Author: Omar Mohout, serial entrepreneur 

A number of opposite trends become visible in the world of business process solutions. Is the balance of power between the global (ERP) platforms and the (single process) “Point Solutions” a battle between Goliath and David. Or are there evolutions on the level of the user and on the level of technology which lead to a more equal power play. Omar Mohout of WON will elaborate his vision further during the event Earn money with ICT 2010.

The days have passed in which the big software giants focused their offering solely on one-size-fits-all platforms for companies. SAP, Oracle and friends are still selling on-premises software, with a focus on reliability and comfort. But the trend towards on-demand (also called SaaS or cloud computing) offers the client a myriad of choice from which to select the best of breed point solution to address a specific issue. This has been made possible by the web, which offers easy interfaces for software integration. These days the playing field between the champions and challengers is level.

Global (ERP) platforms versus (single process) Point Solutions: contradiction or not?
According to a number of industry analysts, on-demand is only suitable for the SMB market and not for corporations. They see on-demand as no more than a quick start or temporary solution.

Nothing could be further from the truth. Corporations are purchasing on-demand in addition to their existing CRM and ERP platforms. Here are some reasons why:

• Because they need a point product for a specific pain that their generic platform cannot solve in a simple and effective way;
• Because one-size fits all forces corporations to compromise on the greatest common denominator
• Because the entities involved in a business process, such as sales, channel, marketing, logistics, finance, customer service, etc., have different needs that are complicated if not impossible to cover using the same solution;
• Because country organizations need to escape from global standard processes that are imposed on them by head-offices even though they can’t address local requirements

In short, corporate solutions provide a lot of – if not too much – functionality and that at the expense of agility and flexibility.

SAP is trying to access the on-demand market with BusinessByDesign. Oracle CRM On Demand is trying the same thing too. Microsoft with Microsoft Dynamics. It seems to be easier to move up from SMB to corporations than the opposite. Just look to the success of Salesforce.com.

Today the number of companies that sell point solutions – executing a single process – are growing fast. Thanks to the “cloud” they seamlessly integrate and interoperate with systems from other point solution providers. The products they offer are not only a matter of supply and demand, but have the added value of having been cooperatively created by several partners. More complex, more dynamic and adaptive service value networks can be expected in the future. In other words, the complexity is moving from the applications to the network.

Uniform or open protocols and standards make cross company creation of added value, with networks facilitating greater specialization on the core competencies of any single company as well as dynamic utilization of external components. Cases in point are the mash-ups created around Google Maps that moved from “drive me from A to B” to a platform for anything that has a geographical component. In the business-world, Salesforce.com is integrated with a number of point solutions: Inside View (lead management), Right90 (analytics), Conga Merge (proposal creation), Corvent (event management), Engage B2B (marketing automation), LinkedIn (social media), etc. – all part of a “solutions grid.”

A point solution is designed to address one particular problem, providing a solution to a single aspect rather than addressing all of a company’s requirements. Point solutions are widely used to quickly fix a problem or implement a new service, chosen for their speed of implementation and relatively low cost.

Point solutions can be exceptionally rich applications that go very deep in certain areas of functionality, enabling companies to use different tools for different situations. Successful examples are Eloqua for email marketing, HubSpot for web analytics and QlikView for reporting.

Which forces create the future?
Are point solutions the magic potion? Not really. They have their challenges. Data compliance to name one. Budgetary impact (capex versus direct cost) to name another.

It is hard to see what the impact of cloud computing will be on businesses in the long term. During the Interbellum the telephone entered businesses, but its real impact came only 30 years later, showing that using technology does not automatically result from its mere existence. It is not a matter of technology but a matter of realizing how a business (process) can be improved and advanced using technology. The diffusion of these insights and the maturing of the usage of a technology are linked with different enabling factors such as the fulfillment of unmet (latent) user needs, the existence of (accidental) ecosystems, the exploration of new revenue streams etc.

Innovations in technology are driving both globalization (see Flat World by T. Friedman) and the change of value creation towards services. They are challenging companies to adapt their business model. Entire industries are being destroyed and (re)created. Innovations – novelties with a competitive effect – can change markets overnight. Think of photography, media and telecommunications.

But this is nothing new if we take a quick look at history. Today we are witnessing the fourth wave of innovation in information and communication:

• Writing (4000 BC) – allowing documentation and giving birth to governments and thus taxes
• Printing press (1450 AD) – reducing cost of text and image reproduction and standardising language, leading to an explosion of information sharing
• Telephone (1867) – enabling immediate transportation of information
• Internet (1991) – removing the need for physical transportation of text and image and dramatically reducing cost and time

Only last month we witnessed how a game changer with an innovative business process brought down the Goliath of the industry. Witness the fall of Blockbuster and the rise of Netflix:

• Blockbuster is an American based chain of video rental stores with 6,500 branches. The company filed for bankruptcy on September 23, 2010. The first Blockbuster store opened in 1985. The innovation of Blockbuster was their ability to customize a store to its neighborhood with movies matching the local demographic profiles. Soon, they were opening one store every seventeen hours. The company was sold to Viacom for $8.4 billion
• Netflix is a company that offers online flat rate DVD rental by mail and video streaming. The company was established in 1997. In 2009 it was offering a collection of 100,000 titles on DVD and surpassing 10 million subscribers. Netflix came up with a brilliantly simple concept: rent DVDs by mail for a flat monthly fee. You choose the movies you want on their website, receive them by postal mail and – using a prepaid envelope – return them in the mail whenever you are finished viewing. The set monthly billing rate means that the decades old bane of the video store -late fees- is a thing of the past.

