Web 2.0 Is Transforming Relationships Between Customers and Companies*
I’ll risk using a hype-laden term like “Web 2.0″ in the title: I think most of us have been around long enough to understand that hype doesn’t mean that nothing is there, although it can distract us from seeing things that we should be watching.
I have been in the thick of the “adoption curves” of Java, e-business transformation and SOA/Web services (detail). They have been instrumental in creating a new information infrastructure and business process capabilities. “Web 2.0″ will prove to be the most transformational so far because it is changing relationships. It changes individuals’ relationships with each other, and it will change how companies and the customers relate to each other. It will demand “Marketing 2.0.”
As I argued in The 3.x Economies, we are transitioning away from the Industrial Economy and entering the Knowledge Economy. In the Industrial Economy, companies created value by manufacturing products efficiently based on their core competencies, and they marketed products to customers. They also created and marketed services on a large scale. “Marketing” grew as a profession during the 20th century when supply began to outstrip supply. Its job was to “create demand” (for production capacity).
In the Knowledge Economy, agricultural and industrial products are still consumed, but most of the perceived value and differentiation is achieved by using information to create knowledge. Starbucks sells coffee (the product) but the differentiation is the experience of drinking coffee in a café (the knowledge is creating the experience of drinking coffee in a café, en masse and everywhere). Likewise, Apple sells computers and iPods, but its differentiation is creating and sharing digital entertainment experience. Even work (“we do that, too”) is a fun experience.
In the Industrial Economy, companies produced, and consumers consumed. Companies had more information about customer needs (in general, not about individuals), competitive solutions and substitutes. Superior information gave companies an advantage in the market over consumers. They are still accustomed to this.
Web 2.0 resources** enable individuals to create, find and share text, graphic, audio and video content, virtually for free, globally. Individuals are no longer isolated, and they can assemble, educate each other and become more proactive when, where and how they want, with few restrictions. Time Magazine recognized “You,” the Web 2.0-enabled individual, as its 2006 person of the year, reflecting this trend.
Individuals are getting advice from each other about how to create satisfying experience, and they often trust other individuals in online forums to give them the skinny on a company, product or service more than an expert or a company representative. Other individuals have cred because they are customer focused by default, and they are not tainted by having to make a buck. Moreover, their advice is vetted by other people in the community, who chime in with their experiences (using the product to accomplish something) and contradict advice that does not jibe.
Isolated individuals had access to very little specific knowledge, but today people assemble in smart tribes and can develop extremely valuable specific knowledge extremely quickly. In 2007, when I discuss this with corporate executives, they doubt its relevance because individuals have been isolated and ignorant. However, smart companies will aggressively experiment with tapping knowledge created by customer-to-customer interaction in Web 2.0 spaces. They will push to integrate this information into their discovery, marketing and innovation processes. Patty Seybold gets this: “The company with the smartest customers will win.” Help your customers become smarter, and they will educate you. Your innovation will outperform your competitors. Industrial Economy efficiency is increasingly table stakes, and innovation will increasingly drive value—and survival.
Marketing 2.0 will be much more profitable than Marketing 1.0, which could not access the voice of the customer very easily. In Marketing 1.0, companies simulated understanding of customer needs, using limited data points from focus groups, point of sale data, surveys, etc. They used these to create demand models. They created new offerings and “innovated.” Results have been consistent: product failures have been rife in every industry, and innovation efforts have over a 90% failure rate. Prior to Web 2.0, reaching customers and integrating their knowledge into processes was not economically feasible. However, Web 2.0 communications are digital and asynchronous, which significantly reduces the cost of finding and exchanging information.
Customers interact digitally and generate user-specific information for fun: people like collaborating online, and solving problems makes them feel good about themselves. Marketing 2.0 will mix customers and providers in a new collaborative milieu. Of course, online collaboration has been around a long time in the form of bulletin boards, support forums and communities, but it has mostly been limited to techies. However, Web 2.0 will increasingly be mainstream—and everywhere. Combine Web 2.0 resources like social networks, blogs, YouTube and Flickr with mobility, and customers will communicate 24×7, everywhere, about every product category. Imagine point of sale reviews for all retail and wholesale.
Marketing 2.0 will continue to use Marketing 1.0 processes, but it will integrate the real-time, increasingly rich “voice of the customer” to dramatically increase the success of new offerings and innovation. Astute companies will develop action plans for 2007—and act on them. For more on action steps, see “Market Advisory on Consumer Empowerment.”
*A slightly longer version of the article that appeared in the Illinois IT Assocation’s Industry Weekly, March 12, 2007
**Web 2.0 is a bit of an amorphous term. It refers to technologies that promote P2P (peer to peer) interaction. However, these technologies are bundled into fantastically user-friendly websites like LinkedIn, MySpace, Flickr and YouTube. Intermediaries like Technorati and Del.icio.us help people find content based on their interests. Also see Wikipedia’s excellent entry.Tweet this!