CONNECTED STRATEGY Nicolaj Siggelkow Christian Terwiesch Wharton School

CONNECTED STRATEGY Nicolaj Siggelkow Christian Terwiesch Wharton School KNOWLEDGE FOR ACTION

The Early Version of Connected Strategy: How Judge Jack Love Turned Homes into Prisons Judge Jack Love of Albuquerque, New Mexico 1977 Spiderman strip Initial tagging technology developed in the 1960 s Ankle monitor product with an initial focus on security Judge Jack Love (New Mexico) Next application: tracking dementia patients http: //www. nytimes. com/1984/02/12/us/electronic-monitor-turns-home-into-jail. html http: //reason. com/archives/2012/05/24/the-lighter-side-of-electronic-monitorin https: //www. newsmax. com/health-news/alzheimer-electronic-tag-dementia/2013/06/21/id/511165

From Criminals to Children The Customer Need Track children on a boat in order to ensure safety (allowing their parents to relax) The Status Quo Solution Interrupt all play activities every 30 minutes for a complete roll call The New Solution Provide a wrist band to each child and track the location of the wrist band Combine tracking with geo-fencing What would you prefer? As a child As a parent As cruise team As Disney executive

From the Cruise Ship to the Theme Park: Meet and Greet The Customer Need Personalize theme park experience by having Disney characters interact 1: 1 with guests The Status Quo Solution Interaction is truly random (and hence not personalized) or prearranged through the parents The New Solution Wrist band identifies the guest and CRM system provides guest history to the cast in real time The Value Proposition “Remember the child” and weave together multiple theme park experiences across time and location

Other Application of the Magic Band Soon Followed Meal Ordering Recommendations vs Personalized experiences Traffic management / fast pass Personalized memories => Better Customer experiences (at potentially lower (!) costs)

The Shanghai Resort Opening in 2016 $5. 5 Billion in investment 11 million guests in year 1 of operation (compared to 20 MM in Florida and 6 MM in Hong Kong) But…

The Connectivity Challenge How can we use new technology to create Customer experiences that replace episodic interactions with frequent, low-friction, and customized interactions … … and do this without increasing (and potentially reducing) fulfillment costs My motivation: education and healthcare Other Connected x: connected cars / mobility, connected banks, Io. T, etc … Customer Experience Delivery model determine fulfillment costs Technology platform Enabling technology Objective of this session: - Understand different types of connected Customer experiences - Distinguish between different fulfillment models - Spot new opportunities and identify disruptive threats

Connected strategies consist of two elements Connected Customer Relationship Connected Delivery Model Drives up WTP Reduces cost Higher Willingness-to-Pay at lower cost! That’s why Connected Strategies can be industry changers. KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 8

Impact of Connected Strategies on WTP and cost • As any other innovation (or strategy), a new business model will create a competitive advantage for a firm only if it increases the gap between WTP and cost for a transaction with a customer. • Connected Strategies have effectively pushed out the existing efficiency frontier KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 9

Efficiency Frontier high Farmer’s Market Tesco WTP Aldi low high Delivery Cost KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 10

Shift in the Efficiency Frontier Blue Apron high Farmer’s Market WTP Instacart Tesco Homeplus Alibaba Hema, Amazon Go, JD stores Tesco Aldi low high Delivery Cost KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 11

Connected Customer Relationship Recognize Request Respond Repeat KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch

A different experience • After you realize that you have run out of toner… – you go on-line to your favorite retailer – type in your printer model – click to order the correct toner – pay with the same click since your credit card number and your shipping address is already stored – two hours later your doorbell rings and your toner is delivered. Respond-to-Desire Connected Customer Experience: Firm tries to respond to explicit customer request very effectively (e. g. , rapidly or with broad offering) (e. g. , Amazon, Lyft, Airbnb) KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 13

An even better experience • After you logged into your on-line account… – the site would have already suggested the correct toner cartridge (since you had ordered toner before), eliminating your need to figure out the right type of toner for your printer – In addition, the site could also have suggested to reorder some paper (good catch, you were about to run out of paper as well!). Curated Offering Connected Customer Experience: Firm responds to (and anticipates) customer needs by providing a customized set of products and services (e. g. , Netflix suggestions). KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 14

What problem haven’t we solved yet? • The problem that neither Respond-to-Desire nor Curated Offering solved is that you realized your need for toner only after the toner ran out. • Maybe given your past purchase behavior, your preferred retailer could have already sent you a reminder to reorder last week • And while doing so they could have reminded you to run the cleaning function on your printer to keep print quality high Coach Behavior Connected Customer Experience: Firms try to tweak or nudge the behavior of their customers/clients to help them overcome inertia and decision biases (e. g. , you want to take your medication but you are very forgetful; you want to exercise, but you are too lazy; you want to lose weight, but you don't stick to your diet). Firms employ behavioral interventions in the form of personal feedback and social comparisons. KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 15

