A few years ago, everyone was talking data; now analytics, particularly artificial intelligence (AI), are capturing the collective imagination. The two go hand-in-hand. Together they can be very powerful and have the potential to create significant value. While undoubtedly data and analytics can speed up activities and lead to cost savings in a company’s current business model, those types of gains will quickly be matched by competitors and competed away. Instead, the companies that can both create and capture the most value will be those that take advantage of the opportunity to rethink the business model itself to take advantage of new approaches made possible by this powerful combination.
As we saw with cloud, digital, mobile—you name the technology—the first implementations are often all about applying new technology to old practices to get efficiency gains. But if you stop there, as too many companies do, the impact of new technology on your existing business never quite lives up to the hype. You miss the true potential and risk being surpassed by a new entrant, with no legacy practices, that adopts the new technology in the smartest way. Think revenue growth and much deeper customer relationships—reaching more customers with new offerings, serving new markets entirely with dramatically different asset structures—rather than cost-cutting
Evolving business models
A flood of real-time, often context-sensitive, data and powerful analytic tools are creating an opportunity to fundamentally rethink business models. The key, though, is to think about value capture, not just value creation, and to capture the economic value these technologies can generate before your competitors—existing or new—can. For that, companies need to rapidly evolve their business models, to iterate and understand both the possibilities and limitations in this technology and what business models can best take advantage of it.
At Dreamforce 2016, I’ll be joining Peter Schwartz, senior vice president for Global Government Relations and Strategic Planning, and Mia de Kuijper , senior vice president, senior strategy advisor at Salesforce, for a discussion on the ways we might see business models begin to evolve.
First, what do I mean by business model? Business models are ultimately all about money: How much are customers willing to pay for value received, and how much does the business have to spend or invest in order to deliver that value? So when a company thinks about applying new technology to change a business model it can target the nature or form of the value customers receive or it can target the delivery, or both. A business model’s success depends upon customers feeling they’re paying a fair price, and the owner of the business earning an acceptable return.
Three dimensions of business models
n considering the potential levers for new business models, I like to think of three dimensions: payment, data, and participants.
- Payment: This dimension includes both what we’re asking customers to pay for and how they measure the value received. For example, the digitization of the physical world, from music and books to storage on the cloud, opened up innumerable opportunities for reconsidering the specific form of value delivered to customers. Combine product digitization with ubiquitous sensors that capture data that is contextual in time and space, and get insight into what the customer really values. By changing the constraints on not just what is delivered, but where and for how long and in what amount, new pricing options can better match customers’ behaviors, preferences, and use contexts.
- Data: Most companies today use data to optimize their own operations, but rarely share it with the customer. However, as data generation and capture becomes cheaper and more pervasive, new business models will likely emerge in which more of the value delivered to the customer resides in the data rather than in a product or service. Rather than simply being the by-product of transactions, data itself can become a significant revenue source and perhaps even ultimately the primary revenue source as customers begin to see the value that they can capture from richer data and analytics.
- Participation: Increasingly, we’re seeing an opportunity to mobilize others to deliver value to our customers. We’re even finding ways to connect customers with each other to offer information and advice. In short, platforms are becoming more and more central to value creation and value delivery.
Widespread dissemination of data sensors is giving us data that is qualitatively different, making the invisible visible at scale and in real-time, and so able to yield much richer insights about user context than can more static data. But the value of data flows, and their impact, ultimately lies in analyzing flows in order to detect, and act on, emerging patterns in real time. Whoever can build a business model that leverages data flows most effectively and creatively will have the opportunity to create a lot of value. The richer the flows—and the more diverse the analytics brought to bear on them—the more companies can learn, and the larger and more fundamental the changes and opportunities that will result.
Dreamforce 2016
John Hagel will speak during the session “Where's the Money?: Evolving Business Models in the Digital Era,” along with Mia de Kuijper and Peter Schwartz of Salesforce, on Thursday, October 6, 11:30 – 12:10 p.m.
John is co-chairman for Deloitte LLP's Center for the Edge, with nearly 35 years of experience as a management consultant, author, speaker, and entrepreneur. He has served as senior vice president of strategy at Atari, Inc., and is the founder of two Silicon Valley startups. Author of "The Power of Pull," "Net Gain," "Net Worth," "Out of the Box" and "The Only Sustainable Edge," John holds a B.A. from Wesleyan University, a B.Phil from Oxford University and a J.D. and MBA from Harvard University. Follow him on LinkedIn or Twitter.