2020: The year of digital products

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It’s that time of year when analysts are expected to offer predictions for the coming year or, in this case, the decade. Looking back 10 years, you can find blog posts like Retail 2020, where I suggested that by 2020, retailers would need to shift their business focus toward customer value chains (CVCs). And as we enter 2020, we’re seeing evidence of such a shift in how retailers are now trying to deliver more hyper-personalized experiences.

Then, 2011’s Is Marketing The Biggest Opportunity For IT Since The Internet? highlighted the need to become customer-obsessed before it became fashionable. So what can we expect from the next decade?

I’m sure we can all agree that the past decade has seen a remarkable acceleration in technology evolution. The convergence of advanced tech (see this 2013 post) that ushered in the era of digital business (see this 2012 post) continues to develop at accelerated rates. By 2030, this tech evolution will have reshaped every product we use today.

Digital Transformation Is So Passé

Alas, by the end of 2019, every tech services firm was claiming to offer expertise in digital transformation. That’s why, early in 2019, I sought to bring clarity to some of the market through the 2019 Forrester Wave™ evaluation on global digital business transformation accelerators, analyzing the biggest firms offering “transformation” services. But what is transformation?

Unfortunately, too many technology executives view digital transformation as akin to modernizing the IT stack to move to the cloud, and too many marketing executives view digital transformation as an exercise in channel marketing and customer experience delivery. Sure, these are necessary components, but they are insufficient on their own. “Digital transformation goes much further, fundamentally reshaping the way you create value for your customers and drive revenue growth.”

Over the past 10 years, what I found is that most firms miss the fundamental need to change their operating model to become a software-driven business, using technology to create new ways to deliver customer outcomes. Instead of producing cars, auto manufacturers switch to being a company that uses software and technology to help people get from A to B; instead of offering banking services, banks switch to being companies that use software and technology to help customers achieve their financial goals; instead of making apparel, fashion firms become technology firms aiming to help customers achieve their comfort/fashion/clothing desires.

In contrast to changing the value proposition, many companies spent the back half of the last decade introducing, then tweaking, digital customer experiences that enhance the old business model. These changes typically bring a degree of perceived value from customers but only for a short while. As customer expectations evolve, the perceived value wanes. And before too long, new digital experiences begin to look similar to each other. This is why I believe the next decade will see a more fundamental shift happening across businesses of all shapes and sizes.

Digital Products Vs. Digital Experiences

We know from our ongoing research that as the digital maturity in companies evolves, there is a gradual shift in the way people think. They move from thinking “How can we use digital to sell more product?” to thinking “How can we use technology to reimagine the way we help deliver customer value?

This shift in thinking allows designers, product owners, technology professionals, customer experience professionals, and marketers to all come together around a singular view of what’s important to customers. When this happens, employees begin to rethink what’s possible. When you unleash this thinking inside your organization, you’ll move from designing new digital experiences to designing new digital products.

The big difference between a digital experience and a digital product is that a product is sold. Facebook and Google both have digital products sold to advertisers. Netflix is sold to consumers. Lyft (and Uber) sells access to its service to car owners as a way to monetize an idle asset and to consumers needing to get from A to B. Amazon can sell Prime to consumers because it offers them a perceived value beyond using the free Amazon.com retail service. Digital products deliver inherent value such that customers are willing to exchange a thing of value — e.g., money (or time/privacy) to obtain the product benefit.

Because products compete for customer dollars and time, market forces drive product managers to maintain the perceived value of the product to avoid losing market share. While Apple’s App Store has many successful digital products, it has even more unsuccessful ones.

Digital marketplaces (products in their own right) now advertise new digital products surrounding market ecosystems (see this post on B2B marketplaces and this on tech selling). And because the market forces surrounding digital products evolve at a very fast pace, digital product evolution must be continuous.

In 2020, Break Away From A Legacy Product Mindset

The shift to continual digital product evolution is one of the hardest transformations for non-software companies to undertake. The legacy way of doing things always creates such inertia that it makes change hard. But in hitherto successful companies, change becomes nigh on impossible. Nowhere in the past decade did we see this play out more clearly in the last decade than at GE, previously a stalwart of the Dow. While Jeff Immelt understood the need to become a digital business, the organizational inertia presented too great a hurdle for the company to make all the changes it needed.

We see this mentality pervading even in companies we expect to be advanced. The new electric Porsche Taycan, hailed by performance car enthusiasts as a Tesla killer, was launched at the end of the decade without designing over-the-air software updates as a key product feature (though Porsche claims the Taycan will be able to receive updates over the air). Has anyone at Porsche been paying attention, you might wonder?

Tesla’s over-the-air software updates give it the ability to design a vehicle around software in ways that no other company can match. Porsche has built a wonderful driver’s car — which is what it set out to do. What it apparently didn’t set out to do was design a car around software. Tesla thinks digital first. As a performance car enthusiast, I’d drive a Taycan over a Tesla any day. But I’m left wondering how long it will take legacy auto industry execs to think in terms of digital products.

Watch For Digital Products In 2020 Research

Because execs in many firms are already evolving in their digital maturity, I expect we’ll see greater awareness of digital product opportunities in 2020 and 2021. But very few tech vendors who claim expertise in digital transformation are truly helping clients design and build new digital products to sell to customers.

This is why I’m writing a series of research reports around digital product development services, starting early in 2020. I’ll also be publishing best-practices research around implementing digital product management inside your business. Alongside this research, I’ll continue to work with clients to implement digital product design thinking through speeches and workshops. These will build on earlier research such as “How To Build A Better (Digital) Mousetrap.”

Looking Forward To 2030

By the end of the next decade, I expect we’ll wonder how we ever managed to design products without starting with the software. By 2030, I predict every successful company will be a software product company or a hybrid software and physical product company.

If your business isn’t already designing new products around software, 2020 is a great time to get the ball rolling. To get ahead of your competitors, invest in digital product development capabilities early in 2020.

(This post originally appeared on the Forrester Research blog, which can be viewed here).

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