The weak point in Blockbuster’s business model was that store rentals are subject to late fees and the movies needed to be personally returned to the store rather than mailed. Basically Netflix removed both constraints, offering more customer choice (extensive library) and increased borrowing and returning flexibility as well as introducing enhanced customer experience (members can share and make viewing suggestions). It is not hard to see who had the better cards in hand.

Author: Koen Victor, CEO Smart Sunday, http://www.smartsunday.com/ 

Modular build software allows an offering that is a better match with the needs of a specific user. The next step is to base the pricing upon the features the client effectively uses. Smart Sunday developed an innovative solution for this.

In the current competitive software market, one of the most important aspects of running a software company is the ROI of developing a new piece of software, service, or feature set. As in many advanced technological sectors, developing software has an enormous upfront cost, which can be captured in the ‘innovation timeline’.

The innovation timeline shows on an abstract level the different stages of an innovation (product, product feature or technology) before the costs are recovered and gains can emerge.

Figure 1 : Innovation Timeline

Focusing on improving existing products, we capture the individual innovations in an ‘innovation cycle’. The purpose of a well designed innovation cycle is that each time one innovation starts to pay off, a new innovation is started to secure future ROI. Using this methodology, of building a new innovation timeline upon previous ones, we get a ‘cycle’, and a product that constantly innovates and that aims to always be one step ahead of the market.

Different schools exist, but as everyone is aware there is no silver bullet that answers the question: ‘What feature(set) has the most potential to generate return on investment, in the shortest possible amount of time ?’.

However, there are two key mechanisms that can support your Acquire, Retain & Extend strategy towards customers:

1. Value reporting and prediction provides an answer to the question: ‘Who are your users and what do they want?’
2. Value capturing by customer oriented pricing answers: ‘What is the perception of value by the different customer profiles?’

The purpose of these mechanisms is to detect and capture as much value as possible from the existing and planned new product features.

Value reporting and prediction

Value reporting and prediction in the fragmented software market is no easy task.  The software market is comprised of a lot of substantially different types of target customers and a huge variety of different uses of the same features.  Next to calling out to different types of prospects with the same codebase, the software company has to deal with a great difference between the value appreciation between the different types of users.

For example, professional photo editing software builders that attempt to capture both professionals , amateurs and casual holiday picture editors, simply cannot call out to all possible users with the same product – as a price reduction for one group has a negative impact on pricing for professional users. The straightforward answer – different products editions (light/standard/pro/enterprise editions) – induces higher maintenance cost for all versions of the software and may neutralize the gains in the bigger market (also read: Value Capturing).

To mitigate this problem, Smart Sunday has developed in total 26 weighed criteria to evaluate new innovations (features). These are company specific, but in general they apply to all product builders and technologists:

1. Expected Use of the innovation. This should be maximized. A huger use reflects a higher commitment to the innovation and the program/technology.
2. Value appreciation of the new feature in the target markets. This should be predicted accurately.
3. Willingness to pay for the new feature in the target markets .This should be predicted accurately.
4. Expected support necessary for the new feature. This should be minimized, as this is a clear cost.
5. Development time. This should be minimized, without sacrificing quality control.
6. Co-existence of the feature with features that are present in the existing product.
7. …

With existing software, these criteria can be known accurately by measuring execution properties within the current client base. By measuring the behavior of existing groups, favorably using measuring and profiling technology, one can obtain a better insight of the usefulness, expected use, development time … of new innovations.

Execution properties are for example:

1. Co-use of modules in the existing software: this indicates existing interesting flows and user patterns that may be the basis of new products or flow improving features
2. Erroneous use of features: indicates that the program does not address user demand
3. Long user click paths before the desired functionality is found
4. Co-usage with other software: indicates interesting ways to add new functionality
5. What parts of the software are used the most/the least
6. What parts of the software, take the most time to complete (for example forms:  may indicate a new feature, like word completion).
7. …

Alternatively, however less strong and error prone, one can obtain an indication of these execution properties by doing surveys with current users.

Using this information, one can select the features that have the fastest ROI, because they answer customer issues and opportunities, using the real situation of different user groups. The innovation cycle can be shortened, and long innovation timelines may be combined with innovations that have a fast time-to-market.

Figure 2: Using metering and analysis tools, you can obtain a deep insight about customer behavior and expectations, as a basis for future efficient innovation. As a less accurate alternative, you can make custom surveys.

Value capturing

Both setting the right price for your innovation, evidently the most visible part of ‘value capturing’, and targeting the right target market is extremely important. However, most products have many potential markets that may benefit from different price settings. Also, while developing a new innovation, your purpose is two-fold:

• Charging as early as possible: this may be done by charging for sub features during the development of your innovation, if not all functionality is yet implemented.
• Charge as broadly as possible: a market study may show what the different target markets are, but executing a separate market study for each new feature or module is difficult. Also, some target markets live ‘under the radar’, but may be very interesting to do business with.

