David Pierce recently wrote in Wired that all technology companies are building the same products. Music streaming services, productivity apps, and even digital fitness products appear to display similar value propositions. Is the fight for innovation over? Not quite. In this post, I expand on Pierce's argument to highlight how the search for a successful business model will draw the line between tech that feels the same and tech that devours its copycats.
David Pierce has a good point: tech companies all appear to be building the same services around similar value propositions in an effort to win over customers. Google, Apple, Microsoft, and smaller players are building the same software and services to make their customers’ lives easier. Pierce writes:
Has this sameness ended real innovation in consumer tech? Not necessarily.
What's still missing are the identifiable business models that will earn a profit for each company, and allow them to scale their services in these new areas. Remember: no value proposition--however great--can survive without a sound business model.
That’s where I want to expand on Pierce’s argument.
How will Google or Microsoft earn from the productivity apps they give away for free? Will Apple Music crack the subscription based music streaming model that Spotify is experimenting with, too? Between Line, WhatsApp, or Viber--who will win the mobile messaging wars? No one's figured it out to gain enough of a leg up on the competition.
So what? Google, Apple, and Microsoft have tons of money. Why should this matter?Well, all of these companies have existing business models that drive a steady line of revenue around a known and validated “fit”. But those business models won’t last forever, and so it’s important that companies reinvent themselves while they are still successful or risk being disrupted. Apple's iTunes is a great example of a business model being disrupted by new companies like Spotify and the popularity of music streaming.
The profit earned from the existing and validated business models will help finance future growth engines, but those future growth engines will have very different fits.
"Survival Of The Fittest"
In our book Value Proposition Design, one of the concepts we talk about is the search for "fit". This is the connection between what your company offers and what your customers want. There are 3 stages companies have to experience in their search for “fit”. Right now, we’re seeing tech companies accomplish 2 out of 3 stages of “fit”.
Stage 1: Problem Solution Fit
At this stage you don’t have enough evidence to suggest that your customers actually care about your value proposition. It literally exists on-paper. For example, Apple believes on-paper that its Apple Music streaming service will provide better value than Spotify through better curation and personalization. Apple even believes they can reimagine radio through its Beats1 channel. That fit can’t be certain until Apple tests their value proposition on customers.
Stage 2: Product-Market fit.
The search for this fit will be a long and iterative process. It won’t happen overnight. Your team will constantly test to validate or invalidate their assumptions around your value proposition. You might even learn that many of your on-paper ideas didn’t create the customer value you assumed it would. As Apple tests its Apple Music service over the coming weeks, the company will learn if its claim to curation and personalization will connect with their customers in ways Spotify hasn’t. .
But will it sell? That’s the final and pivotal stage in the search for fit.
Stage 3: Business Model Fit
The business model fit is the piece of the puzzle tech companies are still trying to place. How each company makes a profit from its new services will determine which business survives and which business will fail in their search. It’s a laborious back and forth between designing a value proposition that creates value for your customers, and a business model that creates value for your company. Let’s use my Apple example again. As the 3 month trial for Apple Music ends, will customers be willing to sign up for a monthly subscription, or will they stick to a provider like Spotify?
So what looks and feels like similar products or services right now will dramatically transform as the search for a successful business model continues. Google, Apple, Microsoft, and others have to continue searching for the right combination of value proposition features and a business model that works.
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