The business value of having fun
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This document discusses how business applications have evolved from mainframes to social media. It argues that social media is disrupting how humans interact with technology and software companies must change their mindset. The document outlines how applications have shifted from large mainframe systems to more accessible client/server and web-based models. Recently, social media has further changed interactions and is starting to support business processes. However, most software companies still have a traditional mindset and are not addressing the opportunities of this new environment.
The business value of having fun
- 1. Core >> Perspective Next generation business applications - the business value of having fun Core Perspective is a series of e-books from Core group and Core Venture. The purpose is to introduce new business- and technology trends, as well as to investigate interesting business issues and to present new perspectives on issues related to business- and technology management, specifically in the Technology-, Media- and Telecom-sectors.
- 2. Acknowledgements This e-book is the result of a collaborative effort by domain- and industry experts within the technology- and media industries. The following individuals have provided valuable contributions to this e- book: • Olve Maudal, Software engineer, Cisco • Tina Jørgensen, COO, Bates Interactive • Gro Larsson, Interactive Art Director, Hyper Interactive • Ida Fjeldbraaten, Social media planner, Starcom • Thomas Lund Sigdestad, CTO, Enonic • Morten Eriksen, VP Product management, Enonic Core >> Perspective 2
- 3. Acknowledgements (continued) • Christian Calmeyer, Digital consultant, Aschehoug • Tanya Ferner Heglund, Project manager, Oslo Teknopol • Terje Torma, CTO, Symphonical • Hans Gallis, Founder, Appfast • Snorre Martinsen, Senior creative, Saatchi & Saatchi • Thomas Roka-Aardal, CTO, Conduct • Marius Lian, Managing director, Concego Neither the individual contributors mentioned above, or their companies, are responsible for the content or conclusions in this e-book. This responsibility lies exclusively with the authors. Any remaining mistakes are, of course, also the authors responsiblilty. Core >> Perspective 3
- 4. Table of Contents Acknowledgements 2 Introduction 5 From mainframes to social media 6 Don't solve yesterdays problems 10 The window of opportunity is now! 11 A brand new mindset 12 Four steps to developing sticky applications 16 Recruit the right users 17 Make users stick to your solution 21 Convert users into product evangelists 24 Grow the user experience 27 Conclusion 29 Core >> Perspective 4
- 5. Introduction In this e-book, we argue that social media services and gaming practices are disrupting the way humans interact with technology, and that this disruptive change has a tremendous impact on both the software industry and the business environment at large. ”The future is already here, it’s just unevenly distributed.” Furthermore, we argue that we are still in the beginning of this disruptive process, and that software developers and software companies must William Gibson change their mindset and focus in order to succeed in the new business environment. This e-book is an attempt to outline some of the important issues at hand. We start with a short history lesson. Core >> Perspective 5
- 6. From mainframes to social media In the early days of enterprise computing, a number of large organizations, such as banks, insurance companies and governments, needed computers in order to automate their core business processes. Vendors of mainframe computers, most notably IBM, sold large integrated contracts, including hardware, software and services, directly to corporate IT- and purchasing departments through their own distribution network. The competitive environment was relaxed, and successful mainframe vendors experienced healthy profit margins on their systems and services. Core >> Perspective 6
- 7. >> In the beginning of the 1990s, client/server technologies became more widespread. With more computing power came new applications and benefits, such as process improvements and productivity increases. The cost reduction potential of office automation and process support was substantial. However, enterprise applications were still expensive and most often sold to medium-sized and large organisations. The major players at the time included Oracle, Novell and Microsoft. At first, they set up and leveraged their own distribution networks, but have later moved to external distribution channels, such as international, regional and local system integrators. Core >> Perspective 7
- 8. >> The world wide web reached critical mass at the end of the 1990s. A large number of software companies from all over the world scrambled to capitalize on perceived first-mover advantages in their chosen segment. Google, Yahoo, eBay and Amazon.com came out on top, while thousands of companies went bankrupt. A significant number of losing companies still continue to operate in the low volume-segments of the market. With internet distribution, business applications became easily available for small businesses. The potential for information access and web commerce exploded with the expansion of the internet. New business models included internet advertising, subscription-based software-as-a- service and various transaction-based models. Core >> Perspective 8
