There’s an App for That

Note: I wrote this blog  post almost a year ago on a different platform (which is no longer conveniently accessible). The lessons are just as valid now as they were back then. So, I like to repost it here.

I wonder if you watched Steve Jobs unveiled the iPad yesterday. I did for the most part. But I am not “blogging” about the iPad here. Instead, I simply want to use the iPad (or for that matter, the iPhone and iPod Touch) as a vehicle to discuss about complementarities, the value webs (or networks) and value co-creation, and their ramifications on business strategy.

It is worth noting that Steve Jobs did not simply showcase the hardware (iPad) but also the possible content (e.g., photos, the NY Times and ebooks), entertainment (e.g., music via iTunes) and applications (e.g., games and other applications via Apple Apps Store) available for the iPad. This is increasingly the case for many information- and technology-based products and services. Such a product creates not much value by itself but much much more when being made available with other complementary products. What can you do with the iPad without the content, entertainment and applications offered by other publishers, media sources and software developers?

Lesson #1think not of a standalone productbut rather of a bundle of offerings or even a platform (iPad plus iTunes and Apps Store).

When complementary products and services are offered together, they enhance one another’s appeals; the value of the whole system or bundle is greater than the sum of its parts. Complementarities therefore indicates a condition of increasing returns in which the adoption of one element has a higher payoff when one or more complementary elements are simultaneously adopted. The more consumers find the apps on the Apps Store appealing, the more interested they would be in having an iPad, iPhone or iPod Touch. In fact, “there’s an app for that” has become the selling point for these Apple products.

Contrast Apple iPod with Microsoft Zune. The latter product has received high marks for quality hardware in many product reviews. Its sale volume has been meager however, despite the financial clout of Microsoft. There are simply not that many apps for Zune and the Zune Marketplace, unlike Apple iTunes Apps Store, attracts far few more visitors and buyers. For prospective iPod, iPhone and iPad challengers, it is the apps as much as the hardware that will determine their success.

This new reality necessitates a shift in strategic thinking from the value chain to the value web. In a traditional value chain, a firm competes by occupying those links where it can add more value at a lower cost. Strategy becomes equated with strategically positioning the firm along that chain of value-adding activities. Value creation focuses on transforming objects. The value thus created lies in the resulting products themselves. However, as complimentarities among products and services become the source of value, the value chain concept proves less useful in uncovering value and analyzing value creation. A firm succeeds only by finding complementary technologies, products and market participants it can network together to co-create value.

Lesson #2Value co-creation focuses on mediation (i.e., facilitating interactions and collaborations) among the networked participants.

The value thus co-created lies not only in the product itself but also in complimentarities among the products and services. The value of Google Maps lies not as much in the database of geographical mapping information as in Google’s ability to attract a large and growing number of map-based applications. Likewise, the value of the iPad is not as much in the device itself but in Apple’s ability to attract a large number of publishers, media companies and software developers to make their content, entertainment and applications available to iPad users.

The shift from value creation along a value chain to value co-creation through network relationships also coincides with a shift from production of goods (in the physical world) to the provision of service (more prevalent in the digital world). The latter necessitates a shift from the goods-dominant (G-D) logic of value to the service-dominant (S-D) logic. In the G-D logic, producers and consumers have distinct roles; the primary focus of the firm is on the production of goods to be sold to customers. In the S-D logic, their roles converge; the focus turns to interactions between the two sides, not simply to facilitate transactions but also to offer an experience unique to individual customers.

Lesson #3Value is ultimately derived with participation of the beneficiaries (often the customers) through use, and is thereby essentially ‘value-in-use’ as opposed to ‘value-in-exchange’.

Think of YouTube, Flicker and Facebook, just to name a few. Without user active participation, they cannot even exist. The locus of value creation then moves from the ‘producer’ and market exchange to a collaborative process of co-creation between parties.

The next time, if some one says “there’s an app for that”, I hope you would also think of serious strategic marketing stuffs like multi-sided markets and platforms, complementarities, value co-creation and S-D logic.

On a lighter note, there are times (such as now — December in snowy Michigan, and thinking of sunny Florida Keys) when “there is no app for that”.

