Though an interesting model, I’d argue that Moore did not really account for a potentially bigger chasm that companies must navigate: the transition from a product to a service model. Why? Let’s first look at the big picture. Using GDP (gross domestic product) numbers, almost 65% of the world economy is now driven by services. In western economies, the percentage is even higher, e.g. 79% for the US. In fact, for every significant “first world” economy the percentage is greater than 70%. One could argue that the acronym itself needs to be changed, since so much of the “P” is no longer “P”.
Referencing macro-statistics might not seem relevant. What’s the implication? The implications are significant. When your business is built around a services model, than your success is not just a matter of what you sell, it’s a matter of how you deliver it. And “delivery” changes; back in the “good old days” of products, you could ship and install, download, FTP or somehow transfer your product to your customer, warrant its performance for a certain period, and then support it afterward. Most of your revenues – as were your costs – were at the front end of the process.
In a services model, the ongoing connection with the customer must be sustained. The revenues are not front-ended, so your business has a far greater dependency on continuing execution. The term that is now often used is “customer engagement”; there are more than 26,000 instances of the term in LinkedIn which means that a lot of people are focused on it. It can sound a bit trendy, but it does capture what businesses must do, and where they should be making investments. If you’re transitioning to a services model, you need to invest in service delivery. To paraphrase the famous line from “All the President’s Men”, you need to “follow the money.” And subscription revenue is not some kind of annuity that is guaranteed. You have to continue to earn it, as a famous TV commercial once said.
And that’s why there’s a new chasm confronting many enterprises. How do they structure their business – and their customer relationships – to engage with customers in a sustained manner that warrants the customer continuing to pay for the service. And that is not just a matter of the delivery of the product in a new service format. It also encompasses all the complementary elements that contribute to the engagement. It’s how you interact with customers, how you identify all the different parties within your customer and engage with them individually, but also understand them collectively in terms of their one business interacting with yours. It is managing your relationships with your customers in a way that merits continuing an ongoing engagement. Every interaction becomes an opportunity to take a business interaction and personalize it in ways that build the sought-after relationship. It’s about knowing the customer – in the particular moment and over time – in terms of who they are and what their preferences are.
It is a big change. And businesses need to figure it out.
Because success is not about the product, it’s about the customer.