Designing a Digital Value Loop
Turn Product Owners into Digital Users
In the era of digital transformation, firms must create a digital value loop to harness their digital assets and generate new revenue streams. The process begins by identifying users' unmet needs, converting them from mere product owners to engaged digital users. Once the users' needs are identified, firms can design a digital value loop with four crucial parameters: velocity, veracity, depth, and granularity. These parameters guide firms in delivering value, fostering user engagement, and driving growth. In addition, each parameter carries technical implications that firms should consider when designing their digital value loop.
It all begins with users
Establishing a digital value loop demands more than merely possessing a smart product with user accounts. A value loop exists only when a user willingly and actively engages with the firm's offerings. Several firms with smart products or digital services have failed to convert the owner of the product into an engaged user within a digital value loop. This lack of engagement is particularly evident among consumer electronics manufacturers with dominant market shares, where users do not actively participate in digital value loops.
Firms often fail to see users because they tend to focus on customers. However, the concept of a customer is multifaceted and ambiguous. To truly unlock the potential of the digital value loop, firms must shift their focus from customers to users, as users are the ones who engage with the digital aspects of the offerings. Once firms start concentrating on users and their needs, they will begin to see the opportunities for creating a digital value loop that fosters engagement and drives growth. By adopting a user-centric approach, organizations can better identify unmet needs and design digital value loops that address these needs effectively, ultimately leading to greater success in the digital landscape.
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A Case Study: A Smart TV Manufacturer's Digital Value Loop Journey
Consider the example of a leading smart TV manufacturer aiming to implement a digital-first strategy. The company requested users to create accounts during the installation, but most users declined. Among those who did create accounts, the majority chose not to log in. In response, the company introduced a homepage that required logging in when the TV was turned on, which only irritated users, who desired immediate access to content.
Despite using their smart TVs, these users refused to engage digitally, depriving the company of the opportunity to infer, predict, generate, and orchestrate. This absence of sensing and shaping activities impeded the formation of a value loop, preventing the company from generating new revenue streams from its digital assets.
The Solution: A Consolidated Streaming Service
To overcome this challenge, the smart TV manufacturer could consider offering a consolidated service that amalgamates multiple streaming services. The growing number of streaming platforms often frustrates users, who may have subscriptions to one or two services but still miss out on exclusive content. Moreover, separate streaming services and value loops do not provide optimal value, as recommendation engines are unable to access users' complete viewing history across platforms. The search cost for finding content also increases with the number of streaming services.
In this scenario, when a user creates a smart TV account, it automatically activates a set of streaming services. Each smart TV comes with a unique, verifiable user account generated by the TV for those streaming services. A smart TV's user account is an agent of the user who has a trusting relationship with these streaming service providers. When a TV account is activated, streaming services automatically acquire an account. Because no user can watch more than one program at the same time, service providers will "share" the user account. It is the reverse of a "sharing" economy, as a user is shared by multiple assets instead of the other way around.
By providing a unified streaming platform, the TV manufacturer can create a win-win situation for all stakeholders. Users benefit from a broader content selection and potentially only need two accounts (e.g., Netflix and the TV account). The recommendation engine can deliver greater value by leveraging the digital value loop data. Smaller streaming service providers can piggyback on the sales of popular smart TV models to report steady subscriber growth, while TV manufacturers can establish revenue streams from a digital value loop with customers as engaged users.
Once you identify concrete user needs, it is time to design a digital value loop intentionally. You need to decide four design parameters: velocity, veracity, depth, and granularity
Velocity: The Need for Speed in the Digital Value Loop
The velocity of the digital value loop refers to the speed at which it cycles through the processes of inferring, predicting, generating, and orchestrating. For example, a streaming platform with a high-velocity value loop may provide real-time content recommendations based on users' current viewing habits, whereas a platform with a slower value loop might only update recommendations once a day. Achieving a high-velocity value loop necessitates real-time data processing, storage, and analytics capabilities. This demands a robust cloud infrastructure, powerful data analytics tools, and efficient algorithms to ensure a seamless user experience.