CRM Goes Social

It is a well-known fact that CRM implementations have had a relatively high rate of disappointing results. While still trying to address these poor results, marketing and strategy planners now have to address a new set of challenges: the rise of social media, which has radically altered the relationships between businesses and consumers. Social media have enabled consumers to communicate among themselves and greatly curtailed marketers’ ability to control the messages and information about their brands and products.

Why CRM Must Go Social

Consumers can now produce and share their views and creative content, and connect with one other online with ease. Social media give them a mighty megaphone with which to tell the world their experience with product X or brand Y. As a result, the influence from traditional marketing communication channels has become increasingly negligible. Consumers can educate themselves over the Internet through their connections in social networks, blogs, discussion forums, chat and more. Consumer-to-consumer communication becomes frictionless such that it is no longer one-to-one, but rather many-to-many. Messages, good or bad, can spread so widely and so fast just like viral infection. All of these take place on Twitter, Facebook, YouTube and other social media that lie completely outside any company’s control.

CRM, as we knew it, is ill-equipped to utilize social media for building and managing customer relationships.

  • CRM was conceived and developed in an era of information asymmetry. Communication followed a one-to-many pattern. Companies were able to tightly control the information and image about themselves, their products, brands and services as they could use their communication channels to simply broadcast their marketing monologues.
  • The mindset underlying CRM implementation was “command and control” – customers would interact directly with the company in a controlled manner across multiple, well-managed touch points. Much of the information available to consumers was marketing messages (e.g., advertisements, product brochures and web-page content) being produced by the company.
  • CRM therefore optimizes relationships around the company, not its customers. Although the goal of CRM is to provide a single view of individual customers and manage one-to-one relationships with them, its implementation in the Web 1.0 era often focused on automation of front-office tasks. At its most basic level, CRM is a fancy contact database. It lets sales representatives view “profiles” of their accounts, capture deal information, track performance, communicate with contacts, and share information internally with sales managers and other members of their account team.

In this social media era, the term CRM (“customer relationship management”) has become a misnomer, argues Maria Ognewa (2010), Director of Social Media at Attensity. After all, the company no longer controls or manages the relationship; the customer does. To remain effective, marketing must become engaging and conversational, and CRM (or any other term you prefer) must get social.

Social CRM Defined

Social CRM, also known as CRM 2.0, capitalizes on technology and utilizes social media tools. However, it is none of these. Rather, as described by leading CRM expert Paul Greenberg (2009), it is “a philosophy and a business strategy, supported by a technology platform, business rules, processes and social characteristics, designed to engage the customer in a collaborative conversation in order to provide mutually beneficial value in a trusted and transparent business environment. It is the company’s response to the customer’s ownership of the conversation” (emphasis added). Or more briefly (as in a “tweetable” definition), it is “the company’s response to the customer’s control of the conversation.”

Social CRM vs. Traditional CRM

Social CRM does not replace traditional CRM, but augments it instead. Customers can still interact with the company through conventional media (e.g., phone, postal and electronic mail). Social CRM extends traditional CRM capabilities with social networking capabilities – marrying the company’s existing systems and customer touch points with data provided by user-contributed content and communities. It taps social media to first understand consumers’ perceptions and then takes actions within those outlets to improve the standing of the company and its products. Consider online sales, for example. They account for only 10 percent of total retail sales; the remaining 90 percent still remains offline. Yet social networks influence more than 40 percent of all offline sales.  The challenge for marketers is to determine how best to leverage the collective intelligence inherent in social networks and effectively evangelize the company’s products, services and/or brand propositions through social media. These media are like traditional touch points such as call centers, sales organizations, partner portals and marketing applications. There is one key difference, however. With social media, the company must engage and join in ongoing conversations as participants, not as overseers.

Differences between social and traditional CRM have been widely discussed (see “Notes” below). I highlight a few of them here.

