Experience as a product
We are in the midst of the digital transformation, and that means we don't fully understand yet what's happening. Oftentimes, when we talk about what happens, things can get confusing. Take for example the whole mess of XYZ-as-a-Service. The term Software as a Service, probably coined in 2001, now has given birth to a long list of service models. Basically, it means that software is no longer sold as a packaged good, but as a subscription service, typically delivered over the internet.
So far, so good.
But now we see things like Product as a Service, or even better: Service as a Product. What the heck does this mean? In marketing terms, a service is a product, like a physical good is a product, be it packaged or not. It is true though that we have seen a seminal shift from an economy based on commodities and then goods to a service economy, where the service is the dominant model of value creation. Hence the service-dominant logic developed by Stephen Vargo and Robert Lusch.
So when a product is predominantly a service and vice versa, what's the point of Product as a Service, or Service as a Product? The Wikipedia entry on the latter, while having some issues at the time of this writing, at least gives a couple of examples, like Airbnb, Elance, TaskRabbit, or Uber, for where a service provided by third parties is packaged and sold as a product via the internet.
Meanwhile, Product as a Service is a different animal, as defined here:
Product-as-a-Service fuses physical products, accompanying services and monitoring software to enable new offerings where the buyer may no longer own a physical thing—the product is delivered as a service or virtualized experience. Instead of a one-time-transaction the customer subscribes to the product and pays a recurring fee.
Now that is where things get interesting, for a variety of reasons. In principle, there's nothing really new here. People have rented their apartments forever, instead of owning them. This model has some advantages, as well as disadvantages, that can be discussed forever as well. With the advent of car leasing, a similar model was applied to another product category. It is not by accident that these two categories are the most expensive things the average consumer tends to buy, or rent, or lease, in their life.
It is only a small step from leasing to a subscription model. We already subscribe to newspapers, magazines, (cable) TV, Netflix, telephone and internet service, e-mail newsletters, software, games, or Amazon Prime, but also to public transport, rubbish collection, water, electricity, or gas for heating. Subscriptions make things predictable for all parties involved, and we can simply cancel (or not renew) our subscriptions in case we no longer need them.
One step further, and we arrive at subscription to hardware. Apple already has an iPhone subscription model dubbed iPhone Upgrade Program, basically an annual hardware upgrade for a monthly fee. You can already subscribe to cars, if you live in certain places. Or to furniture. This way, physical goods are turned into service products.
But there is more.
The next step, and it's already happening, is the shift from a service economy to an experience economy. B. Joseph Pine II and James H. Gilmore coined the term 20 years ago. Over time, things tend to get commoditised, that is, they become available always and everywhere in good quality and sufficient quantity – and thus interchangeable. This leaves not many options for differentiation. But there is one thing, and that is the experience.
Therefore, the product becomes the experience. Again, nothing really new here, but the insights of Pine and Gilmore took some time to sink in. Brian Solis wrote a book about customer experience that defines brands. Watch his talk from NEXT16. Product managers had the same debate for years. For example, Martin Eriksson wrote in 2016:
We tend to forget that the experience is the product we’re delivering.
And in 2018, even consultants seem to get it. This shift to experience has huge consequences for both product management and marketing. We'll need an experience-dominant logic to grasp it. Danish academic Jon Sundbo has done some research on this, but the experience economy in general isn't really well understood. Especially when it comes to digital products, services or, well, experiences. Sundbo writes:
In service management and marketing theory (the service logic), the service product that the customer buys is a solution of a problem. In the experience consumption there is no problem to solve. The reception of the delivered performance activity is the goal.
Think about your favourite apps, or the apps you use the most. Do you use them to solve a problem? Maybe. But what about the experience? How important is it? Sundbo again:
Experience can be seen as based on originality and safe[ty] as a kind of yin-yang that both must be present, but in different mixes. The more the original and element of surprise is present, the more the experience produces flow [...]. The more the well-known and safe element is present, the more relaxing is the experience.
Digital experiences, through their interactive nature, can be both, though not at the same time. Sundbo also has some advice on how to do it:
The production and delivery of original, new elements of experience can not be done by ‘artistic momental intuition’, it demands a long-term business plan and strategy if it is to be more than small, semi-amateur business activities. The elements relating to experience must be planned and the customer segment defined, there must be systematic innovation that not only emphasizes artistic creativity, but also the market possibilities and marketing.
Innovation of experience elements thus is characterised by two developments that seems to be contradictory: A strengthening of the creative laboratory push and a strengthening of the market- and customer-oriented pull. The contradiction seems to be solved by the strategic pull orientation becoming the superior, but the strategic framework is filled by artistic, technological and other creativity.
That is, in a nutshell, how digital experience products are done.