 To capture full value, it is essential to introduce a ‘flexible’ price setting in the software offering.
A proven business model business managers came to like (partly by lack of technically sound alternatives) is making several editions of the same software, for example: light, standard, pro, enterprise. This aims to offer the same functionality to a large set of users at a good price.  However, this is only a good model if there are indeed 4 large groups of users with a different willingness to pay, and they indeed need another set of features.

More seldom than not, reality is different; reporting and profiling will for example show that a software package with 5 modules and 34 independently identifiable features, may have no less than 102 different target markets! They each have  their own willingness to pay, feature wishes and usage of the software package…

Limiting these differences to 4 available options generates the following issues:

• Customers that are ‘in between’ one of the 4 options, and would like to wish a basic feature set from the light edition, and some features from the enterprise edition, with a willingness to pay for the pro version, are excluded in favor of competing products that have the ‘right’ feature mix for this particular market. Alternative: make the right mix on demand.
• Client asks (quietly) questions like: ‘do I need all features from Standard edition?’ forcing the user into choosing a possibly limiting edition that lowers the margin on the software. Alternative: make the right mix on demand.
• “I need this program but the complex features that set it apart from free or cheaper software are only relevant  for a limited period of time during this project; I’d better choose a free (support  lacking) version instead that offers the same basic functionality”.  There is a risk of losing this prospect. Alternative: offer the complex features for a limited amount of time
• …

Evidently, it is not a good idea to market 102 editions, so the right solution is offering a modular set of services that aim at the different markets detected in the profiling of an existing program.

Instead of determining the feature level at the time of sale, and fix the price accordingly, the client can choose to opt for a pricing scheme with a fixed starting cost and an on the fly invoicing for the use of new features that are not comprised in the scheme.  This makes it also possible to present new innovations that are too little for a new release but can be appreciated by current users (according to the profiling), for a fee that is in relation to the value appreciation of the customer. This has several advantages:

• The sales process becomes easier: the client is not limited to a predefined set of features, and starts using the software at a price tag that is in relation to the value appreciation
• The sales process is faster and less competitive: the price level and the feature set adapts dynamically to the needs of the customer
• The upfront cost is covered faster by releasing small sub features of a new module using a ‘pay as you go/per per use’ model
• International sales become easier, for example via the internet, without additional need for a sales person at the customer’s location

In conclusion, an insightful combination of licenses, perpetual licenses, and pay as you go are a great step towards a better ROI, and a faster return during the whole innovation cycle. I wish you success!

Koen Victor co-founded Smart Sunday after being a researcher at the KULeuven and extensive study of the IT market. Smart Sunday assists companies with software user profiling and margin optimization of desktop and SAAS applications using innovative and proved flexible licensing schemes and optimizes client communications and training of companies. Smart Sunday develops two software applications, Start²Use and Start²Learn.

Vincent Theeten, IT Director CREAX, will discuss the role of the software of Smart Sunday in their offering as an innovative SME.

Figures show that 30% of all innovations in 2015 will be brought about by software and ICT. Companies that bring software products or services onto the market often have no lack of ideas. But how can you channel your employees’ creativity in a way that is in line with the company strategy? To this end, Sirris has elaborated a concept of innovation targets together with a number of industrial partners.

Studies show the increasing importance of ICT and software as ‘fuel’ for innovation. In 2015, 30% of all innovations will be driven by ICT [ref], regardless of the sector. Increasingly more software developers (as well as non software developers) ask themselves, “How can I (as a company) innovate and create value with software?”

This is very important in case your sector is subject to the “Game changes”, as described in the previous article of this series.
A fundamental strategic redefinition of the product portfolio requires a continous focus in development during a long term. By means of innovation targets this focus can be maintained in order to realise disruptive innovations.

Innovating in software is a continuous process. Contrary to non-software products, software products are never entirely finished. They are constantly being expanded and new ideas are mass-produced by internal employees as well as external parties (users, clients, etc.).

As a software product developer you will surely recognise the following situation: at the company there is a large to-do list for your software products. Demand for new functionality (feature requests), demand for bug fixes and various recommendations to improve the code (refactorings). As well, within the organisation all kinds of ideas to improve the software engineering process are circulating. However, with all of this information you know that it is impossible to process and implement all these changes: not only due to lack of time and resources, but also because some of the proposed changes actually conflict with each other.

Having so many ideas has its advantages and disadvantages. On the one hand, this leads to new opportunities for the company. On the other, the abundance of ideas can also be paralyzing because every idea has to be re-evaluated. Software developers invest much time and energy in all of this. Observations have shown that many of these ideas are not really suited to the company strategy. For software companies it is also a challenge to be organised so that they are capable of committing the creative potential they have to produce and elaborate ideas that are relevant to the company strategy.

Together with a few industrial partners, Sirris has elaborated the concept of Innovation Targets in the scope of a European research project (ITEI¹) to innovate in software. Innovation targets are concrete and measurable objectives that a software developer wants to carry out as an innovation. Such significant innovation targets can be part of the basis for the creative process of thinking up and elaborating ideas. They can be translated at a later stage into an operational level in a roadmap for the coming releases, initiatives to improve (internal) software engineering processes or the development of new products and services. In the next section, two short concrete examples of innovation targets will be explained.