- 9. >> In the last couple of years, yet another shift has taken place. Social media services, such as Facebook, LinkedIn and Twitter, have changed the way individuals interact. So far, the major social media companies have for the most part provided services related to self-promotion, networking and digital content. But there is a clearly observable trend towards supporting business processes, notably collaboration, digital marketing and web commerce. Social media services are delivered over the internet for free or based on some kind of freemium or open source-based business model. These business models can not carry much distribution cost, so individual users have to distribute the service themselves, often through built-in mechanisms, such as invitations. Core >> Perspective 9
- 10. Don't solve yesterdays problems The rapid growth of social media is set to revolutionize both the software and media industries. However, most business software companies, with notable exceptions, face the social media revolution with a traditional web mindset. As a result of this: • They approach the wrong customers • They push software through the wrong distribution channels • They believe that tried and tested pricing models still work • They assume that added functionality equals increased customer value • They assume that the purchasing decision is based on a cost/benefit analysis Instead, they should target the new window of opportunity. Core >> Perspective 10
- 11. The window of opportunity is now! Gaming 1. The race for implementing Social networks ”White spot” gaming concepts and Fun technologies into business 2. applications is on Collaboration platforms Business applications Productivity 1. Social networks will move to integrate more business functionality 2. Business applications will take on characteristics from social media and gaming Core >> Perspective 11
- 12. A brand new mindset In the traditional web context, gaming and social networks have been all about fun and personal satisfaction, while business applications have focused on employee-, team- and business productivity. The whole buying system is In the new business environment, social networks are increasingly disrupted by the positioned as application platforms for a diverse set of applications, while introduction and growth of business applications increasingly take on gaming and social media social media characteristics. This shift has profound consequences on product development, business development and marketing since the whole buying system, including the target customer, distribution channel, value proposition and price model, is disrupted. Core >> Perspective 12
- 13. >> It is important to remember that a software product includes both a software application and a product system. The product system provides a context within which the application is used, including documentation, support, pricing plans and packaging. Product Services Price model marketing Product Software Product information application documentation For software companies, the product system is essential. Without a strong product system, the product will fail, regardless of the quality of the software application itself. Core >> Perspective 13
- 14. >> Recently, the product system, business model and digital marketing process have come together. Digital marketing Business model Product system In some cases, the business model is actually implemented in the software. Core >> Perspective 14
- 15. >> The most notable example is Google AdWords where Google provides the platform and users service themselves. Another example is Spotify, in which the in-site advertising (or lack of it) is a cornerstone of the business model. There are also a number of new businesses in which the business model is based directly on a social media service, such as GroupOn, Foursquare and Gowalla. Other businesses have used or deployed social media services to support idea- and product development. Finn.no and FinnOpp is a well-known example of this kind of social media application. Core >> Perspective 15
- 16. Four steps to developing sticky applications Traditional software development focus on functional, non-functional- and sometimes usability requirements. This is insufficient in the new business environment. We suggest the following four-step model for a more profitable approach: 1. Recruit the right users 2. Make users stick to your solution 3. Convert users into product evangelists 4. Grow the user experience In the remainder of this e-book, we will explore each step in more detail. Core >> Perspective 16
- 17. 1. Recruit the right users Today, individuals have access to all kinds of applications on the internet, either for free or for a small fee. You are no longer selling Software companies can no longer rely on users to pay for basic business-critical software functionality. Instead, they must actively recruit and motivate individuals to companies, but to to use their applications. If not, individuals with an abundance of choice individuals. This is the will quickly move on to solutions that serve their needs and requirements Copernican turn in better. software development Individuals are motivated by different factors. Some are motivated by a challenge, whereas others need the application to be cool or fun to use or support their identity in some way. Core >> Perspective 17
