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Following Cambridge Consultants’ recent presentation and attendance at the Innovation Roundtable Summit in Copenhagen, we reflect on innovation in digital services.
Spotify, FitBit, Amazon Echo: market-changing digital services. Old news, in fact. Each has taken a traditional 'product' offering and converted it into a service. Long-standing products: recorded music; heart-rate monitors and pedometers; and personal assistants. Each turned into a service – ‘servitised’, in the jargon – by making its production and consumption simultaneous: music ‘on demand’; fitness tracking only visible through a real-time online account; and a virtual assistant only cognisant with an internet connection to her mothership. At the Summit, Vlerick Business School’s Fredrik Hacklin echoed these trends in describing Hilti’s evolution from selling power tools (resources) to ‘selling holes’ – the service of being able to meet the needs for which power tools are typically used.
Shazam! And service was reborn
These service development leaders have led the upheavals of their industries: they have redefined their categories – and fast-followers are taking note and imitating. Music streaming has increased both listening time  and music discovery . A web search for pedometer now presents many FitBit-equivalents. And Google and Apple have both launched personal assistant devices to challenge the dominance of Amazon’s Echo (‘Home’ and ‘HomePod’ respectively). Highlighting the non-linear and incremental nature of the innovation, Siri, Google Now, Cortana and Bixby are responding to the value of the personal assistant service: each runs on a variety of different device brands; they have decoupled the service from the hardware.
But is it all good news? Perhaps not. Category value in recorded music distribution is only just returning to its 1998 recent peak . FitBit and Amazon Echo have each launched as only one-time purchase propositions – burdened by the ongoing obligation to support a ‘free’ service ad infinitum, without commensurate recurring direct revenues. And each is ridiculed by cynics: even Steve Jobs disliked the notion of streaming/ “renting” music – ‘that means for me to listen to my favorite song in 10 years I paid over a $1,000 in subscription fees’. The lesson from the cynics? Established organisations with brands to protect must be careful how they position service-led offerings.
Closer to your customer … from datacentres hundreds of miles away
But what have they gained? A lot. Digital service business cases are rarely difficult to make:
- deeper and more immediate insight into users’ behaviours and needs – enabled by that ‘expensive’ ongoing service provision;
- commercial optimisation – the ability to price discriminate and flex packages to customers’ willingness to pay (‘Spotify Family’ anyone?);
- increased control of the proposition – the ability to add benefits/ features (‘over-the-air updates’) or trial content (a restaurant considering whether to add its menu to FitBit’s database can subsequently retract it if unfruitful); and
- cross-sale, revenue-share and partnership opportunities with complementary service providers – staying relevant with a well-thought-out API strategy 
… to list but a few. Crucially, digital services have created better propositions for customers: community interaction (Spotify’s collaborative playlists, FitBit’s Challenges), more tailored offerings (AI-powered Spotify Radio), and an intent-aware voice interface (Amazon Alexa), for example.
10,000 steps per day… one step at a time
Are these services revolutionary? Yes in their orchestration of propositions and technologies, and thus in some users’ perceptions. But their technological novelty is derived from innovative ‘system of systems’ thinking, enabled by incremental progress in the technologies on which they depend, not on individual technological breakthroughs. FitBit has shifted approximately 75m units since it was founded in 2007, but pedometers existed long before FitBit launched its Classic in 2009, and wearable heartrate monitor watches such as Garmin’s Forerunner preceded FitBit’s 2015 launch of its Charge HR (Heart-Rate).
‘Alexa: build me a digital service'
The lesson for organisations investigating service-led digital transformation is not to fret about an ‘end-state’ proposition in the way a traditional, feature-led business might. Instead, experiment and iterate. This was the message from both Goodyear (the ineffectiveness of waiting for ‘perfect’ solutions) and Adobe (‘focus on breeding innovators, not on creating innovations’; codified in their Kickbox). Will the next digital service that is judged ‘revolutionary’ be content streaming, a wearable or a personal assistant? No. But it will be a beautiful orchestration of existing propositions and technologies; brought together to meet its users’ needs more effectively than existing propositions. And it will change multiple times, even between initial concept and minimum viable offering.
For most organisations digital services will be a gradual shift towards service-led models – giving users access to the elements of resources that are of value to them, on their terms; not burdening users with the resources themselves. From Vanessa Butani’s presentation at the Summit (Director of Connectivity Strategy and Ecosystems), Electrolux practises this needs-led method for proposition development, asking consistently “What will make it exciting [and valuable] for consumers?” (emphasis/ addition ours). Critical to this thinking: removing ‘product’ from the goal – leaving it an open ‘excitement’. This highlights that perceived value frequently comes from services: dishwasher soap replenishment (for your Electrolux dishwasher); advice on what to cook (in your Electrolux oven); and the ability to remotely monitor your kitchen whilst playing with your children.
The global shift from product-led to service-led business models will be supported by the opportunities for automation and augmentation (of consumers and/or employees), which are enabled by digitisation and digital technologies. Butani’s team clearly recognises the need to create the right innovative environment – they have adopted Agile, set-up open innovation partnerships, and they run internal ‘Show and Tell’ sessions to get immediate feedback and encourage iterative innovation.
Choosing your digital innovation framework
To exploit digital opportunities, organisations do not need to focus on the next big, sexy proposition. Such revolutions will come from perceptions ex. post, once an organisation has developed incrementally and orchestrated the proposition around the user’s needs. To enable this, a different approach to innovation is needed. Innovation leaders at the Summit concurred with this view that process is critical: Evonik’s Chief Innovation Officer Ulrich Kuesthardt described the importance of f***-up nights, Lean Start-Up principles, and the balance between setting rules versus empowering and trusting colleagues. My colleague AJ van Bochoven explored this further in a Roundtable session he facilitated at the event, with some of the key results captured in his recent blog.
Cambridge Consultants’ teams of commercial and technical experts support clients in creating breakthrough digital services by avoiding common pitfalls, shortcutting development iterations from experience, coaching client team members, and co-developing services and digital products iteratively. Talk to us if you think we could create value for you.
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 Application Program Interfaces: the tools by which digital services interact safely with each other to form a synergetic ecosystem