Figure 1: An example of a concrete innovation target

Innovation Targets: a few examples

One company is a software developer who works on a project basis. This company develops custom-made products or solutions for every client and carefully meets client expectations. Typical innovation targets that this kind of product developer puts first are:

• How can we shorten the lead-time of our projects by 20% by sharing knowledge throughout the projects?
• What internal knowledge could we expand into new services that would generate an extra 15% in turnover for us?
• How could we increase the accuracy of our estimates in quotations by 20%?

A second company builds out-of-the-box products for a large market. These products are sold using a licensing model. The company has already brought out two releases of its product on the market. Typical innovation targets of this company are:

• How can we better involve a number of our biggest clients to help us define our coming releases and reduce the risk of investing in developing features nobody wants?
• Would the Software as a Service (SAAS) paradigm work within our product offer and can we increase our turnover by 30% by doing so?
• Clients ask us to make our products more open, so that they can build solutions themselves based on our products. What business model do we need to use in order to best cash in on this opportunity?

Innovation targets: How to determine them

Determining innovation targets is a new skill that software developers need to learn. In software engineering the emphasis traditionally lies on increasing the productivity of the engineering process (delivering sufficient quality on time within budget), which leads to relatively little attention being paid to the actual innovation process. Many software developers then also often use an ad hoc innovation process.

Sirris can help with this: our experts can help you determine your innovation targets and elaborate a suitable innovation process.

The series of articles “Game changers in ICT” was made possible with the support of the Brussels Capital Region (IWOIB). Sirris provides advice on this issue within the scope of its Mistral Technology Strategy and Software Engineering and ICT services.

“Game changers in ICT” is the subject of the seminar “Earn money with ICT, part 2”, organised by Agoria and Sirris on 25 October 2010 in Ghent.

[1]
This project was started within the scope of ITEA 2. On the Belgian side along with Sirris, four Belgian companies participated (Indie Group, Mentis Consulting, Spikes and Steria)

SOURCES:

• http://www.sinnobok.org
• http://www.itea2.org/itea2_roadmap_3

Apps Marathon – Presenting the startup booth from MoMoBXL on Vimeo.

Author & Contact person: Nick De Mey

ICT companies from different sectors feel the increasing pressure to revise radically their business model. For these companies it is of great relevance to study the experience in pioneering sectors, like digital media. (This is an article in the series “Game changers in ICT”.)

Business model innovation is one of the most important “game changers” for ICT companies. Business model innovation checks where and how new income can be generated, while the classical flow gets under pressure. Board of Innovation advices companies in this matter and believes in this context in trans-sectorial innovation.

Figure: Business Model Blocks, items to transfer(copyright by Board of Innovation)

Is renting out digital content hopeless?

Many sectors are being confronted with the digitisation of their products. Companies having to deal with this are now obliged to review their business model. We all know about illegally downloading music albums, but what if in a few years teenagers download their mobile phones and print them out using 3D print technology? As you can see, some sectors are moving a bit faster. In the mean time, record labels have realised (after about 10 years) that they have to gladly follow and experiment with new business models as much as possible. Other sectors, such as the book publishing industry, are today nervously looking around to see what impact the digitisation will have on their market players. Engineering and design firms can still act as if the world kept on turning until of course tomorrow the first 3D files and technical matrices drawings start to appear on Facebook. But OK, that is a problem for tomorrow, right?

A Flemish online e-book platform

Back to the sectors which today cannot do anything else but innovate with their business model. Interestingly, it is now time to see how problems (and their solutions) can be copied throughout various sectors, which is exactly what we are doing with the Board of Innovation.  The past weeks we have been following the workshops where the Flemish book publishing is looking for a new model to deal with e-books. Publishers, distributors, libraries, retailers, authors, etc., all have other agendas, but they are now in the same boat. Therefore today they are thinking long and hard about a Flemish online platform where digital books can be distributed. That is nice, for sure! The music sector first let other (illegal) players take over the market and is knowing trying to save what it can, which is painful. Luckily, the Flemish book publishing  industry has seen more quickly that by collaborating everyone can become stronger from this transition.

Low chance for success #1: Digital artificial scarcity

Now it is exciting to see how classic old business models clash with new consumers. Like in many sectors, there are intellectual property rights and certain players are getting rich dealing in them. In the book publishing world, there is a current licensing model where libraries get the right to lend out a certain book for free (read: heavily subsidised) to a reader. Publishers get paid per book and the number of copies that are made available. This licensing model based on scarcity is accepted by readers without any problem. When a grandmother walks into the library and finds out that the latest Tom Lanoye book is already gone from the stacks, that is just too bad. In a few weeks a student will bring back the physical copy and someone can then take it out again. Library visitors do not care that an artificial licensing model is hiding behind this process.

But today various players are striving at home and abroad to take over this physical scarcity model in a digital context. If I want to ‘take out’ a digital book from a digital library, I could get the message, “sorry, this book is currently out and will be available again in X number of weeks”.  This is artificial scarcity in a digitally driven business model. No, consumers cannot understand this because there is no physical limitation to actually lending out an e-book.

