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What’s this all about?

In the old days, R&D was about features, marketing was about promoting products to prospective decision makers, sales were about getting big deals, and service was about implementing and fixing things. Today, it’s all about growing end-user consumption and selling microtransactions to consumers.

The risk is on us, and our reward only happens if our end-users are successful.

Success doesn’t magically happen… Product marketing must design for it, development must build for it, services must contribute heavily to consumption research, marketing must translate the findings into offers, offer management technology must deliver it, services must access it during every service transaction…

In short, consumption is everything. If end-users underutilize our software, chances are that at some point the company we code for, won’t be able to pay for our services. We are all responsible for crafting successful software. From developers to sellers, everyone is liable to provide feedback, insights and value to the end-users. This is a team effort and can be supported through practices like DevOps, Business Intelligence and Artificial Intelligence. This requires communication and collaboration. It’s time to forget about silos and to move from a one-time sale to a pay-per-use model.

Changing Our Approach

Have you ever heard of the Consumption Gap? It’s based on the idea that technology companies can add features and complexity to their products at a faster rate than what end-users can consume. This ultimately makes for very complex and underutilized products. When faced with the dilemma, users will go with the simpler product.

No usage, no money.

What’s happening today, is that if a given component is standards-compliant and delivers the promised service level, it doesn’t matter which vendor it comes from. That means that end-users tend to have no remorse leaving us behind while they try an alternative.

When we add complexity, features-by-the-dozen and nice-to-haves, it dilutes the actual value perceived by the end-user. It also does something else, it brings us closer to something called the Margin Wall. This is the turning point, where it costs us money to sell our products. Think of it as paying your end-users to use your software. This scenario typically occurs when our cost structure is too high. Think about this for a moment, we (the company) must pay for support staff, R&D, sellers, developers, testers, analysts, managers, marketing and operations. This money comes from paying customers. When we can’t find new customers, and when the cost of a sale exceeds the profits of the sale, we’ve hit the Margin Wall.

In the past, the way to jump over this wall, has been to come up with a new innovative product. This was our lifeboat… We piled-on an outrageous amount of new hard-to-find features to justify a premium price point.

Think about the product you’re working on right now, and ask yourself whether you know which parts generate the greatest amount of actual usage? These are the parts where we should focus a disproportionate amount of our precious (limited) time and resources. This is also where end-users perceive value. And what they pay us for.

Consumption Development has three major elements: Intelligent Listening, Consumption Innovation, and In-Product Upsell.

We must leverage real-time user data to change how we develop our products. The goal is to simplify the product’s use and to guide the end users to higher value functionality. Ultimately, we want to increase customer value and the product’s adoption. To achieve this, we need to make sense of what successful end users are doing with our product. We must discover where some users are getting stuck and why they are taking longer than others to complete tasks. Even simple things, like understanding the context around where and when they access the help options, are important. This process is often called Intelligent Listening and it should take its place as our north star.

Education should be a ubiquitous flow, not a five-day classroom ordeal.

Data fuels the transition from a one-time payment model to a consumption-based (microtransaction) model where In-Product Upsells are baked-in. By leveraging recommendation engines and offer management techniques, we can tastefully inject offers into the end-user’s experience. These capabilities allow us to nurture a Trusted Advisor relationship with our end-users through altruistic suggestions and offers. By perfectly executing our strategy, we eliminate the need for classroom or remote training.

Microtransaction is a business model where users can purchase goods and services via micropayments. Microtransactions are often used in apps, free-to-play games and cloud Services. A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online.

Consumption Innovation takes this to the next step. It involves layering capabilities to simplify and guide the end-user along predetermined paths to the more advanced features, new content, and new value propositions. This is where we need to collaborate with marketing and the business to identify individuals or groups that can be targeted as evangelists for our software. To do this, we must borrow from the gaming industry, and reveal more sophisticated interfaces over time based on “earned” or “needed” user behaviour. Think of it as levels in a game, as you progress you get cooler toys to play with.

Consumption Driven Development removes much of R&D’s risk, radically improves its efficiency, and boosts its ROI. It allows us to challenge our marketing and development teams to think about natural In-Product Upsell points based on the patterns of use. These Upsell points need to be designed in a simple way so they don’t distract from the overall user experience.

The following is a great story about adapting to a changing market:

The Fortune 1000 aren’t interested in buying copiers anymore, they want a partner. A Partner that will come in and optimize their office workflow and help them take advantage of new data and document services in the cloud. They want to pay for the services (print documents) that they consume. The machines are owned and maintained by the service provider, who comes in and figures out what machines are needed and where they are needed. In this world, each end-user matters, each copy matters, each upgrade from black-and-white to color matters and each electronic record matters.

Let’s say for a moment that our customer is a multi-national and that we want to drive users to consume more. We could reach out to them and say “Hey, Mr. Executive Assistant, did you know you can copy the original document on this device and print a hard copy on devices in 20 other offices around the world? Forget about paying FedEx bills or sending crummy looking faxes. Click here to print elsewhere for 5 additional cents per copy.”

This is one of many new possible revenue streams made possible by the microtransaction business model. What new revenue streams could you build into the product that you are currently working on?

As developers it’s our duty to be aware of Consumption Economics, to design and build our products accordingly and to set ourselves up for success. Take some time and read Consumption Economics: The New Rules of Tech, I’m sure it’ll get your creativity going and change the way you build software.

Consumption Economics: The New Rules of Tech

If you’re a tech company, the most dramatic effect of megatrends like cloud computing, managed services, and the rise of consumer technology won’t be felt in your company’s product line. The true disruption will be to your business model. Future customers won’t want to pay you high prices out of big CapEx budgets anymore. They will expect lower cloud prices paid from OpEx budgets only when and if they successfully consume the business value of your products. How your company reacts to this risk shift could either accelerate the commoditization of your products or lead you to a new stage of profitable growth. For the first time, the tools are on the table to truly eliminate barriers of cost and complexity created by the last generation of tech. Consumption Economics is the owner’s manual for tech company executives who want to drive their company successfully into the next one.

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