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JRobertson

Why Adding Features Can Lead to Commoditization . . . and What You Can Do About It (Part 2)

by Juniper Employee on ‎03-05-2012 12:25 AM

In my last blog I introduced the paradoxical idea that adding features and functions to networking products is actually driving them towards commoditization, rather than differentiation.  This sounds like a contradiction: shouldn’t more functionality equal greater value to the customer, which should lead to better prices (or, at the very least, less discounting)?  Technology is driving down costs, and customers expect to reap the benefits of that in their capital expenditure costs.  But even powerful new features and functions don’t always command the price premiums they used to.

 

Complexity Avalanche.jpgResearch by the TSIA – the Technology Services Industry Association – points us to one probable cause of this dilemma.  They call it the “Consumption Gap”, and it is very well described in a book called Complexity Avalanche by the President and CEO of the TSIA, JB Wood.  I have taken the ideas presented by Wood and used them as the starting point leading to some of my own conclusions.  I encourage you to read Complexity Avalanche as well as Wood’s new book Consumption Economics. (Full disclosure: I have no ties to JB Wood nor to the TSIA – I am merely an enthusiastic reader.)

 

Wood’s concept of the technology Consumption Gap is based on the interaction of two simple observations. The first is the tremendous growth in the number of product features and in the complexity of high tech products.  This includes everything you can think of: software, servers, medical devices and yes, networking.  They all are continuously coming out with new versions with lots of additional features and capabilities.

 

The second point is that customers have become overwhelmed by this complexity.  They don’t know what to do with all of those features – even though many new functions could in fact be very valuable to them. This creates the technology Consumption Gap: customers do not know how to consume all of the capabilities their machines are able to deliver.

Figure 1 below, taken from Complexity Avalanche, graphically illustrates Wood’s concept of the Consumption Gap:

 

Figure 1: The Growing Consumption Gap
(Source: Complexity Avalanche, JB Wood, 2009)

 Consumption Gap - Wood.png

 

If the idea of the technology Consumption Gap is correct, this poses a major challenge for vendors and their partners everywhere.  As customers are able to consume fewer and fewer of the features that are available in the products they buy, they naturally stop judging them on their differences.  New features and functions are no longer differentiators, the customer decides that all vendors’ products are equal and chooses strictly on price.  This hurts everyone in the business: not just the vendors and partners whose margins erode, but the customers as well, because they no longer take advantage of technologies that could be of real value to their businesses.

 

Which leads me to the opportunity for partners.  Services are what will fill the gap.  So, I would add to Wood’s diagram the blue section in Figure 2. Those are your services. 

 

Figure 2: The Growing Consumption Gap – Services fill the gap
(Source: Complexity Avalanche, JB Wood, 2009 with additions by yours truly)

 Consumption Gap - Services.png

 

Your deep understanding of your customers, of your vendors, and of the products in your portfolio allows you to fill that gap through services.  Harness the creativity of your consultants and have them point out how new functions can add value to your customer’s business.  Work with the customer to develop new software, or user interfaces, or monitoring, or machine-to-machine applications. It may be as simple as providing educational services that teach the customer about functions that they are not currently using.  In every case you will add value, you will improve your sales margins, you will sell additional services, and you will differentiate yourself from your competitors.

 

Using professional services to fill the technology Consumption Gap has a number of implications for a VAR or Systems Integrator. It calls for a new way of presenting yourself to the customer.  It calls for a new way of selling.  It may even call for you to rethink your company’s mission.  These will be the subjects of my next blog entry, next week.  In the meantime, what do you think – is the technology Consumption Gap real?  Is it a threat or an opportunity?  I’d love to hear from you and have you participate in the conversation. 

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