Recently I have been having a vigorous conversation with Axel Schultze over at his blog. The debate stems from my insistence that both free (read advertising driven) and paid business models require a relentless focus on a single point – customer experience. His counter point is business models determine who is in charge of leading the business.
Personally, I think letting your revenue strategy run your company is a poor way to do business. But, let’s see if we can break this down and find out if there really is a schism in our discussion or if we are simply talking around the same topic.
What is customer experience?
Regardless of how you generate revenue for your business customer experience is the sum of how a customer interacts and engages with your business across every possible channel. In other words whether you design your customer experience or not – make it the focus of your product strategy or not – your customers are having an experience with your business and your products and this experience is determining how and if they continue to do business with you.
Why the revenue model doesn’t matter.
Let’s face it most businesses are self centered, ego maniacal, and entirely horrible to do business with whether they generate their revenue from an ad based model or a fee based model.
As Axel argues in his post:
If it is an advertising driven business model, I focus on optimizing everything around advertising, invest in easiness of placing adds [sic] and so forth and do everything to make my advertisers happy.
If it is license model, I focus on making it easy to sign up, make the product as valuable as possible and focus my resources and fixing everything a user needs to continue to pay and is successful with our product. ~Axel
This is entirely the problem. When a business segments its revenue generation strategy from its customer experience strategy based on the erroneous assumption that money is the key driver of business value it bows to the industrial age adage of optimization and the race to mediocrity begins. No business can survive if it does not serve its customers regardless of its revenue model.
And that is the point.
We should be building long term business value.
Businesses that are building a ton of value regardless of revenue model are doing one thing well – serving their customers. More and more this is not only a differentiator it is required if you have any hope of gaining the eye of the market.
Listen we have all been through the economics and business classes. Done our share of work for companies and there is one unarguable maxim. Businesses are built to make money. My point of contention is:
I believe the best way to generate ridiculous amounts of business value, revenue, cold hard cash, or share holder value is by a single-minded focus on the customer.
After all the customer holds the keys to the pocket book in the ad driven model or the pay for play model. Let’s take a look at this through the examples that Axel used:
How does this work for ad based businesses?
Traditional publishing – Industrial Media, News Paper, Magazines…
Once advertising moved on to online[sic] – the media died. ~Axel
I agree. But let’s take a look at why that might have happened. Generally, publishing is an interesting combination of paid (reader subscriptions) and advertising (the folks that actually pay the cost of production). There are a few professional publications that cover their costs through subscription only but for our purposes we will focus on the general publishing industry.
What happened? Well, a couple things really. The most important, is the rise of the internet and the availability of tons of free to consume (read advertising driven) media that was of similar quality, more timely in its availability and fractured into enough niches to serve the media junky in ways no generic traditional publication could hope.
In the context of this conversation the critical point is this:
The customer experience of traditional media didn’t meet the new demands of the customers and they voted with their eyes and wallets to a platform (the internet) where a multitude of niche publishers served their media fix consequently pulling the ad dollars with them. So one ad based platform took over from another.
Is the publishing ad based model broken? No – it simply evolved to support a new ecosystem of businesses and many existing businesses didn’t evolve with it.
In other words, no customers – no ad dollars – no business. Again, it’s not about the revenue model, it’s about serving your customers the way they want to be served and evolving your business as needed.
Maybe that is the sticking point – for most businesses it is less about serving customers, the way they want to be served, and more about serving customers the way “the business” thinks they should be served.
Now an example from the pure pay to play business.
I’ll use Microsoft for this example as Axel sites them in his post. Once considered the titan of the software industry they find themselves beset on all sides from many new (notable Google), and a few old competitors (notably Apple). So let’s compare the customer focus of Apple and Microsoft.
As of close of business today Apple was trading at: $319.76 per share and Microsoft was trading at: $27.08 per share. Now, that is real money. Apple has watched it’s market cap skyrocket over the last 10 years as Microsoft has seen stagnation and reduction. While this is an over simplification of a complex business problem – Apple has a clear focus on their core customer experience. People actually film opening the boxes of their Apple products! While Microsoft can’t seem to clearly define who its customers are let alone what they really want.
It is always about the customer – period.
Both these companies are pure pay for play companies yet one element clearly differentiates them – the ability to provide an exemplary customer experience. This isn’t the only example of companies providing better customer experience exceeding their peers. The list is pretty long if you start looking.
all have driven significant company success over their industry peers and focus heavily on the customer experience.
In the free or ad based arenas companies like:
- The Huffington Post
and others have crushed their competition and driven huge company valuations based on serving their customers’ needs. You can argue that some of these companies valuations are driven by investor funding and fundamentally flawed business models; but, the fact remains these businesses are growing and, in some cases, spawning vast ecosystems of new businesses.
I’m not arguing the merits of whether you can be more successful (make more money) as an ad based company or a fee based company. I am simply saying, for the good of the company, the revenue model has to be secondary to the customer experience model. Find me a company that is putting its customer experience front and center, who can execute effectively and I will show you a company that is poised for success and growth.