Rapid Ascent & The Whole Product Paradigm
Lately, private market valuations (and dollars invested) are high – higher than they’ve been historically and higher than the public markets. We’ve likely all shouted “holy shit” when we’ve seen the eye-popping recent valuations of companies like Uber and Slack, but in turn, we’ve all likely muttered “holy shit” when we’ve heard about their revenue growth rates. Big dollars help drive scale, but there is more at play here than dollars alone. The rapid ascension of mobile and the development of a broad set of cloud services have generated a product ecosystem that makes it easier than ever to develop, and faster than ever to deliver, a product that addresses and scales quickly into the mainstream. Whether or not the financing environment changes, and whether or not these valuations prove justified, we’ll likely continue to see new products developed at an extraordinary pace, businesses scaled at an unprecedented rate, and markets overturned faster than incumbents can counteract. Uber, for example, was founded in 2009 and just 5 years ago, was running tests in San Francisco; it’s now reportedly in talks to raise at a $50B valuation and it’s hard to find someone who hasn’t at least heard of the service.
In Crossing the Chasm, Geoffrey A. Moore popularized the term “Whole Product,” and considers it a critical element to mainstream adoption of a product and overcoming an incumbent solution (I’ll now attempt to outline that, but I’m sure will butcher it). While early adopters are comfortable leveraging a partial-product, and filling-in the gaps themselves, the mainstream market isn’t. The Whole Product is the entire solution that must be delivered to make the product work, and to encourage a mainstream customer to replace an existing solution with the new product, no matter how much better performing the new solution may be. For example, let’s say you were using a charcoal grill, and propane grills came to market. The propane grill was a step-up in convenience and you wanted to get one. With a new shape, a new fuel-source and a new type of fire/heat to cook on, you’d need a suite of tools (like propane tanks, grill covers) and some new training. If the new grill came only as is, without the propane tanks installed and a grill cover included, the mainstream wouldn’t be as likely to switch over. With all that packed in, it makes it much easier to make the swap. Software, traditionally, wasn’t much different. For an enterprise to install a new system, they’d need servers, someone managing the servers, terminals, software packages downloaded on employee desktops, therefore desktops, etc. If a new software platform required new hardware, training, etc. then you’d need to have it all available before the “whole product” could be sold.
In today’s world, cloud services and mobile devices have shifted the paradigm of product development and delivery through the ability to deliver whole-product, nearly from launch. On the back-end, cloud services enable the spin-up of compute resources instantaneously and at scale, without any real capital expenditure. API Services, like payments processing, communications infrastructure, and more, give a company the ability to deliver all elements of a product quickly and with little additional development and upfront cost. Open source software gives developers a boost in getting product to market, and access to both 1st and 3rd party data sets allows for greater product intelligence with often limited (and sometimes no) integration work. On the front-end, we all have mobile devices in our pockets. With cellular and wifi proliferation, products can reach beyond the office or home opening new business opportunities and for customers, greater engagement and usage. The data associated with a device can tell us much about a person’s environment – not only where they are, but that then can lead us to weather, proximity, speed, direction, etc. Lastly, marketing virality can reach new heights as we’re always connected to learn about, or download, a new product.
Incredibly valuable businesses are being built, incredibly quickly, leveraging this “whole product” paradigm. As it’s both about as popular as you can get, and a key beneficiary of the mobile/cloud dynamic, let’s take Uber as an example to help illustrate the point. I’ve gone through a very simplified customer lifecycle and ride experience detailing the Uber experience vs. “what could have been.” The latter is a look at what the product would be like without cloud services, APIs and mobile devices, although I’ve tried to consider other modern elements (like connected credit card readers). This also doesn’t take into account things like driver on-boarding, complex marketing, surge pricing, etc. but that just keeps it simpler.
The experience on the right seems much like a traditional car service, and although convenient, just isn’t that magical Uber experience. There are lots of inefficiency points and more importantly, a lot of added cost to realize the product vision. Apart from the car itself, with Uber, the only tool that both the driver and passenger each need is a mobile phone, which they most likely have anyway. In the “what could have been” case, a customer needs a computer and internet connection, but there is a lot more infrastructure on the service-end in particular. A local dispatcher needs to connect cars and riders, and then needs to input details into a software system which communicates with the customer and accounts for the ride, and the driver needs an in-car radio, connected credit card processing machine and either a GPS or an intimate knowledge of local routes. There is a lot more cost and a broader product to “sell” to drivers in particular, which would need to be overcome to scale that business (vs. the astronomical rate of scale of Uber today and many drivers that participate but otherwise wouldn’t).
This is not a structural change limited to ride-sharing or consumer software, but open to nearly all new “tech-enabled” businesses. It’s helping to disrupt old-line businesses with longstanding problem sets, previously far more difficult and costly to upend. It’s revolutionizing (and has the potential to far more further revolutionize) productivity, collaboration and efficiency across the enterprise. Access to new data generated internally, from cloud platforms and from mobile devices is changing the way that brands interact with consumers (an area we’ve spent a lot of timing investing), and new businesses are being built and scaled to address new levels of data access and developing communication paradigms.
And so, in conclusion, whether or not the current financing situation holds, I believe we’ll continue to see companies that leverage mobile dynamics and cloud services / APIs to rapidly deliver whole products that scale at incredible rates. By leveraging the unique data and connectivity of mobile devices, and the near unlimited scale of the cloud, entrepreneurs will continue attack market incumbents with lightweight solutions that offer customer’s value from sign-up. We’ll continue to see massive disruption in markets both big and small, and in those larger markets, businesses that grow at astonishing rates. Over time, customers will come to expect this dynamic and the businesses that deliver on it will offer remarkable returns for both entrepreneurs and their investors. Whether or not you believe we’re in an investment bubble, we should all be excited by, and investing into, start-ups that build leveraging the (very real) whole product paradigm.