- 18. >> The traditional value proposition for technology companies, is to offer prospective customers some kind of financial benefit, such as process improvements or direct savings, in order to get their business. GroupOn is an example of a social media company using this approach in the B2C space. But this is not the only viable approach. Companies such as Hipstamatic, Squrl, Trimensional and Instagram make their services fun to use in order to engage and recruit customers. So far, such companies have predominantly targeted personal users, but there is undoubtedly a significant potential for these kinds of services in a more business-related context. A third approach is to make interaction with company and/or product brands exciting and/or challenging. Core >> Perspective 18
- 19. >> Coca Colas introduction of Urge Intense Red Sting in Norway and the movie Rottenetter, both used alternate reality games as a cornerstone of their customer recruitment process. However, the single most successful motivator for use of social media services is their ability for individuals to connect with others and at the same time strengthen their identity through extensive use of the social network. Well-known examples include Facebook, LinkedIn, Twitter and Gowalla. These social media services rely on distribution through personal invitations, sometimes in the context of a finished product or service, sometimes in the form of an alpha or beta test version. Core >> Perspective 19
- 20. >> Many software companies build barriers around their product, and make it difficult for individuals to become users. Some of the most common barriers include: Your toughest competitors are just a single mouseclick • complex registration process • asking individuals for information that is not needed to provide the away. service • complex log on process with strong password protection • asking individuals who are not yet users for money • complex payment process All barriers should be removed, or at the very least limited, in order to facilitate user acquisition. Core >> Perspective 20
- 21. 2. Make users stick to your solution The traditional approach focuses on making applications useful. In practice, this involves supporting users and streamlining their tasks and Getting users on-board is processes. an important first step, If an application fails in the marketplace, software developers often but the real challenge is to attribute the failure to lack of functionality. In our experience, the make them stay opposite is the truth. The problem is often too much, not too little functionality. Too much functionality tends to reduce usability and build technical debt. Research shows that on average only a small percentage of software applications are actively used. Core >> Perspective 21
- 22. >> A good way to make your products sticky, is to create user lock-in. There are a number of proven ways to achieve this. For instance, you can create lock-in by: There is a difference between locking in and • making the application fun and interesting • creating applications and experiences that users identify with hijacking your users • making users invest time and effort in your application • helping users to utilize and leverage your application • allowing users to tap into social networks • making it easy for current users to recruit new users These mechanisms create learning- and network effects, and are effective tools for building barriers to exit for users of your product. Core >> Perspective 22
- 23. >> User lock-in can be strengthened further through the incorporation of gaming concepts into the application. Social networking sites are already using such concepts with great success. Some of the most effective gaming concepts are: • definition of clear targets and objectives • tracking progress • introducing an element of unpredictability • providing feedback and rewarding performance • tapping into and leveraging social processes The objective is to allow users to have fun and get satisfied in several ways while using business applications. Core >> Perspective 23
- 24. 3. Convert users into product evangelists Distributing products for free through traditional distribution channels, such as a direct sales force, value added resellers or software distributors, is Software products and not profitable for products targeted at the individual. These distribution services sold through a channels are too expensive. Future-oriented software companies must find alternative channels in order to become profitable. freemium price model are not profitable when The most economical distribution channel is the users themselves. Such user distributed through distribution may utilize a diverse set of mechanisms, including invitations, traditional channels user recommendations, referrals, user-driven marketplaces and blogs. Another option is to use commerce sites, such as Google Apps Market. However, this alternative may be subject to strong competition, since nothing prevents your competitors from doing the same thing. Core >> Perspective 24