Low chance for success #2: No scarcity, but abundance

Finally, badly copying an old business model is quite painful. As a player here one loses much time (and therefore also money) with this. Finally, it will become obvious that this model is untenable and one must again invest in a new business model (new infrastructure, contracts, etc.). To rent out digital content you can learn quite a bit from the film industry, as it has been through many changes. There, renting out digital content has been going on for a few years. A classic video store model where people pay a few euro to view a film for a few days was initially copied to an online platform. For example, iTunes has been doing this for years and in Belgium we can finally also pay via digital TV to watch a film or a television series. However, this model too is becoming problematic. Paying per item in a digital world is simply on its way out. Whether it is to rent or buy, paying for packets or a few bits and bytes is difficult. People almost don’t buy music per album anymore. An artificial package of 15 tracks? No thanks. Today fans buy massively per track and choose what they want to charge on their credit cards. One euro a track simply makes more sense. And it works, since the new business model for online media content is all about the principle of  ‘abundance’. Consumers pay one fixed amount a month and can listen to all the music they want. Smaller companies like Spotify that work according to this all-you-can-eat subscription clash with the business model of iTunes. In the coming months Apple plans to introduce a similar business model.

And that is basically what the business model is like with digital content. If you want to lead the way in the book publishing industry, you have to jump on board with this up and coming business model: transparent pricing with a fixed amount plus an all-you-can-eat formula. However, is seems that people would rather introduce an intermediary stage as to not upset the ‘old’ companies. Today, you pay in the shop per book, paying online is then also the reasoning. The elaboration of this digital Flemish E-book platform (FEP) could easily takes one to two years. What will it be like in the industry in two years? Introducing a model in two years that has now already peaked does not seem like the best choice. Two years ago there was no talk of an App Store for iPhone, e-readers were virtually unknown, never mind that no one talked about the iPad. Technology evolves at lightning speed. In two years all the kids will have smartphones and affordable mobile Internet. For the libraries to connect with this generation today for which a visit to the library is like them going on an excursion to Bokrijk, is the biggest challenge. Letting them rediscover the value of books is step one and having them pay for them is something for later.

Earning money in a digital world is not easy.

Nick De Mey – Director Board of Innovation

Bureau for Business Model Innovation

Written at the request of Sirris ICT for the congress ‘Earn money with ICT’ – 25 October 2010

Figure: Business Model case (copyright by Board of Innovation)

Board of Innovation leads the interactive workshop “Business model innovation” during the seminar “Earn money with ICT”. They will apply a specific methodology on a number of industrial cases which allows the graphical sketching of business models (see figure above) in order to gain better insights.

Authors: Ivan Verbesselt, Nagra Kudelski

A number of disruptive, “game-changing” transitions are revolutionising the world of digital media. These shifts offer also opportunities for technology and service providers in this market. The article focuses on three important transitions and the opportunities they offer. Ivan Verbesselt (NagraVision) will further elaborate this topic in the seminar “Earn money with ICT – Understanding the game change”.

By its very nature, Digital Media is and will continue to be an area in continuous and rapid evolution. Some changes, however, tend to be more structural and pervasively transforming for the industry than others.

In the bigger scheme we distinguish three structural trends that usher in a transformation of digital media services. In fact none of these trends is dramatically new but they rather reflect existing sub-currents that are now reaching the tipping point of structural relevance that requires digital media service providers and Digital TV (DTV) operators specifically to structurally plan for them:

1. Hybrid Broadband-Broadcast is a fact… and OTT is coming of age along with it

A positively opportunistic mix of broadband (IP) and broadcast (DVB-x) delivery mechanisms is now available to virtually all DTV operators.

Broadband players are increasingly embracing the operational efficiency of broadcast delivery (satellite, terrestrial) just like broadcast operators can leverage broadband IP to add interactivity and on-demand to their offer. In the latter case, this will often involve Over-The-Top delivery of the on-demand components. Over-The-Top (OTT) delivery can be defined as media rich services being delivered in a way that does not need formal agreements with network operators or even disintermediates them altogether.

That brings us to a flipside of this brave new hybrid world: the near ubiquitous availability of broadband with ever-increasing peak and average bandwidths has also matured OTT service delivery to a point where it has become technically and economically viable for mainstream content delivery. Many pure OTT service providers (i.e. with no other business lines to cross-subsidise their OTT initiatives) may yet struggle to find a sustainable monetization model but it is beyond doubt that for the sustainable services this is currently generating an undeniable eye-ball aggregation that typically translates in sizeable advertising streams in the longer run.

The natural reflex for incumbent players would of course be to demonize this trend as a churn creator that needs to be fought by all means, including regulation. We believe, however, there is another much more constructive approach which does exactly the opposite: recognize that OTT is there to stay as a natural innovation engine for digital media. An even more aggressive stance is that it can even be turned into a powerful churn avoider exactly by seamlessly embracing it into the existing DTV offer.

Indeed, if the consumer is seamlessly led from the existing DTV offer into other services including OTT components and back without (having to be) conscious about what is OTT and what is not, then, what exactly would be the churn-provoking factor? Why would one leave the shopping mall to buy the same jeans in a boutique at the other side of town if the economics make sense?

