In my last post I discussed three forces that I think will drive the consumer push for ‘whole products’, thus forcing businesses to change to a business ecosystem. In this post, I’ll explain the implications for businesses.
The three forces I discussed in the previous post are:
- Perfect information
- Commoditization of products
- Time poor consumers
So why do I think that these three things will force businesses into a business ecosystem model of operating? In a nutshell: consumers want more for less. Of course, consumers have ALWAYS wanted more for less, so what’s changed?
1. The definition of ‘Whole Product’ is constantly changing.
Thanks to the Internet, there is almost perfect information in the market. As I’ve mentioned before, mainstream consumers buy “whole products” and thanks to the Internet they now know exactly what the whole product actually is. As consumers get more sophisticated, proving the whole products will require an increasingly elaborate business ecosystem. Businesses not capable of providing whole products (as defined by the consumer) will lose market share to businesses than can.
For example, travel agents used to book flights. But now consumers expect to be able to book entire holidays: flights, cars, transfers, tours, train tickets, accommodation and more. And the ecosystem will continue to expand as consumers demand more.
2. There will be a blurring of the “price” and “differentiation” business strategies.
Traditionally, businesses compete either on “price” or on “differentiation”. It all comes down to cost. If you compete on price then you need to make sure your costs are low. If you compete on differentiation then your costs will be higher but you can charge a premium for your value-add. At the high end I don’t think anything will change – the business that focus on differentiation are typically innovators (to differentiate themselves they need to do what no one else is doing). But I think technology changes the equation at the bottom end. Businesses competing on price will be forced by consumers to offer better service. Generally, consumers don’t expect a lot of value add from low cost providers – but consumers WILL demand additional services if they know it won’t add to the cost. And thanks to technology, the cost of providing additional services need not add to costs.
For example, when you want to buy a new dishwasher you pick your model and then shop around. You go with the cheapest price so whitegoods retailers generally compete on price. But even though you went with the cheapest retailer you still expect someone to deliver it and install it. You don’t mind paying for delivery and installation – but you want the retailer to organise it for you. These services require an ecosystem and technology should make the provision of these services low cost.
3. Time poor consumers are realising that disintermediation is not always ideal.
The Internet ushered in an era of disintermediation – we could finally cut out the middle man. This has proved to be a double edged sword. In cases where the middle man was ‘Mr 10%’ and provided no value-add, this was a good thing. But in some cases we’ve realised that the middle man actually earned his 10%. Most people are time-poor and are increasingly looking for “one stop shops”.
Again travel sites are an excellent example. We could book out flights, cars and hotels separately but we don’t want to. We want to do it all in one place, deal with one company and pay with one bill. What’s more consumers are willing to pay a small premium for this. If the business charges too much for this, consumers will go directly to the provider. Technology means that you can provide one-stop-shops cost effectively.
So that’s it. The reasons why I think we will have to move from linear supply chains to complex business ecosystems. This change is a challenges to businesses – but it’s also an opportunity for IT. There’s never been a better time to realise the true promise of IT – a source of competitive advantage.