Traditional CRM v. Social CRM

  • Specific-department responsibilities vs. enterprise-wide engagement. The responsibilities for building and managing relationships under traditional CRM implementation reside with specific departments. By contrast, customer engagement under social CRM must be enterprise-wide. That means empowering employees, especially those facing customers, to engage customers and prospects on social media channels within well-defined usage guidelines.
  • Company-defined channels vs. customer-driven channels. Under traditional CRM implementation, the firm selects and manages the contact points (e.g., company’s website, customer help desks, email) through which it interacts with its customers. Its single view of each customer is built upon the data collected from such interactions. Under social CRM, the number of possible channels for engaging with its customers has multiplied many folds (e.g., traditional contact points, plus online social networks, blogs, tweets, video sharing, etc.). Few of them can be defined and managed by the company. Instead, many of them are determined by customers, organized on the ground up and/or managed by third parties. They can easily move on to other channels when feeling such engagement lacks authenticity.
  • Operationally-focused vs. people/community-focused. Businesses typically turn to CRM to improve communication between sales and marketing operations, and to improve data-access so as to positively impact decision-making. Toward this goal, traditional CRM focuses on operational effectiveness and its impact, both internally and on the customer, whereas social CRM is all about people and community – joining conversations with consumers on relevant online communities and build the kind of reputation needed to maintain credibility and trust.
  • Data-driven vs. content-driven. Traditional CRM grew out of the need to store, track, and report on contact data and other critical information about customers and prospects. Social CRM is growing out of a need to attract the attention of those using the Internet to find answers to their problems by providing right content, and just enough of it, in formats that are easy for them, whether blog posts, podcasts, YouTube videos, or Webinars. Offering compelling content is a key pillar of social CRM strategy. The aims are to convert content into conversations, extend these conversations into collaborative experiences, then to transform these experiences into relationships.
  • Process-centric vs. conversation-centric. Traditional CRM focuses on implementing and automating processes to ensure the proper activities and tasks would be performed by the appropriate people, in the correct sequences. Although processes are still essential for a successful social CRM strategy, conversations with consumers looking for help in solving their challenges are at the heart of it. The goal is making it easy for consumers to find the company (through its content – a comment left on a blog post or following the company on Twitter) and invite it into a conversation on their terms.

Social or Traditional, It’s CRM

It is quite easy to get carried away by all the talks about how different social CRM is from traditional CRM and how much things will have to change. Let us not forget that social CRM is supposed to bring together the company’s CRM and social media capabilities. Customer information and insights from social media engagement must be brought together with customer data from traditional CRM system into a single view of the customer. Likewise, social media initiatives must be integrated with traditional customer service and support to be effective. Leading vendors of CRM systems and services such as SAP and Salesforce.com seem to understand this. They are investing in integrating CRM with networking platforms such as LinkedIn, Facebook, and Twitter. Hopefully, we will once again talk about CRM, not social vs. traditional CRM.

Notes

  1. Paul Greenberg, “Time to put a stake in the ground on Social CRM”, PGreenblog, (July 06, 2009), URL: http://the56group.typepad.com/pgreenblog/2009/07/time-to-put-a-stake-in-the-ground-on-social-crm.html
  2. Dion Hinchcliffe “Using social software to reinvent the customer relationship”, Enterprise Web 2.0 Blog, (August 18, 2009), URL: http://www.zdnet.com/blog/hinchcliffe/using-social-software-to-reinvent-the-customer-relationship/699?tag=mantle_skin;content
  3. Brent Leary, “Traditional CRM vs. Social CRM”, (June 2009), URL: http://technology.inc.com/software/articles/200906/leary.html
  4. R. Wang and J. Owyang, “Social CRM: the New Rules of Relationship Management”, Altimeter, (March 5, 2010), URL: http://www.slideshare.net/jeremiah_owyang/social-crm-the-new-rules-of-relationship-management
  5. Bob Warfield, “A social CRM Manifesto: How to Succeed with the Social CRM Virtuous Cycle”, Helpstream, URL: http://www.slideshare.net/Helpstream/a-social-crm-manifesto-how-to-succeed-with-the-social-crm-virtuous-cycle

Time’s Person of the Year, 2006 and 2010

It’s that time of the year when we are anxiously waiting for the announcement of Time’s Person of the Year – the individual (or organization, thing, etc.) judged by the magazine’s editors to have most influenced the world over the past 12 months.

The selection for 2010 was Mark Zuckerberg, the founder of the leading online social network Facebook. Only four years ago, “You” were selected Time’s 2006 Person of the Year. In both cases, the selection recognizes the transformational effects of what was known more widely then as Web 2.0 and more recently as social media.