Some fundamental enablers are needed to effectively realize this, and the nice thing is that they are exactly the foundation components of a successful hybrid broadband-broadcast service:

• a content security model that allows to mix and match the different security paradigms intrinsically linked to the broadcast and broadband world and the respective devices.
• a service management and delivery architecture that allows to effectively federate ‘from the cloud’ across different networks and content sources, including OTT.
• a user experience that is modular enough to seamlessly blend broadcast, broadband and OTT. This may very well be the most essential integrating factor.

2. Multi-screen digital media services are required to respond to consumers’ emerging digital life style

Literally all consumers (even the least technologically savvy) are now gradually developing what one could somehow refer to as “a digital life style”. This evolution is, in fact, hardly more than a natural extension of how people massively embraced digital music over the last decade and now seek to transpose this to the other digital media.

But also this brave new multi-screen world has a flip side. The operational reality of this multi-screen experience tends to be somewhat frustration-ridden for many consumers who inevitably end up choosing between either a vertical content-device ecosystem or either a never-ending struggle with incompatible standards, devices and content protection schemes.

The good news is that there are pragmatic solutions that allow to conveniently address the entire content life cycle with open standards.

3. The user experience defines or even becomes the service and transforms the business model altogether

The churn-provoking (or avoiding) effect of the user experience has been dramatically illustrated in the mobile phone market where it has truly transformed the very appearance of those devices and the services that they are associated to in the last 24 months.

One should expect this to be very similar across digital media in general and this trend will only accelerate as digital media offers are less and less deriving their differentiation from the content line-up (and this will even be amplified by the increasing portion of OTT content that is anyway going to be seamlessly aggregated into the respective content offers, cf. point one).

The straightforward consequence of this evolution is that the user experience (UEX) shall significantly evolve beyond the Electronic Program Guide (EPG) and will inevitably have to embrace more intuitive and immersive semantic navigation paradigms. And it will have to do so at ever-shortening application innovation cycles.

However, if we look just a little bit further than the mere user interface then, just like for the mobile device market, what is really at stake is nothing less than the very digital media business model.

Indeed, from a more modular, componentized UEX it is only a small step towards genuine personalization of the UEX by the consumer. This opens a whole new opportunity of micro-applications and UEX components, commonly referred to as “Widgets”. Within the larger context of the digital media offer, these could easily become selleable items in their own right alongside the more traditional media assets (such as music, television shows, movies).

An interesting side effect of the latter is that this is also the most efficient way to blend Web2.0 and OTT components into the mainstream DTV offer without having to re-implement all the web-oriented services in a TV-centric world.

These “game changers” along with the success ingredients to optimally leverage them are summarized in the chart hereunder.

Author : Ivan Verbesselt – Senior Vice President Marketing – Nagra Kudelski

Webiste Nagra Kudelski (CH): http://www.kudelski.com/

Ivan is speaker on the seminar “Earn money with ICT” on 25^th October 2010. He will give his vision upon the most important “game changers” in his sector and how to handle these as a technology company, during the plenary session and during the interactive workshop “Product paradigm innovation”.

Contact person: Jessie Dedecker, Wim Codenie, Nick Boucart  

Today’s users are much more sensitive to the attention required by ICT-related products to get something done. In this article we discuss how using the ‘Smart Products paradigm’ can help you rethink product concepts in order to reduce the amount of attention a product requires from its users.  

“If I’d asked my customers what they wanted, they’d have said a faster horse.”  

Henry Ford  

If you only base yourself on the current needs of existing customers there is a risk of being blind to significant evolutions related to your product development. An example of such an evolution is the new trend of Smart Products, which anticipates the phenomenon of oversaturation of ICT products in the market.  

This evolution is one of the main drivers in the ‘game changes’, in many sectors. (See two previous articles) The ‘Smart Products paradigm’ plays an important role in the strategic redefining of the product portfolio and business model.  

The limited attention span of users  

Today, there is a new and significant evolution taking place regarding the use of ICT-related products (see Figure 1) at home as well as at work. This figure indicates that the number of ICT-related products (i.e. mobile phones, smart phones with all kinds of mobile apps, e-readers, all kinds of web applications, etc.) per person has risen exponentially[1] . Due to this explosive rise, users today must divide their attention over so many different products, causing them to pay less attention to just one product.  

This evolution has made it so that today’s users are much more sensitive to ICT-related products that demand relatively less attention to use, which has important consequences for the way in which product developers carry out product innovation. Product innovation used to mainly focus on providing users with new functionality, something generally perceived as very positive. Today this strategy mostly has an adverse effect because these new functionalities often require more attention to use while they should be divided over several products.  

This transition offers product developers a growing opportunity to radically review product innovation. Companies can anticipate the above-mentioned problem by making their products attention efficient. A strategy to do this is by making the product ‘smarter’.  

How the ‘Smart Products paradigm’ can make a product attention efficient   

The ‘Smart Products paradigm’ foresees a smart way to use information from inside and outside the product. It can range from information about the product itself or other products to information of the environment in which the product is embedded. By putting this knowledge into the product it can then take over user tasks and companies can even offer new services and products to their clients.  

• An example: historically, the developers of CRM packages are specialised in data management. In other words, these products were made and fine-tuned with a focus on data storage and data retrieval. The current large amounts of available data, however, create other needs than just data management. These products are expected to show a certain form of intelligence to deal with the vast amounts of data. For example, today employees also often make use of services such as LinkedIn. One would expect a CRM system to be able to continuously qualify new leads introduced in the system as it searches for additional data via LinkedIn. This can be done by checking which employees within the organisation are already connected to a new lead. Such a CRM system ‘enriched’ with smartness could for example show that a colleague from another department has previously worked with the lead in a previous job. A cold call can be avoided using this information.

