by Nathan Shinn

Surviving and thriving in a zombie business apocalypse

Nov 03, 2017
IT LeadershipIT Strategy

How technology and entrepreneurialism combined to shift the balance of power to buyers of goods/services from sellers, and what it means for the future of consumption.

Computerworld - Scary Tech [Slide-04] - Zombie botnets. Zombies. Yikes.
Credit: IDG / Thinkstock

In the 2008 film, Zombie Apocalypse, college roommates Mark and Tom are forced to defend themselves against a town full of zombies. Fortunately, our heroes are prepared. According to Rotten Tomatoes, “Mark is handy with an axe, and medical student Tom has played enough video games to keep his cool in the chaos.”

It’s not a stretch to say the business world is in the midst of its own zombie apocalypse but are companies prepared? Customer expectations around engagement, pricing and service have changed significantly over the past decade, challenging sellers of goods and services to think more creatively about how to satisfy buyers, and creating opportunities for entrepreneurs and new companies to displace established vendors.

At the core of this changing relationship is technology. Multi-tenant Software-as-a-Service solutions built on public cloud infrastructure have provided a foundation for companies to offer their goods and services in new and unique ways. The emphasis is on creative packaging and pricing options.

Amazon Web Services (AWS) is a perfect example of this trend. In the past month, Amazon began offering customers the ability to buy AWS by the second. The ability to consume AWS infrastructure by the second offers potentially massive cost savings to customers, who previously could only buy AWS on a per minute basis.

Imagine if you were a company paying $1 per minute for AWS but using only 30 seconds of that time. You were effectively paying twice what you should have been. Multiply that by hundreds or thousands of hours annually, and the cost savings of per second buying are massive.

So, why has Amazon shifted its model? And why are companies in other industries, ranging from ports to media to transportation, doing the same? And what does it all mean for consumers?

Why it’s happening

Advances in technology have absolutely introduced more avenues for competition. Before AWS, companies bought and installed IT infrastructure on their own premises. They paid upfront for all the equipment they would need to manage the infrastructure, and their own employees were responsible for managing it. There were very few providers and minimal competition, creating an advantage for vendors over consumers.

But advances in technology – specifically, the cloud – made it possible for Amazon to disrupt the IT infrastructure market and displace legacy providers. The same thing is happening in transportation, with Uber and Lyft; in hospitality, with Airbnb; in media, with Amazon (again), Netflix and Facebook; and telco, with companies like PGi.

Cloud technology has enabled entrepreneurs and smaller companies with great ideas to upend bigger companies that have been around for decades. The taxi industry has had a stranglehold on the local “on demand” transportation economy in the US since Harry Nathaniel Allen of The New York Taxicab Company imported 600 gas-powered New York City taxicabs from France in 1907. That worked fine… until 2009, when Uber was founded. Less than 10 years later, Uber is in 400+ cities around the world, with a solution built on little more than a mobile app, mapping tech and intelligent routing.

Airbnb has done the same thing. The hotel/motel industry have dominated leisure and business travel for centuries. But now, thanks to the internet, consumers can procure accommodations whenever and wherever they like, at prices that meet their needs as opposed to being forced into a particular price structure by the hotel/motel owner.

The media industry has experienced the most profound disruption, in terms of the consequences for companies and consumers, from technology. When Netflix began offering the ability for consumers to rent movies, Blockbuster’s days were numbered. When Netflix began allowing consumers to stream movies, the pressure on distributors (movie theaters) increased dramatically. When Netflix began producing its own content, it was essentially game over for Hollywood studios.

The same thing happened in the music industry with Apple (iTunes), Pandora and Spotify, and newspapers, with Facebook and Twitter. The internet came along and democratized the process by which music, movie, TV and newspaper companies package and sell goods and services, changing these industries forever.

The incredibly low barrier to entry means that technology enabled disruption is coming to every industry. Everywhere in the world. It’s just a matter of time.

What it means

A primary impact of this disruption has been a raising and changing of consumer expectations. Because companies have new ways of offering goods and services, consumers are pushing for more flexibility in terms of what they’re buying, how much they’re paying, when they’re paying, and for how long.

The telecommunications industry is a great example. Twenty years ago, before mobile phones were ubiquitous and everyone had a data plan, telcos packages were fairly standard. Consumers (be it individual or business) paid monthly for a set of services offered by the company. The services, pricing and payment schedules were all defined by the telco, and there was so little competition in the market that consumers had little choice but to sign up.

That’s a long way from where we are today. In 2017, the telco market is made up of hundreds of companies rather than a small handful, offering a wide variety of services ranging from global conferencing to video calls to mobile internet and messaging. Consumers are now firmly in the driver’s seat when it comes to what they buy and how much they spend. We, as consumers, can now insist on paying upfront for certain services or monthly; we can buy a fixed package of services or design our own; we can pay a set price or pricing based on when and how we’re using services; and so on.

Ports and logistics are other industries in which the consumer is now calling the shots, thanks to technology evolution and competition. In the old days, freight companies had little choice and minimal leverage when it came to where they docked and how much they paid to unload, store and transport shipped product. But advances in logistics, in areas such as optimization and integration, have allowed shipping companies to demand more from their relationships with the ports with which they do business.

One port I know of has conceived a highly sophisticated method of packaging and selling its services to customers. For example, multiple shipping carriers now can jointly negotiate a single contract for a preferred set of services along a specific set of routes. And, on the back end, the port now has the ability to invoice companies within companies with subdivided bills to ensure every organization is receiving an invoice that is specific to the services they procured.

Likewise, PGi, a telecom company based in Atlanta, offers metered pricing for its various products, giving consumers the power to dictate what they buy and how much they spend. According to PGi, it had been taking them up to a year to rollout new products, but since switching to a more modern and flexible billing platform, the company can rollout new products and services in just a few days. That’s a significant competitive advantage to PGi, and represents the shift in power from the seller to the buyer.

Another company I know, from the education market, said it had been taking its entire IT team a month to change pricing on thousands of books offered via its website. In the meantime, Amazon could change the price of its books in seconds. Faced with potential extinction, the education company implemented a new pricing engine that allowed it to change book prices on the fly, another example of customers controlling their fate.

Where it’s headed

Technology has made the world a lot smaller. The global marketplace is now every company’s competitor. That’s great news for consumers, but potentially scary for companies. If a company is finding out about a competitor’s new packaging or pricing strategy from the consumer, it’s too late.

Going forward, consumers will want even more control over how they engage, how much they spend and the services they’re expecting. For example, a consumer may want to pay as he or she goes, or negotiate a different payment schedule entirely. He or she may be okay with an annual contract, or insist on quarterly payments. The consumer may be alright with paying upfront, but want a refund for stuff they don’t use. Or they may want a credit, and the ability to reevaluate their arrangement regularly.

Consumers have more control because companies have more competitors, and that’s not going to subside – on the contrary, it’s going to grow. Consumer expectations are a product of the burgeoning competitive landscape, which is being driven by technology.

Technology is fueling the New Economy, and companies, driven by an insatiable desire for revenue, profit and sometimes survival, must adapt. Companies have to push the creative envelope. They must be creative in how they sell and price goods and services.

The key to surviving – and thriving – in the zombie business apocalypse is agility.