AI/IoT/Analytics

An Executive Mandate: Think Open Business

Bill Schmarzo By Bill Schmarzo February 17, 2015

My brother-in-law Steven and his wife Amy are big fans of Keurig.  Keurig is an American manufacturer of coffee brewers for both home and commercial use. It is part of Keurig Green Mountain that is headquartered in Massachusetts. Its main product is the K-Cup, which is a single-serving coffee brewing system.

A very vibrant market has evolved around these K-cups, allowing entrepreneurial, third party organizations to develop new flavors and types of coffee.  And Amy and Steven have quite an exotic collection of these K-cups from a number of different vendors.

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Unfortunately, the recently released Keurig 2.0 machine has been specially engineered not to accept non-Keurig brand K-Cups, cutting off the market for new and innovative product extensions, and pissing off loyal customers in the process.

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And that’s where the problems begin.  I suspect that Keurig thinks that they can increase profitability and margins by forcing customers to only buy these K-cups from Keurig. Unfortunately, they likely have written their own obituary, and that provides an important lesson for organizations that are looking to leverage data and analytics to “metamorphosize” their business models.  Let’s see what I mean by that.

Closed, Product-constrained vs. Open, Market-enabled Business Models

Keurig has made a classic business mistake, one that we’ve seen time and again as companies look to increase their profitability and margins at the expense of the market and their customers.  The “walled garden” business model locks out competition by forcing customers to only buy add-on products from the manufacturer.  And while this business model initially works well as customers don’t have any choice but to buy the add-on products from only the original manufacturer, eventually a competitor with a more “open” product and business model steps into the breach left by the manufacturer and takes the market away from them.

Attacking the market with a closed business model introduces two significant liabilities:

  1. You limit innovation to only the innovation that your company itself can deliver.
  2. You force your customers to only have the choice of only the products that the original manufacturer can develop and deliver.

The result is that other more open companies can out-innovate you, and your customers are quick to move to that new more open environment to reap the benefits of freedom of choice.

The 1980’s Apple versus Microsoft personal computer (PC) battle was probably one of the classic examples of what happens when you decide that your products can only innovate as fast as you.  Apple significantly limited the number of companies that could build new innovative products – and make money – on top of the Apple platform (especially from a hardware perspective).  However, Microsoft enabled software developers, hardware manufacturers and systems integrators to add new capabilities (and make significant money) on the Microsoft platform.  The result was that at one point, Microsoft controlled nearly 97% of the PC market.

With that lesson firmly well in mind, both Apple and Google spawned the smartphone market not only by building compelling products, but equally important is that they created marketplaces for third-party app developers to create new and innovative apps that extend the value of their smartphone platforms.  Both Apple and Google have realized (something that Blackberry failed to comprehend) that as innovative as they are, there is no way that a single company can innovate as fast as the market.  So instead of fighting third-party innovation like Keurig is doing, Apple and Google embraced third party developers through their respective easy-to-use, easy-to-monetize app markets: Apple App Store and Google Play (see Figure 1).

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Figure 1:  Total apps by app store Image: AppFigures

Apple and Google addressed the innovation challenge with an open business model that encourages app developers to develop new, innovative products on top of their platform; the model allows third-party app developers to make money on top of the Apple and Google smartphone platforms.  This adds considerable value to their respective platforms and in the process, Apple and Google are transforming their business models from a product-centric business model to a market-enabling business model; one of the key transformations as an organization seeks to “metamorphosize” their business models.

Vitamix Exercise

Let me create an example using one of my favorite addictions: the Vitamix blender.image1  Yea, I really enjoy my Vitamix blender and have created many concoctions using my Vitamix blender (some of them even edible).

Vitamix, privately owned since 1921, manufactures blenders for consumers and the restaurant and hospitality industries. Vitamix is located in Olmsted Township, Ohio, and assembles products in Northeast Ohio.

Let’s go through a little exercise to see what the Vitamix folks could do to create an even larger and more vibrant marketplace around their blender.

The first thing that Vitamix could do is to convert the blender into a “smart” blender by integrating wifi and/or blue tooth connectivity into the blender.  They could enable the blender to capture and share usage information (e.g., how often the blender is used, what times of day and days of week it is most commonly used, volume of the blended drink) that when coupled with other external data sources like Facebook, Twitter, Pinterest and Yelp that could be leveraged across a number of use cases including predictive maintenance, product development, product extensions, customer profiling and targeting, product cross-sell / up-sell, customer retention analysis, and cohorts analysis (see Figure 2).

Figure 2:  Creating the "Smart" Blender

Figure 2:  Creating the “Smart” Blender

Next, Vitamix could create a smartphone app that integrates with the smart blender to enable the rabid Vitamix aficionados to capture and share their favorite concoctions and usage objectives.  Vitamix could leverage the different social networks to build communities of Vitamix users based upon their usage objectives such as athletes, health nuts, too lazy to cook and other user types (see Figure 3).

 

Figure 3:  Mobile App for "Smart" Blender

Figure 3:  Mobile App for “Smart” Blender

With this smartphone app and its “smart” blender, Vitamix could nurture a complete marketplace around the Vitamix blender including sharing and/or selling new recipes as well as add-on products.  The insights gathered from the blender usage as well as the community surrounding the blender (gathered from the multitude of social media sites) could leverage to create new value-add services such as:

  • Enable search to discover new recipes given your favorite ingredients and/or usage scenario (athlete, weight loss, health recovery).
  • Recommend new recipes based upon “what people like you” liked
  • A rating service to rate and rank new and popular recipes around usage scenarios
  • Gamification to give rewards to the most popular and/or valuable community constituents
  • Potential cohorts or people who share similar uses of their Vitamix blender
  • And ever more, I’m sure!

In fact, it’s really hard to predict what sort of new add-on products and services the passionate Vitamix community might create, which is exactly the reason why organizations should seek to create such a marketplace.

Becoming a Transformational Business

This discussion is all well and good, but what does it have to do with Big Data?  The key point is that organizations that are looking to progress up the Big Data Business Model Maturity Index have the opportunity to leverage new sources of customer, product and operational insights to “metamorphosize” their business models (see Figure 4).

Figure 4:  Big Data Business Model Maturity Index

Figure 4:  Big Data Business Model Maturity Index

There are at least two key aspects of organizations that are looking to advance to the Metamorphosis stage:

  • Transition to a “Business ss a Service” business model.  To see an example of transitioning to a “Business as a Service” business model, check out my blog titled “Business Metamorphosis Exercise”.
  • And as this blog covered, how to leverage your customer, product and operational insights to create a vibrant, innovation-fueled marketplace.

Organizations are starting to realize the business model transformational power of big data – of integrating new sources of customer, product and operational analytic insights to optimize key business processes and uncover new monetization opportunities.

Watch this space…more business transformational lessons are on their way!

By the way, if you happen to be at Strata+Hadoop World in San Jose February 17 – 20, be sure to stop by and catch my session “From Monitoring To Monetization With The Data Lake” from 4:00pm to 4:40pm on Thursday, February 19.  See ya there!!

Bill Schmarzo

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