The latest PWC CEO study showed a major trend : to stay competitive, most leaders think they have to enter new sectors and many already did.
That can be explained in many ways. The first is the servicization of economy. Customers don’t buy products but services including products, what implies to complete the product with services that don’t necessarily belong to the same sector.
Digital changes the way customers perceive the value of a product
The second is that digital changed the value perception of a product by the customer. The customer wants a global, ongoing and seamless experience. From this perspective it’s about bringing the service economy we already knew to the power of digital. An ongoing experience means integrating in a single journey activities that used to be isolated and even delivered by different companies or brands. The customer focus is on the experience, not the product anymore, what forces businesses to build new partnerships or expand their value chain to complementary sectors to follow the customer all along his experience and align the value chain with the experience. What leads to more horizontal businesses.
At least they acquire IT competences in fields they used to outsource because a part of the IT job is not to support business operations but becomes the core business. So it becomes a strategic and differentiating asset. Look at all the companies that have insourced the development of their mobile applications or of their big data platforms. It’s easy to understand it through the example of digital pure players : becoming a platform where services and experiences articulate is a true competitive advantage. Legacy businesses must become platforms too.
But launching new products and services in sectors that are not one’s “original” ones does not always end with success. One can be the leader in a field hand receive a doubtful welcoming when trying to enter another one. Credibility is tied to the brand as long as the brand stays in a known and mastered field. If not, everything has to be rebuilt from scratch.
Customers who buy experiences do it whatever the product
Of course there are exceptions. Virgin. Apple. Amazon. Let’s consider Apple. Making a computer company a leader in online music and, then, a leader in the phone industry is not obvious at all. Most of the companies Apple started to compete with used to look at them disdainfully at the beginning. And we all know how it ended. Today, even if many questions remain unanswered about the Apple Watch, we can expect the miracle to happen one more time on a new market. Why ?
It doesn’t matter if Apple has no track record in terms of watches. Apple is not a product company but an experience company. Whatever the product we know what we will get in terms of experience. An experience we know and that will complete experiences we already have through other products. Credibility stays with the product but follows the experience.
If you are a product company, entering a new sector forces you to rebuild your credibility from scratch before capturing a market. If you are an experience company you benefit from a presumption of credibility whatever the sector because your clients don’t buy a product but an experience, whatever the product.
It’s easier for “experience companies” to enter new sectors
Some people had fun imagining what would an Apple Hotel or Apple Airlines look like. It was only a funny creative exercise but it would sound credible and not that surprising. Who would think about Air Dell or Lenovo Hotel ?
In the same way, Uber could position itself in the transportation of anything or on the intermediation between any service provider and the customer because, beyond the product, a presumption of experience exists.
Will experience be the founding block of tomorrow’s business models ?