Nobody Cares About Your Product

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This week was about travel and keynote presentations. Although the traveling can be a bit of a drag, I love meeting people and hear them sell their stories after they have listened to my talk. The interesting thing is to hear that many people talk about the product that they are contributing to and how much their efforts are focused on supporting the system engineering efforts. Although I have written about this in an earlier post, I feel it warrants revisiting: nobody cares about your (physical) product.

During one of the flights I listed to a podcast with Stephen Jurvetson (a very successful VC) and his prediction is that in the near future everything physical will cost 1$ per pound. Everything! Cars, mobile phones, medication, refrigerators, etc. Everything you touch throughout the day will cost 1$ per pound. The progress on additive manufacturing, low cost of transport and other technologies is such that you will basically pay a nominal fee for the weight of the product.

The only thing that you can do to get customers to pay is to create intellectual property that adds value beyond the atoms. This obviously includes product design and luxury products. Anyone who has bought brand products at a premium has paid for design and brand. Even though there often is an implicit promise of better quality and trustworthiness, the main reason we pay for it is social signaling. Younger generations are adopting an approach where luxury and frugality are mixed in interesting new ways and the transition from products to services removes, or at least fundamentally changes, the role of design. When ordering an Uber, do you really care about the brand of the car?

The second source of intellectual property is software. As differentiation through atoms is becoming harder and harder, it increasingly is the software that constitutes the real value for customers. In earlier posts, I have written about the shift in value from atoms to bits, but I still run into way too many people, especially here in Europe, who are constrained by the systems engineering types and the broadly held belief that the software is in service of the physical system, instead of the other way around.

The third and maybe newest form of intellectual property is data. This is still early days and monetizing data is still an emerging market. However, it is clear that both high quality data sets that can be used for training and validation as well as live data streams that can be used for real-time value creation are incredibly valuable assuming we can find the right business cases. Especially with the emergence of machine learning and deep learning, this trend is only accelerating.

One of the implications is that the business ecosystems in which we operate are changing rapidly. Recently, I talked to a company that had just lost a bid with a customer to a new, though by now established, entrant in its industry. The analysis of the company showed that the new competitor had sold its product below cost, so at a loss. However, the competitor was doing fine financially. The conclusion was that the competitor had found a way to monetize data coming from the product and had agreed with the customer to sell below cost in return for the ownership rights of the data.

Concluding, nobody cares about your (physical) product. Because of breakthroughs in manufacturing, low cost transportation and the ability to reach very high economies of scale, atoms will cost a dollar per pound. We will only pay for intellectual property, be it design, software or data. That, in turn, changes the business ecosystems from simple, one-dimensional ones (you and your customer) to complex, multi-dimensional ones where data from one customer category can be monetized by selling it to another customer category. How will your company survive in a world where everything physical is, basically, for free?

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