 The smartness of such CRM systems can be found in the fact that the system automatically exposes links by combining its data with data present in the ecosystem of related products and services, such as LinkedIn.  

• An example: A truck driver today is confronted with all kinds of ICT: for example, GPS, tachograph, the ERP system indicating when and where they have to load and unload the next packages, the onboard computer of the truck, etc. A ‘smart products approach’ for this could mean that while driving, the driver is only exposed to the GPS (which automatically receives its itinerary from the ERP package) and relevant traffic information. As well, the systems continuously check whether the driver is still concentrated on the road. When the driver has delivered the freight at its destination, the packages dropped are then scanned so that the ERP system automatically verifies these changes. These changes are then forwarded to the logistics control room, which, based on these data, can attribute new freight in the most efficient way to the drivers based on their current locations and route.

 The ‘smartness’ here can be found in the fact that the system has a connection with the environment where the user is and offer them the functionality relevant at that moment.  

The four ‘Smart Products strategies’  

Sirris has started a programme to help Belgian companies identify and take advantage of the opportunities Smart Products offer.  

The possibilities of smart products are very diverse, so it is not always easy to determine how a product can be made smarter. As well, making a product smarter is not a goal in itself, but must be linked to value creation for the company. That is why Sirris has identified four strategies to make products smarter (see Figure 2). These strategies provide the framework for an approach that allows companies to figure out how to make a smart product and how value creation can be achieved.  

Figure 2: The four strategies to make smarter products.  

• Strategy 1: “Make the product more ambient-conscious”, meaning smart products by making use of knowledge over the environment
• Strategy 2: “Make the product more self-conscious”, meaning smart products by making use of knowledge over itself
• Strategy 3: “Make the product more user-conscious”, meaning smart products by making use of knowledge about its users
• Strategy 4: “Make the product more eco-system conscious”, meaning smart products by making use of knowledge about other products

During the seminar “Earn money with ICT, part 2” a workshop will be held where these strategies will be further elucidated. For each of the strategies, the participants will be given tools to apply these strategies directly ‘hands-on’ to concrete product cases. Participants can also bring their product as a case to apply these strategies to them. However, for organisational reasons we ask that you contact us beforehand about it. 

 Sources

• Top Ten Disruptive Technologies for 2008 to 2012, Emerging Trends and Technologies Roadshow, Gartner, 2008
• Earning Money with ICT, part 2
• How to Apply the Smart Products Paradigm to Your Product?
  

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[1] This trend was also identified by Gartner under the name Ubiquitous Computing. Top Ten Disruptive Technologies for 2008 to 2012, Emerging Trends and Technologies Roadshow, Gartner, 2008

Authors: Vladimir Blagojević, Wim Codenie, Jeroen Deleu, Nick Boucart, Peter Verhasselt, Jessie Dedecker
Contact person: Vladimir Blagojević

This is the second article in the series about the major “game changers” in ICT. The previous article introduced the 3 prototypical ICT company “personas” (The Builder, The Technologist, and The Consultant) and their innovation drivers. This article introduces new disruptive drivers that these companies may need to consider in the future (the “game changers”).

The Game Changers

ICT companies increasingly face two phenomena:

• Standardization within the ICT sector and maturity of ICT technologies often lead to commoditization of products and services
• ICT as a sector is going through a turning point: ICT products and services start to become so technologically advanced that they often surpass the needs of customers. The ICT companies  face an overkill of technological performance or features that are not any more needed by the customers, and therefore competing solely on the basis of technological performance is not enough

Facing any of these phenomena creates a need for more disruptive innovations. For many ICT companies, becoming better at the game they are currently playing is not enough: they may need to change the game completely and reinvent their products and even their businesses. To do that, companies should consider the following two game-changing innovation paths, both of which are known to have reshaped entire industries:

• Product paradigm innovation
• Business model innovation

Product Paradigm Innovation

Product paradigm innovation is about reinventing the product and related user experience to create new customer value. It creates different kinds of opportunities for the three types of companies.

Product paradigm innovation is very relevant for The Builder, as it presents an opportunity for product differentiation. Companies are constantly coming up with new uses of ICT to make their product more intelligent than those of their competitors. The article “Crafting Smart Products” will describe four different strategies to achieve this.  The same opportunity opens also for non-ICT product builders – more and more products are becoming ICT enabled.

The Technologist can use this opportunity to position their technology offering as an enabler for differentiation of their customer’s products (e.g. offering GIS platforms to enable intelligent use of geographical location awareness in products). In addition, as more and more products become ICT enabled, new markets are opening for The Technologist.

The Consultant can build new consultancy services to support the process of product paradigm innovation. More importantly, ICT services are very human resource intensive. A linear relationship exists between revenue and resources (to generate more business they often need to hire new people). A major opportunity for The Consultant is reinventing their offering (through complementary products, using web 2.0 technologies, etc.) in order to scale up their services – create more value for their customers without the need to increase their human resources capital (see Figure 2).