- 25. >> In any case, it is necessary to create incentives for users to distribute the product. One option is to facilitate sharing of documents, pictures, music, videos or other digital content. Another alternative is to provide collaboration functionality and lock collaborators into the solution. Successful social media companies, such as Facebook, Spotify and Voddler have leveraged social processes in order to achieve rapid distribution. Still, it took Facebook more than four years to recruit the first 100 million members. The second 100 million members took 225 days, and the third 100 million members only 143 days. Recently, Google + have had an astonishing adoption rate, more than 25 mill. users have signed up in just one month! Core >> Perspective 25
- 26. >> In viral successes there is usually an element of coolness or exclusivity. When the first version of Gmail was launched, only a select set of individuals were allowed to access free accounts. The demand for such accounts soared, and at some point individuals were willing to pay $200 on eBay for a free Gmail-account. People seemed to be willing to give their left arm for a free Gmail-account However, not all companies have the brand value or the capability to execute this kind of distribution strategy. For some it may be necessary to complement the viral campaign with other digital- or traditional marketing initiatives in order to strengthen the company or product brand. Core >> Perspective 26
- 27. 4. Grow the user experience It is essential to build a strong user base, but this does not necessarily enable companies to make a profit. They must also find a way to monetize on the user base. In some cases, advertising may be a good alternative. When the users love the However, many successful social media- and software companies, application, it is time to supplement advertising revenues with other revenue streams, such as get paid, not before premium pricing for increased convenience or added product features. In order to convert users into customers, it is important to understand what motivates them to make the transition. Digital- and social media companies collect all kinds of information about user- and customer behaviour. This information, often combined with other data- and analytics, provides excellent decision support for user-to-customer migration. Core >> Perspective 27
- 28. >> The logical next step for software companies is to tap into an exisiting application distribution ecosystem, such as iTunes or Google Apps Market in order to benefit from total process integration - from marketing, to purchase, payment and re-purchase. Fortunately, it is no longer necessary to spend a great deal of resources on making the technology delivery platform robust, scalable, agile, secure and easy to administrate. With the spread of cloud computing, these issues can increasingly be handled by a provider of cloud computing, such as Amazon Web Services, IBM and Verizon. Core >> Perspective 28
- 29. Conclusion Software and media industries are currently experiencing a major shift. The focus of attention is rapidly changing from the company to the individual. Nevertheless, many software companies continue to develop applications with a traditional mindset. They will be leapfrogged. Where some see a threat, others see an opportunity In this e-book, we have presented a framework for software development that fits the new business landscape. We have also pointed out the need to consider the whole product system, rather than the software application in isolation. Furthermore, we have explored the integration between product system, digital marketing, business models and business ecosystems. In order to be successful in the current business environment, software and media companies should act on this knowledge sooner rather than later. Core >> Perspective 29
- 30. Selected links and references Definitions of alternate reality games and gamification: en.wikipedia.org/wiki/Gamification en.wikipedia.org/wiki/Alternate_reality_game Discussions on gamification: www.hideandseek.net/2010/10/06/cant-play-wont-play/ radar.oreilly.com/2011/04/gamification-purpose-marketing.html Case study of Rottenetter-campaign: www.hyperinteraktiv.no/rottenetter/ Case movies of Red Sting-campaign: www.hyperinteraktiv.no/redsting/ Core >> Perspective 30
- 31. About the authors Niklas Björnerstedt – niklas@coregroup.no Expert on agile software development and systems thinking Dan Vigeland – dan@coregroup.no Expert on offshoring and business development of IT- companies Truls Unholt – truls@coregroup.no Expert on innovation and business development of IT- companies Core >> Perspective 31
- 32. About Core group Core group delivers commercialisation- and transformation services to companies in the technology, media and telecom industries based on our cross-industry capabilities. We support our clients from strategy to implementation. Our business model is value-based, and we share both risks and rewards with our clients. Core group is based in Oslo, Norway. Get more information on www.coregroup.no Core >> Perspective 32