PM for the Physical World Series: Part VII
Important disclaimer:
All charts shown are for illustration purposes only, and do not represent factual data or research. Some were generate via prompting GPT4.0 with the open questions in the titles, and were then developed via dialog with the LLM.
Service and relationship opportunities
Consider the scenario depicted in the video above. One morning in late November 2018, Elon Must tweeted the following:
The next morning, some Tesla owners woke up to find "Romantic mode" as they tried to heat their cars in the chilly morning of November 30th.
The update, automatically available after an overnight firmware update, also included gems such as "fart mode" which emulates flatulent sounds when the passengers take their seat. Class was never the hallmark of Mr Musk's endeavors, if one ever needed a reminder.
This FOTA functionality - Firmware Over The Air - allows technology vendors constantly improve their field deployed hardware, without recalling them to the lab or service station.
This approach bears many benefits at the operational level, reducing costly recalls, and ensuring broader standardization of the install base (think of the automatic updates of iOS, MacOS, Windows operating systems, constantly improving user functionality and security).
Funny and delighting as they might be, the Romantic / Fart modes offered by Tesla were far from the most radical, though.
In a series of other regular updates, users found their car's range (a coveted and anxiety inducing quantity for any electric vehicle owner), speed, and acceleration augmented overnight increasing.
Compare this to the slow progress offered by traditional car makers. You'd get a significant improvement in next year model, if at all.
The power of (commercial) relationships
Take a look at the following layer model for connected hardware products. You'll notice higher abstraction (and gradual distancing) from the physical hardware, and moving into the domain of services - not in the technical meaning of the word, but more in the sense of continuous value bestowed on the users, as long as the vendors want, that is:
Indeed, these value added services (iTunes, Chrome browser and search, car navigation systems) create significant value to users, providing significant revenue opportunities, and reinforce customer loyalty: Users abhor the need to migrate their personal data between platforms, and value dearly the promise of a one-click hardware upgrade. We see that the technology of connected devices opens for improved (technical) service, but even more so, to increased opportunities for creating a lasting, meaningful, and positive customer relationship, that would pay in the next hardware replacement cycle.
Shifting the business model
Vendors place high value on the possibility to create and maintain a constant, meaningful, and positive relationship with their customers. Connected products offer this possibility for the first time, and industry pioneers are experimenting with it, creating a lot of additional value from it.
Apple, originally a hardware vendor, manages to generate significant revenue from the Services segment, with a high gross margin of 71%, mostly enabled by connected hardware.
Conclusion
This series draws to an end, at least discussing the strategic trends driving hardware product innovation, and its impact on product management.
Indeed, if Product Management embodies the discipline of identifying 'what to build', we are seeing new opportunities for early validation, de-risking, and building products users love.
Further, we can try and identify new opportunities for product evolution from a inert mass into a living and breathing ecosystem of physical and abstract capabilities, expanding user engagement and eventually increasing economic potential and value.
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