Veracity: Ensuring Accurate and Reliable Information
Veracity refers to the accuracy and reliability of the information about users sensed by the firm within the value loop. A fitness app with high veracity, for instance, accurately tracks users' activities and provides personalized workout suggestions. In contrast, an app with low veracity may provide generic suggestions that do not align with users' fitness levels or goals. The value loops of social media platforms tend to have lower veracity than those of e-commerce platforms or streaming services. Why? Because the posts and content we interact with on social media are generally less indicative of our preferences than the purchases we make or the content we watch using digital services. Sharing or engaging with content that doesn't necessarily reflect our beliefs or interests on social media might not have significant consequences (aside from possibly offending some friends). However, it's unlikely that someone would make purchases on Amazon just to confuse its AI.
To achieve high veracity, firms must implement advanced data validation and cleaning processes, integrate reliable data sources, and employ sophisticated data analysis techniques to derive accurate insights from collected data. By prioritizing veracity, organizations can ensure that their digital value loops are built on a foundation of reliable information, leading to better decision-making and more effective user engagement strategies.
Depth: Sensing and Shaping User Actions Throughout the Journey
Depth represents the number of steps in users' actions that the firm attempts to sense and shape through its digital value loop. For example, an e-commerce platform with high depth can track and shape users' actions from browsing products to purchasing and reviewing items. A platform with less depth may only track and influence the browsing and purchasing stages, missing opportunities to engage users during the review process. Attaining greater depth requires firms to deploy advanced tracking and monitoring technologies, such as cookies, web beacons, or in-app analytics. Additionally, they need to develop targeted engagement strategies to influence users' actions throughout their journey.
Increasing depth also implies potential privacy issues. As a result, firms might need to adopt advanced privacy-preserving technologies, such as edge AI or federated learning models, to balance user engagement with data protection and privacy concerns.
Granularity: Achieving Precision in Digital Engagement
Granularity refers to the level of detail or resolution in the firm's digital engagement with users. A music streaming service with high granularity, for example, can differentiate between users' preferences for specific genres, artists, and even individual songs, tailoring playlists and recommendations accordingly. In contrast, a service with low granularity may only differentiate between broader categories, such as genres, resulting in less personalized recommendations and a less satisfying user experience. To achieve high granularity, firms must employ advanced data segmentation and profiling techniques, which can involve machine learning and artificial intelligence algorithms to process vast amounts of data and generate detailed user profiles.
The Road Ahead
The design of a digital value loop is critical for firms seeking to capitalize on their digital assets and generate new revenue streams. By identifying users' unmet needs and incorporating the four key parameters of velocity, veracity, depth, and granularity, organizations can create a digital value loop that effectively addresses users' needs and fosters engagement. Understanding the technological implications of each parameter enables firms to make informed decisions about the underlying technology choices, ensuring a robust and efficient value loop. This user-centric approach to digital value loop design empowers firms to achieve sustainable growth, unlock new opportunities, and establish a competitive advantage in the rapidly evolving digital landscape.
Firms that prioritize user-centricity and leverage these parameters in their digital value loop design can tailor their offerings to match users' preferences, enhance engagement, and drive long-term growth. By understanding and addressing the technical implications of velocity, veracity, depth, and granularity, organizations can make informed technology choices that support their digital value loop and facilitate seamless user experiences.
In conclusion, a digital value loop is an essential tool for businesses to remain competitive in today's digital world. By focusing on user needs, adopting the four key parameters, and understanding their technological implications, firms can build a sustainable digital value loop that unlocks new revenue streams and fosters long-term growth. As digital transformation continues to reshape industries, businesses that successfully design and implement effective digital value loops will be better positioned to thrive and succeed in the ever-changing digital landscape.