GILASTATE

Digital music offers an interesting example to evaluate the differences between product and service-centric perspectives on marketing.

What would a traditional product-centric marketing perspective say about a digital music file? Classically, it would say a music file is something the producer has infused value into through the encoding of music into the unique bits that are the file. The bits that make up the digital music file are the value and a customer receives that value from these bits once they possess and use them. Widgets are a great example of this viewpoint in action. While fictional, when you discuss a hypothetical product you can refer to it as a widget and then discuss all the processes to get the widget to the customers. Once the customers received the widget, they also received the value that was “infused” into the widget during the production process.

A service-centric perspective would view the digital music file as merely a conduit to connect the consumer with the producer of the music (think about a band). The band doesn’t just produce music files which contain value, but rather the music files provide a linkage where the consumer and band co-create value. The music file doesn’t actually have any value other than in its ability to optimize this connection between the band and the consumer of the band’s music.

An example may help with this somewhat abstract notion of value creation. My interest in a particular band is a complex set of interrelationships between the music the band creates and my musical preferences. I am not typically going to buy a song sight unheard. I need to have some idea that the band’s music is something I would like. I might think I would like their music because I heard it on the radio, liked their previous music, or heard a sample at the online music store. Basically, my opinion on a particular band is based on interactions with the band. These interactions can be asynchronous as is the case in listening to recorded music or synchronous when I attend a live performance. The purchasing and use of a particular music file is not a discrete event, but rather a single point in an extended set of interactions between me and the band that determine the value I receive from the entire co-creation process.

So, the digital file itself is only a conduit between the band’s performance and and my appreciation of that performance. While this distinction may seem overly complex, it actually has very real implications for how to market digital music products. I’ll discuss these differences in my next post.

The technology industry has been talking about convergence since at least the 1984 break-up of AT&T. The idea of convergence is really more of a technically based term that has come to mean literally bringing together technologies that were once separate. AT&T has a whole microsite dedicated to discussing how they will integrate voice, video, conferencing, and messaging all over a single network (IP). Convergence is juxtaposed against the past where these service required their own special delivery technologies. Clearly, having once network/technology where you previously had several is probably better to some extent- think operations, training, and equipment costs.

For the most part, the communication technology wars are over. In the past we used to question the Internet’s ability to be a network for real time communication and rich media, but that time is long past. IP effectively won the last war. Sure, there are lots of yet to be determined standards and protocols, but it would be hard to argue that IP is anything but dominant.

So, if everything (communication-wise, anyway) is converging around IP, then what is next? My opinion is a that to truly progress, we have to move beyond considering technology convergence to considering how customer value is created through services. This next step requires a different perspective on what is the nature of customer value. This step views technologies as nothing more than containers for value. The true value comes from the needs that the technologies address through intelligent service design.

Sure, we have historically considered the source of customer value as being the technology itself. The problem with this approach is that it places limitations on what technology can accomplish. If we start with the customer needs first and then assemble the technologies to best meet these needs, we may find that many technologies and combinations of technologies can break out of what they have traditional been good at.  The only way for this to happen is to focus on the customer and not the technology.

Osaifu-Keitai is a service from NTT’s DoCoMo which is yet another example of how the U.S. carriers are missing the boat in terms of mobile convergence. With the small form factor of a standard mobile phone, Japanese carriers like DoCoMo are providing needs based convergence in ways that only exist in VC’s dreams here in the States. While there is some noise about m-commerce here, it is a long way off- especially if it relies on the marketing prowess of the U.S. wireless carriers.

While I can’t read all of the DoCoMo site, it seems that they are providing a much more open platform for content and applications than firms like Verizon. On the commerce side, they seem to allow many firms to use the Osaifu-Keitai prepaid platform. DCMX is apparently the credit version of the same platform. While one could debate that the platform is only open in respect to DoCoMo’s service, it is still more open than Verizon and therefore seems to indicate some openness is better than none. What if Google is really able to offer a popular and truly open application platform as the rumors seem to suggest they may? Might openness take the day?

Interestingly, in terms of technology convergence, Osaifu-Keitai is a combination of RFID and Internet based mobile phone services. The term for these devices is wallet phones which is appropriate given it offers needs based convergence by incorporating the need to be able to pay for things on the go (traditionally met by the wallet).

It is definitely going to be interesting to see how this market evolves in the U.S.

I was interested to see that T-Mobile seems to be talking quite a bit about their new femtocell technology/service. My interest stems from when I worked for a wireless provider in the UK in 1998. While I was there, we deployed both home versions of fixed-mobile convergence with home base stations and business versions with in-building picosites. In both cases, the idea was to use a different backhaul method for calls in the home or business. In theory, this was better (less expensive) for us in that it freed up the wireless backhaul network and/or allowed us to win more minutes from our competitors in situations where fixed service was an option.

While I find T-Mobile’s technology interesting, it is somewhat surprising that the transition from a technology to a truly customer focused service seems as awkward as it was in 1998. Then, as now, the only real non-technology benefit to the customer was a lower price. With T-Mobile, all your calls within their home gateway are free. This is more less exactly what we did in 1998- although the calls weren’t free, just discounted from the fixed provider’s price per minute.

So, while network operators talk about convergence, software vendors talk about mashups, and hardware manufacturers speak of applications, when will we actually start to see all of these come together in something that starts with the needs of the customer?

Certainly, there are some real structural issues that might inhibit this- for example, software companies don’t own networks. But, even with these issues, it seems that someone would look to customer needs first. With an understanding of these needs, an integrated view of how customers might interact to co-create value in entirely new areas might emerge. Such a view would cut across the traditional boundaries of technologies and services to offer solutions that change how people go about their personal or work lives.

In some respects, I think the iPhone is an example of true needs-based convergence. When you start to think of what is possible, however, I hope this it is just one example of many good things to come.

I attended a conference this past weekend in Orlando that presented a cross-functional perspective of service. Interestingly, there is still some disagreement about just what service is. Some view it as the intangible version of a product. Some equate it with customer service that is typically delivered by front line employees. Others view it as the nature of the economy as it shifts away (at least in some parts of the world) from manufacturing. Still another group view services as a very specific implementation of software. And finally, some academics view it as the new service dominant logic with which we market both products and services. So apparently, services are everything and nothing.

Still, regardless of definitions, I found the conference to be interesting. I particularly found IBM’s ideas of service science management and engineering intriguing. IBM is seeking to create an entirely new field for academics and researchers interested in services. They believe a new scientific discipline is necessary to effectively drive the new service economy. They compare this new discipline to the formation of the field of computer science.

Clearly, new businesses have to be adept in both the technology and business of services. Unlike in the past, however, the functional distinctions between engineering, marketing, and other traditional roles are not clear cut. It seems the new businesses that will drive economic growth in the future will require employees who do not fall into such simple classifications. So, while interesting, I wonder if traditional academia is up for the challenge of breaking down the long existing functional silos that have so far made such an endeavor unlikely to succeed.