Where has all the product revenue gone?

product revenue

The folk song, Where Have all the Flowers Gone? was written by Peter Seeger and made popular by the Kingston Trio in the 1960’s. The song is about the cycle of history and how it is impossible to break. The song asks a series of simple questions, the primary question being, “when will they ever learn?” As a music aficionado, I’ve been perusing through volumes of music organized by decade. The 60’s were an interesting time, as a popular saying goes—if you remember the 60’s, you probably were not there. It was a time of achieving change by defying convention. It was a time of revolution.

It was a time of disruption and therefore, of business innovation.

The 60’s brought us major advancements in everything from computer science, to space travel, to medical devices, such as the first artificial heart, portable defibrillator and commercial ultrasound.

Fast-forward to over four decades later and once again we are in a decade of major disruption.

The digital age has created the “Knowledge Economy” that was predicted by analysts in the 60’s. We have more information than ever before. Data abounds—there for us to interpret and turn into actionable information to overcome disruptions and drive business innovation. And the company’s that have mastered this art are thriving. We are seeing major advancements across all industries. And new, thrilling products are released every single day. In technology alone, we now have drones with 4k cameras, 4k TV, self-driving cars, smart watches, along with other smart wearables, like Montreal’s Hexoskin which measures the wearer’s cardiac and breathing activity. And when you look at the predictions of what the next 4 years of this decade will bring us—it’s astounding! There is no question that product innovation is happening at an unprecedented rate. And no industry is immune to the consequences of falling even a little behind on technology and digital advancement.

But there’s a significant difference between the 1960’s and the 2010’s.

We live in a time when product innovation is simply not enough. The process of commoditization has accelerated. The digital age has ushered in transparency into pricing and product features:

  • Customers can now easily compare products and with subscription-based pricing
  • They can now more easily switch from one vendor to another with minimal cost and business disruption

This transparency doesn’t end with your customers; it extends to your competitors. Everyone can now see competitors’ solutions in real time, which shortens the life span of product differentiation or pricing advantage. In short—an innovative, new product is not enough by itself to set you apart from your competition.

Where has all the Product Revenue Gone (Long Time Passing)?

It’s no secret - product revenue is in decline, margins are tighter, and R&D costs are increasing. It seems as if no industry is immune. In this time of disruption, every industry is constantly evolving. With the acceleration of commoditization, adaptation to shifting market dynamics needs to be a core part of your strategy from the get go. While product innovation remains critical, every business needs to look towards business model innovation for product revenue growth opportunities. Savvy consumers know that technology is changing at a rapid pace. Their biggest fear is that they will invest in a new product and a faster; better version will be released shortly after. Your customers want to know that their investment will be protected. They need to know that you will offer cost-effective ways for them to upgrade, as you continue to innovate.

Go-to-Market Innovation—The New Competitive Advantage

If you look at recent high-growth companies, you will see a common denominator: the basis of the company is not a new product, but a new business model.

  • Uber has completely reimagined the entire experience of hailing a taxi. They created a business model that eliminates all of the friction points that frustrated the customer. The product is essentially the same, but the experience is differentiated.
  • AirBnB has innovated the business model of vacation rentals and travel
  • Adobe has innovated the business model to successfully transition their products to the cloud

Each of these companies and others has looked toward the customer experience to build a new way of taking a product to market. Each has successfully focused its attention on fast-growing and profitable services, while continuing to build innovative product offerings.

Imperatives for Action

So how do you build a culture of innovation and transformation that extends from product to business models and the customer experience? That’s really the question that needs to be presented to your leadership team. And then, as another Peter Seeger 60’s song proposes, you must Turn! Turn! Turn! As for every season there is a time for every thing. You need to plan for every season of your product revenue model. A few things that you can do to build a culture of adaptability around product commoditization are:

  • Build a customer success charter to know what outcomes your customers expect from you
  • Map your customer journey to help understand customer friction points and reinvent your business model
  • Map the entire product lifecycle before you build and launch a new product to understand when the product might become commoditized and easily adapt to shifting markets
  • Build a discipline around Revenue Lifecycle Management, aka how do you retain and grow customers after they have purchased a product from you

With a focus on the customer experience and product lifecycle, you will be able to embrace disruptions and turn market shifts into a competitive advantage to ignite product revenue growth.

Michele Ballinger, Solution Marketing for ServiceSource

Authored by Michele Ballinger, Solution Marketing for ServiceSource.
In her role, Michele provides market insights and best practice advice to customers. When she is not writing, you can find her hiking and photographing the breathtaking Pacific Northwest.