms are more likely to be attractive to developers of complimentary, but niche, capabilities that require specialized skills or industry knowledge. However, if your application is too successful, it will attract attention and can be easily replicated by competitors. To take these risks, the development partner needs a reasonable expectation that they will make money for their efforts. When introducing a platform, you need to ensure that there is a commercial model in place that appropriately compensates and rewards “co-creation” partners (incidentally, Salesforce.com has responded to these concerns and earlier criticisms, and has since announced AppStore — a marketplace for for AppExchange products and services).
The Kids Are All Right
Feb 13th
It might be easy for some people to dismiss social networking, blogging and other web 2.0 technologies as slightly tired buzzwords. It may also be tempting to think of this “2.0″ stuff as innately technological in nature. That is certainly one way to look at it, particularly if you view the customer landscape through the lens of yesterday’s social norms and demographics. Since we’ll probably see a backlash against web 2.0 investments later this year, there are some significant underlying demographic trends that are worth considering as we inevitably respond by rushing to condemn everything “2.0″ as a “madness of crowds” phenomenon. Let’s explore…
The WSJ reported earlier this week that “young people’s openness on the web stirs the biggest generation gap since Rock ‘n’ Roll”. In a world of constant surveillance and easily traceable ‘digital footprints’, kids just don’t get embarrassed as easily as their parents do. They know that the intimate details of their lives are just a few mouse clicks away for anyone who is interested enough to look. As such, they’ve come to the conclusion that privacy is an “illusion” and have learned from celebrities and politicians to generate their own publicity before someone else does it for them — the proverbial childhood diary has shed the easily broken locks and has gone online for the world to see (and comment upon). Whereas their parents sat and watched TV, listened to radio and later learned to use the web, the “net generation” (born between 1977 and 1996) grew up as “digital natives”. As a society, we are no longer passive recipients of messages pushed out by advertisers, but instead actively participate in the collaborative development of content exchanges (i.e social networks, blogs, P2P, etc). At two billion strong, the net generation is bigger and more influential than the baby-boomers who helped shape the fading social norms and attitudes of the Rock ‘n’ Roll era. Like it or not, the genie is out of the bottle — the net generation is already beginning to change the way that we interact with each other and, consequently, is forcing us to rethink the way we communicate with our customers. As a result, we’ve all become more discerning consumers and we’re beginning to demand more of a collaborative experience in return for our loyalty.
Many organizational business processes and supporting information systems were designed with the old ‘push’ methods in mind. Invented as a category over 15 years ago, CRM “1.0″ dealt with the inputs and outputs of linear functional processes (i.e. sales, marketing and support). Today, these processes are no longer as linear as they once were. If anyone bothered to draw one, the data flow diagram of the modern customer system would be a squiggly mess of circles and loops — is an angry blogger a customer care issue, a marketing problem or a sales opportunity? All of the above if you understand the problem and are equipped to handle it properly. Forward looking companies understand that the “2.0″ principles are here to stay and are looking at ways that they can harness the power of networks in their customer initiatives. Once example cited by Paul Greenberg in a recent article is P&G’s VocalPoint, whereby:
600,000 moms are given product samples for distribution among their social networks. The lead moms then give the samples out in their informal environment to the identified groupings. They are responsible for gathering feedback on the good and the bad about those products and getting that feedback to P&G. The best of them are called into meetings with P&G to discuss how to modify, add, subtract, etc. from the product that they distributed.
Each of the moms has to have at least 25 people in their network; this equates to a potential focus group of 15 million people! Although the definition is still in the works, the next generation of customer relationship management is going look vastly different than the CRM we know today and I suspect that the “R” part of the acronym will be held in a lot higher regard than it is today.
Keeping Pace With Agility
Feb 11th
With more and more discussion about customer co-creation, product development 2.0 and the inclusion of collaborative technologies into the CRM stack (CRM 2.0), it is important to understand how the adoption of these methods impacts the established business processes and the overall culture of the organization. Customer information flows through an organization on a prescribed basis, generally in “real-time”, “near-time” or on “scheduled” intervals. In some organizations, the customer’s expectation of action out-paces the reality of the information flow. Simply put, customers expect organizations to respond to demands faster than the established business practices allow. As organizations begin to look to new customer interaction models and technologies, they need to also take a step back and take a look at the entire business. Are the “scheduled” processes, such as once-a-year market research programs, adequate to capture the customer’s wants, needs and desires? Probably not in this brave new world. However, is “real-time” customer information important if it is going to take several months to address customer issues or incorporate new features into the product?
With the introduction of any new technologies into the organization, there generally needs to be a corresponding change in the business processes, work practices and corporate cultures to ensure success. It is no different with any of the “2.0″ initiatives (be it web, CRM or product development).
Smart Phones and Dumb Terminals
Feb 1st
There’s something definitely happening here… Tuesday’s WSJ cites an IDC report suggesting that world-wide shipments of dumb terminals will increase by 21.5% through 2010 (to six million units). As more and more software goes web-based and software-as-a-service, there is less and less need to keep data on the desktop. The benefits are such as reduced cost and increased security are obvious — even if you haven’t fully adopted SaaS. The article highlights one company that was able to replace 750 desktops for 1.2 million dollars. The PM on the project admits that it cost about the same as it would have for new PCs, but they’ll save money in lower hardware refresh rates (there were some additional advantages through server consolidation). The article also cites Gartner, suggesting that the savings can range between 10% and 40%. The downside of course is the decreased flexibility of reduced availability of some applications (i.e. potentially unsanctioned applications such as instant messaging). It should be interesting to watch this unfolds as SaaS increases in popularity and as the cost of “commodity” computing continues to rise with the roll-out of Vista and the new Office Professional.
In contrast, other reports on the rise of smart phones suggest an opposite, but potentially complementary trend. That is, more and more (personal and professional) data is findings its way onto smart devices (that can be more easily be lost stolen or otherwise damaged). If these trends continue, I think we’ll see a real stratification on the types of hardware that people use for business vs. what they use personally. If you can shop, social network, listen to music and organize photos using a lightweight, but powerful, smart phone, why bother taking the risk of doing it using company resources? On the flip side, why lug around a laptop if you can do what you need to for work through your smart-phone browser?
Thoughts on Identifying and Exploiting Alternative Uses of Technology
Jan 26th
I was recently asked about how you would go about developing a process for determining and commercializing parallel uses of technology. That is, as a technology vendor you know that there are other uses for your products and technologies, but how do you commercially explore and exploit these alternative uses in a systematic way? My thoughts in a minute, but first a few stories…
Over the past few years, I have heard of some interesting uses for CRM technology. There was the college-age “playa” using the personal edition of a commercial grade CRM system as modern black book (complete with pipeline reports, alerts and escalations), the bunch of knee-breakers using CRM to track their extortion victims and the house of ill repute that used the one-to-many association between the account and contact entities to, ahem, track who serviced whom… But my all time favorite example, and the one that has relevance beyond the novelty value of the above stories, was the use of CRM to track black economic empowerment credits for businesses in South Africa. This is a very localized issue that would be beyond the scope of most software vendor’s localization and commercial plans. To address the market demands, a South African Value Added Reseller (VAR) had one of two choices: 1) develop the solution from scratch recreating much of the common functionality or 2) use the CRM system as a platform to develop their own solution. They choose option two and ultimately developed a solution that ended up looking much different than the CRM package that was originally shipped by the vendor.