Figure 2: The Consultant is in a perpetual search on ways to scale-up its services

Business model innovation

Business model innovation is about reinvention of the business itself to capture more value for the company (and thereby increase revenue). It can involve redefining the position in the value chain or the surrounding ecosystem, changing the value chain itself, inventing new revenue streams or removing some cost structures. Business model innovation can result in an entirely different type of company.  It creates new opportunities for each of the three types of ICT companies.

Instead of product paradigm innovation, The Builder can decide to explore new business models to capture more value from their product offering (e.g. by offering their product as a service, exploring new revenue streams, or leveraging the product ecosystem – other complementing or competing offerings surrounding their own). Examples include changing from pay-per-license to recurring subscription or pay-per-use models often associated with SAAS (software as a service).

As organizations come closer together in terms of technologies, they are finding it harder to differentiate themselves on the basis of technology alone. The Technologist is often faced with the following dilemma:

• Should I choose a market niche and become a product builder? The major challenge here is acquiring the necessary domain knowledge needed for developing a competitive product offering. In response, companies sometimes form strategic partnerships with non-technological experts of the target domain
• Should I stay a technology provider? Technology companies are sometimes able to become a privileged supplier of a market-leading product leader. In this case, The Technologist has to make sure that their business model is compatible with their customer’s

In other words, business model innovation creates an opportunity for The Technologist to reinvent its position in the value chain. In addition, some technology companies are able to reinvent themselves as service providers. A famous example is Google exploiting its advanced search technology through an advertisement service platform.

The Consultant can play an important role in the process of business model innovation for both The Technologist and The Builder. These kinds of services can allow The Consultant to climb the value chain of its customers (and thereby increase the value proposition of their offering).

The article “How to build game-changing Business Models” will help companies getting started on the path of business model innovation, and illustrate potential of new trends in their industry.

Conclusion

The fast evolving domain of ICT is full of exciting opportunities for businesses and societies. However, companies trying to seize these opportunities are finding it increasingly difficult to maintain a healthy growth. Often, having better technological solutions is simply not enough.

Product paradigm innovation and business model innovation provide companies with new opportunities to compete beyond innovations they are used to perform. Concrete opportunities will be different for different types of ICT companies (see table below).

Table: Overview of the Opportunities the Game Changers Offer to the Different Types of ICT Companies

This text was based on material presented at the ITEA/Artemis Co-Symposium 2009 in Madrid. Sirris can help companies explore what the game changers mean in their context.

Authors: Vladimir Blagojević, Wim Codenie, Jeroen Deleu
Contact person: Vladimir Blagojević

This is the first in the series of articles about the major “game changers” in ICT. It sets the scene by introducing the 3 prototypical ICT company “personas”: The Builder, The Technologist, and The Consultant. Each of them has specific innovation drivers of their R&D activities. The “game changers” and their impact on each of the personas will be described in the next article.

The Builder: ICT-intensive Product Builders

These companies develop and market products using ICT technologies (e.g. software, sensors, communication…), either in B2B or B2C markets. They typically initiate their R&D activities driven by either product innovation (improvement of product performance, innovative features) or process innovation (new methods for product development and production).

The Builder Example: a fast growing company bringing a CAD product in a B2B market. To sustain its growth, The Builder has initially focused on innovation of its development process: adoption of agile development helped streamline the process and achieve repeatable delivery. Once established in the market, it faced fierce competition. The Builder responded by shifting its strategy and R&D focus to product differentiation by improvements of product usability and thus far unprecedented integration with other products commonly used by their customers.

The Technologist: ICT Technology Experts

These companies specialize in delivery of a specific ICT technology. They don’t necessarily develop products, but profile themselves as experts in the technology (e.g. GIS, speech recognition, data mining, sensor technologies…). They often develop a platform that encapsulates the technology and that can be integrated in other ICT products.

R&D of The Technologist is often focused on fundamental research results within its technological domain, and its application to improve the performance of their technology.

The Technologist Example: a university spinoff specialized in promising wireless sensor technologies. It is closely collaborating with its originating university lab performing fundamental research in order to create a cheap sensor for pollution detection with low power consumption.

The Consultant: ICT Service Providers

These companies offer services to other companies to improve their ICT engineering processes or quality of their ICT products, often in a consultancy mode. Examples are suppliers of test solutions, specialists in usability, experts in project management, innovation consultants… Their typical innovation drivers are service differentiation (from competing service providers), service protection (making a service more difficult to copy) and business development (e.g. finding ways to enter new markets).

The Consultant Example: a consultancy company providing project management services for software and IT projects, specialized in Agile development. Faced with commoditization of agile development, The Consultant decided to join an R&D project to develop a new generation of services.

Conclusion

The three company personas frequently form a value chain. The Technologist often sells its platform to the The Builder (to enable their product with its technology, e.g. to enable wireless connectivity). The Consultant most often provides services to The Builder, but sometimes also consults The Technologist. They have very different innovation drivers of their R&D activities (see 2).

Next to these commonplace drivers, new disruptive drivers are emerging that these companies should consider: the “game changers”. These will be described in the next article of this series.

This text was based on material presented at the ITEA/Artemis Co-Symposium 2009 in Madrid. Feel free to contact us if you want to know more about this subject.