Increasing product value

So far, in my past posts, I have described the problem : how do we increase the value provided to end users in products?

Now for the solution:

Companies will shift their focus to providing end user value only if end users hold the power of how much and when they pay for the goods they receive. If there is sufficient revenue to be made directly by customers valuing their offerings high enough to make margins. Today, end users will not typically pay for a new product unless they are forced to pay upfront, because they have reached a defensive homeostatis with the industry and the government where they will avoid paying anything except when they are forced to by social, socio-moral or legal decree. Also, anything offered for free is looked upon with skepticism. (This unbelievably cool software download must be a Trojan horse or a virus or something – why else would it be free?)

The only way to break out of this stalemate is for someone to take the first step by providing products of high value to the user, allowing the user to use, value and pay after using it. It is crucial to invest minimally in such an effort and be willing to sustain several months, even years of low or no income. Hence, that restricts the domain to areas where the investment is very low, such as web based software and content, and once that is established, marketplaces for such software and content to be built, exchanged, etc. collaboratively.

The easiest way to ensure maximum value to end customers is to focus on solving problems that we understand as an end user. Any indirection (even if done as an expert user study) dilutes the clarity of the problem, and the solution diverges at least a bit from the user’s expectation (for instance, if we try to solve the problem of enterprise customers working on machine tools, we may not do as good a job, because we will never understand the space as well as we understand our own problems, as users of technology).

So, to summarize, the model is:

1. To create value in areas which have low initial investment. For example:
1. build software that addresses a problem that I personally face with technology
2. create content – writing, music, painting, photography – value of content is of course more subjective than technology, but it still is valuable to someone who enjoys such content.
2. Use/refine the software/content till I see value for others in it
3. Host the software/content for others to use
4. Provide the solution on a use-value-pay model where the user uses the software, and then values the product and finally pays what it is worth. For content, the user uses the content and then pays for it based on honest valuation of what it was worth to him/her.
5. Provide incentives and focus on valuing as separate from paying: i.e, the user can value software as something, but pay less because they cannot afford the amount they value it as.
6. User is under no pressure to pay. The value has to become compelling enough for people to value and pay for it. This is the strongest incentive for companies to be sincere about providing value.
7. If some valuable offerings are served up in this model, and if people start paying sincerely based on this model, then eventually more and more companies can tap into this potential market and model (analogous to the way companies are jumping onto the trend of the day – sharing video and images on the web, collective wisdom based web portals, etc.)

That is what I plan to do next. Work on creating software and/or content that is built and distributed based on the model I have described above. I will post updates on my progress as I reach significant milestones in this exercise - probably a few weeks from now.

Money for nothing - III

Continued from part 1 and part 2

The goal of the (admittedly long) list of examples in the previous parts is to set the stage for the following argument:

1. Buyers have little control over how they pay for goods and services.
2. Sellers are interested in getting buyers to pay at the earliest which facilitates buyers to minimize the total expense incurred on that buyer, from sales, through the product/service delivery and its support. Buyers, as a consequence rarely have the opportunity to try things before valuing them.
3. Due to this long tradition of sellers dictating the value of goods, people have lost the skill to value goods objectively.
4. Due to the buyer's decreasing control on determining the value of goods, they play a lesser role in demanding what they need from a given product or service.
5. As a consequence, sellers have turned to investing more in finding ways to make buyers pay as much as possible as early as possible, so they can in turn spend the least possible amount on the goods.
6. In the end, buyers suffer, since they dont get what they want. Companies suffer, since the customer has less and less faith in the value of the offerings from companies, and it becomes increasingly harder to convince the customer to buy new technology without resorting to negative strategies.

Many people have reacted to this argument that all this is obvious, but that is how it is, and what can we do about it? I agree that we cannot fix this overnight, but there are small steps we can take towards addressing this problem, at least specifically in the software domain, which has some unique advantages.

That is next up.

Money for nothing - II

Continued from part 1 ...

5. Pay me even if you don't use:

Companies are interested in sustained cash flow. They have hence come to prefer getting 5 bucks a month for what they offer rather than a one shot fee of a 100 bucks. This also has the advantage of enticing customers - 10 bucks sounds an affordable amount every month, whereas 100 bucks may be a lot to spend upfront. Hence, the arrival of subscription services and the wave of more and more subscription based services. I sign up for this cool service, say a local gym. I pay 50 bucks a month for my membership. I use the gym regularly for three months. Then, life catches up and I slip up for a couple of months. Now, I am a bit annoyed by having to pay fifty bucks for the two months that I didnt use the gym at all. I consider cancelling my membership. But, as always, there is a catch - a closing cost, or at least there is some cost to reenrolling two months from now, when I want to restart. Same thing with subscription based web services. I would much prefer to make micropayments as I go for services that I use intermittently, but the option is rarely available. Most online video rental services charge a monthly fee, irrespective of whether I use the service. IIn a busy month, when I dont want to watch movies, I have two choices - pay money for nothing, or use the service even when I dont want it. I have seen a new model emerge on an Indian movie dvd rental site that charges a reasonable amount per use, subject to a maximum monthly cap. Much more customer friendly.

6. Get hooked:

The other great model to ensure sustained revenue is the two year agreement from cell phone companies. I cannot see any justification for that, barring the lack of confidence of my phone company to continue providing value. In other words, what the agreement really means is: I dont think I can keep you interested in using my service for the next few years, but I need your money nevertheless, so just sign the money for the next two years over. Of course, you have the choice to pay ten times as much for your phone. You also have the flexibility to cancel the service, pay me the hefty penalty and buy another phone or switch companies, but the only thing I am sure of is that I cannot keep you interested and committed for the next two years. There is definitely something wrong with the service or the phone that will annoy you and you will wish to switch, and I cannot afford losing you.

7. How much?

Remember the time when hawkers used to ask the customer this question? It still happens. In flea markets, probably in some obscure markets somewhere else, but in general, it is history. In most cases today, it is almost always the customer who asks the question how much, and then decides whether to buy the good or not based on the price. The only model that at least halfway resembles this in the mainstream today, and is for that reason widely popular, is on online auction sites. Here the customer is still at the mercy of the market, but at least the buyers determine the value of the product, and not the seller. An important limitation here is that customers are still stuck with the product, or have to take the pains to return the product if it doesnt match their needs.

Next up: the concluding part 3 of this series.