Digital Context

Description

Positioning Digital Products

Digital services can be:

Directly market and consumer-facing (e.g., Facebook^®, LinkedIn^®), to be used by external consumers and paid for by either them or closely associated customers (e.g., Netflix^®, or an online banking system)
Customer “supporting” systems, such as the online system that a bank teller uses when interacting with a customer; customers do not interact directly with such systems, but customer-facing representatives do, and problems with such systems may be readily apparent to the end customer
Completely “back-office” systems (human resources, payroll, marketing, etc.)

Note, however, that (especially in the current digitally transforming market) a service previously thought of as “back-office” (when run internally) becomes “market-facing” when developed as a profit-seeking offering. For example, a human resources system built internally is “back-office”, but a finance system to handle the way people work, and/or a payroll system, is a directly market-facing product, even though the two services may be similar in functionality.

In positioning a digital offering, one must consider the likelihood of its being adopted. Is it part of a broader “movement” of technological innovation? Where is the customer base in terms of its willingness to adopt the innovation? A well-known approach is the idea of “diffusion theory”, first researched by Everett Rogers and proposed in his Diffusion of Innovations [Rogers 2003].

Rogers' research proposed the idea of “Adopter Categorization on the Basis of Innovativeness”, with a well-known graphic; see Technology Adoption Categories (Rogers), similar to Rogers 2003, Figure 7-3.

Figure 1. Technology Adoption Categories (Rogers)

Rogers went on to characterize the various stages:

Innovators: venturesome risk-takers
Early adopters: opinion leaders
Early majority: deliberative, numerous
Late majority: skeptical, also numerous
Laggards: traditional, isolated, conservative

Steve Blank, in The Four Steps to Epiphany [Blank 2013], argues there are four categories for startups:

Startups that are entering an existing market
Startups that are creating an entirely new market
Startups that want to re-segment an existing market as a low-cost entrant
Startups that want to re-segment an existing market as a niche player

Understanding which category you are attempting is critical, because “the four types of startups have very different rates of customer adoption and acceptance”.

Another related and well-known categorization of competitive strategies comes from Treacy & Wiersema 1997:

Customer intimacy
Product leadership
Operational excellence

It is not difficult to categorize well-known brands as shown in Companies and their Competitive Strategies.

Table 1. Companies and their Competitive Strategies
Customer Intimacy	Product Leadership	Operational Excellence
Nordstrom^®	Apple^®	Dell Technologies™
The Home Depot^®	Nike™	Wal-Mart^®

However, deciding which strategy to pursue as a startup may require some experimentation.

In understanding IT value, it is essential to clarify the definitions of user, customer, and sponsor, and understand their perspectives and motivations. Sometimes, the user is the customer. But more often, the user and the customer are different, and the role of system or service sponsor may additionally need to be distinguished.

The following definitions may help:

The consumer (sometimes called the user) is the person actually interacting with the IT or digital service
The customer is a source of revenue for the service
- If the service is part of a profit center, the customer is the person actually purchasing the product (e.g., demand deposit banking)
  
  If the service is part of a cost center (e.g., a human resources system), the customer is best seen as an internal executive, as the actual revenue-producing customers are too far removed.
The sponsor is the person who authorizes and controls the funding used to construct and operate the service

Depending on the service type, these roles can be filled by the same or different people. Defining Consumer, Customer, and Sponsor provides some examples.

Table 2. Defining Consumer, Customer, and Sponsor
Example	Consumer	Customer	Sponsor	Notes
Online Banking	Bank Account Holder		Managing Director, Consumer Banking	Customer-Facing Profit Center with Critical Digital Component
Online Restaurant Reservation Application	Restaurant Customers	Restaurant Owners	Product Owner	Profit-Making Digital Product
Enterprise Human Resources Application	Human Resources Analyst	Vice-President, Human Resources		Cost Center Funded Through Corporate Profits
Online Video Streaming Service	End Video Consumer (e.g., Any Family Member)	Streaming Account Holder (e.g., Parent)	Streaming Video Product Owner	Profit-Making Digital Product
Social Traffic Application	Driver	Advertiser, Data Consumer	Product Owner	Profit-Making Digital Product

So, who paid for the user’s enjoyment? The bank and restaurant both have clear motivation for supporting a better online experience, and people increasingly expect that service organizations provide this. The bank experiences less customer turnover and increased likelihood that customers add additional services. The restaurant sees increased traffic and smoother flow from more efficient reservations. Both see increased competitiveness.

The traffic application is a somewhat different story. While it is an engineering marvel, there is still some question as to how to fund it long term. It requires a large user base to operate, and yet end consumers of the service are unlikely to pay for it. At the time of writing, the service draws on advertising dollars from businesses wishing to advertise to passersby, and also sells its real-time data on traffic patterns to a variety of customers, such as developers considering investments along given routes.

This last example illustrates the maxim, attributed to media theorist and writer Douglas Rushkoff [Solon 2011], that “if you do not know how the product is making money, you are the product”.

Evidence of Notability

The context for the existence and operation of a digital system is fundamental to its existence; the digital system in fact typically operates as part of a larger sociotechnical system. The cybernetics literature (Wiener 1948 and Beer 2002) provides theoretical grounding. The ITSM literature is also concerned with the context for IT services, in terms of the desired outcomes provided to end consumers [ITIL 2011].

Limitations

Understanding a product context is important; however, there is feedback between a product and its context, so no amount of initial analysis will be able to accurately predict the ultimate outcome of fielding a given digital product (internally or externally). A concrete example is the concept of a network effect, in which a product becomes more valuable due to the size of its user base [Griffin 2018].

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