“You” in 2006

At the turn of the last millennium, in the aftermath of the dotcom crash, many academic researchers were busy drawing lessons from the demise of the dotcoms, issuing calls for a return to business fundamentals, and even recasting the future of e-commerce. They apparently failed to notice that amidst the rubble of the dotcom crash, Internet-based e-commerce continues to rise at double-digit rates, as measured by online retail sales and advertising revenues (after a brief decline in the latter case). A few dotcoms (among them were Google, eBay and Amazon) had not only survived the crash but also prospered. Meanwhile, a new crop of dotcom ventures (among them were YouTube, MySpace, Orkut, Wikipedia, Hi5, and Facebook) was once again mushrooming. Many had become leading Web destinations and household names.

For some practitioners, these developments did not go unnoticed. In 2004, during a brain-storming session between O’Reilly Media and MediaLive International for a potential future conference about the Web, it was noted that the Web was still getting more important than ever despite the dotcom crash a few years earlier. The term Web 2.0 was coined to capture the essence of what seemed to be some kind of turning point for the Web. Its “2.0” designation does not imply a new version of some old software applications. Rather, it underlines a very different Web. The earlier Web (or Web 1.0, if you will) was structurally hierarchical, ruled by webmasters and offered static websites that were broadcasted and distributed mostly through hypertext links. By contrast, Web 2.0 is characterized by open communication, decentralization of authority and freedom to share and re-use content. It allows individuals to publish, collaborate and share experiences with other like-minded individuals and groups on a scale never seen before, thus bringing together the small contributions of millions of people and making them matter.


Who are those individuals making such contributions? The answer is “You”. By creating Facebook profiles, building Second Life avatars, recording podcasts, blogging about political candidates, social causes or simply cooking recipes, connecting with one another, and/or spreading the viral messages, “You” (or more precisely, tens of millions of people like you) have wrested power from the few (e.g., newspaper editors, broadcasters, marketers and advertisers). In the process, you have not only changed the world; you have also changed the way the world changes. It did not take very long for this transformation to become well recognized. In December 2006, Time selected “You” as its Person of the Year “for seizing the reins of the global media, for founding and framing the new digital democracy, for working for nothing and beating the pros at their own game”.

Him (Mark Zuckerberg) in 2010

The proliferation of content-centric Web 2.0 tools such as blogs, podcasts, and video and video sharing sites once again brings to the forefront the notion of “Content is King”. This notion went back at least as far as 1996 when Microsoft co-founder Bill Gates wrote in an online column that “content is where I expect much of the real money will be made on the Internet”. But things did not out quite well as often touted. Content in the Web1.0 era was for the most part commercially generated content (CDC), which was too expensive to create and update frequently, and being non-engaging with consumers, also ineffective in relationship building (read my other blog post “Is [Commercially Developed] Content King?“). Content in the Web 2.0 era, by contrast, has increasingly been user-generated content (UGC), from blog posts and comments on them, entries on Wikipedia, videos on YouTube, profiles on Facebook, to virtual worlds and avatars on SecondLife. More than just content pieces, these are vehicles for users to share ideas, contribute knowledge, collaborate on projects, support common causes, build communities, or simply connect with each other. Web 2.0 tools are therefore as much about connectivity and collaboration as about content generation. They are thus social media. As media, they offer the means or instruments for delivering content of one kind or another (e.g., news, information, ads or entertainment). Being social, they help improve our ability to connect, communicate, and collaborate (read my other blog post “Social Media: More ‘Social’ than ‘Media’“).

It is the ability to connect that makes content generation more powerful and collaboration feasible. Blogs can be powerful when they are commented and hyperlinked, potentially turning themselves into running conversations and passionate debates that can mobilize the mass. Tweets can be powerful despite their 140-character limits. They can reach out to a large number of followers and keep them updated in real-time. Wikis can be powerful, as Wikipedia has amply demonstrated, thanks to their ability to harness the collective efforts and intelligence of the mass on a scale not possible until recent years. Still no social media tools to date can match the power to connect offered by online social networks (OSNs) such as Facebook. Its user population had crossed the 500 million mark in July 2010, placing it third in size behind only China and India. Half of its users log in on a daily basis. Each user has an average of 130 friends and creates 90 pieces of content a month. For “connecting more than half a billion people and mapping the social relations among them; for creating a new system of exchanging information; and for changing how we all live our lives”, Time selected Facebook founder as its 2010 Person of the Year.