You may not know… but your printer does • • • The doorbell rings and you are surprised to see Fed. Ex delivering a box. You don’t recall having ordered anything. You unpack the box and find a set of toner cartridges for your printer. Odd. You walk back to your office and start printing your letters. Your computer alerts you that your printer is about to run out of toner! Automatic Execution Connected Customer Experience: Firm automatically deduces and anticipates needs and fulfills them (e. g. , behavioral medical intervention, fire alarm, re-order milk, re-order water filter, glucose testing supplies, re-balance portfolio). KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 16

Connected Customer Experiences Have Three Parts Request Recognize the desired option the customer need Latent need Awareness of need Why does a customer engage in the interaction? Respond Look for options Decide on options Order and provide the desired option Pay How does the customer go about identifying, ordering and paying for the desired option? KNOWLEDGE FOR ACTION Receive Experience good/ service Postpurchase experience What products or services are provided to the customer? Nicolaj Siggelkow & Christian Terwiesch 17

Different Connected Customer Experiences Automated Execution Coach Behavior Curated Offering Respond-to-Desire Latent need Awareness of need Look for options Decide on options KNOWLEDGE FOR ACTION Order Pay Receive Experience good/ service Nicolaj Siggelkow & Christian Terwiesch Postpurchase experience 18

From Connected Experiences to Connected Relationships Connected Customer Experiences A Customer experiences that replaces episodic interactions with frequent, low-friction, and customized interactions enabled by technology Benefits of repeated interaction: Creating unified customer experiences across episodes Improving customization based on past interactions Leveraging meta-data to enhance the product offering Recognize Request Respond Repeat KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch

The Efficiency Frontier in Education KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 20

Shifting the Frontier: Khan Academy 2006: Salman Khan, an MIT-trained computer scientist with an MBA from Harvard, launched a revolution in K-12 education called Khan Academy. Khan had been tutoring his cousin, Nadia, who was struggling in school Tutoring done via Yahoo Doodle You. Tube to upload videos => Khan Academy. Today: over 100 employees, 20, 000 videos, 50 million students What has been the impact on: Student learning Cost of delivery KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 21

Shifting the Frontier: Lynda. com: acquired by Linked. In for $1. 5 billion. Started by Lynda Weinman: video courses geared towards building professional skills, such as software development, graphic design, … Learners at Lynda. com articulate career objectives such as digital marketer, web developer, or IT security specialist. Lynda. com provides a bundle of video instructions, practice assignments, certification, and career management advice to have the students succeed with their career objectives. KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 22

Four levels of Customization Improve Repeated Connected Experiences (1) Creating unified customer experiences across episodes (2) Improving customization based on past interactions (3) Leveraging meta-data to enhance the product offering (4) Becoming a trusted partner to the customer KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 23

Level 1: Creating unified customer experiences across episodes Example: checking in with a doctor’s office Connected Relationship: - Identify customer - Remember past interaction - This benefits both, quality and efficiency (e. g. , pre-populating data) Why is this hard? Example: Disney - omni-channel operation - IT build around products and services, no the customer => Tracking your customers is a requirement for Recognize KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 24

Level 2: Improving customization based on past interactions Request Recognize Learn about customer through repeated interaction You learn more about a particular customer: Toni struggles with discounted cash flow Mary dreams of becoming an investment banker => help tailor and education that is right for Toni and Mary Respond Repeat Student struggles = corrective action is taken immediately Contrast to Sitzenbleiben Þ Helps with the request dimension Pushes the efficiency frontier KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 25

Level 3: Leveraging meta-data to enhance the product offering Recognize Request Respond Repeat Learn about a population of customers As authors, we learn from our user population that chapter 5 is confusing As instructors, we learn that most students struggle with homework 7 => help create a product line offering with great product market fit Examples: Netflix’s move into movie production Amazon private label products, Wayfair KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 26

Level 4: Becoming a Trusted Partner: Recognizing Deeper Needs tend to be bigger / deeper than a service episode (addressing more fundamental WTP drivers) Example: - Rental car vs mobility - Healthcare vs health - Education: ? Hierarchy of needs Keep me healthy Provide the right healthcare when needed A connected strategy allows a firm to move up this hierarchy of needs Deal with my cardiac problems Let me talk with a cardiologist KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 27

Why-How Ladder In the eyes of the customer, the purpose of the relationship with our firm is to… Why …stay healthy …obtain access to a cardiologist How … avoid frustrations related to scheduling office visits … receive support in sticking to a medication regiment … be encouraged and supported to live an active lifestyle … receive guidance from a cardiologist at convenient locations What is the benefit of framing the problem as a Why? What is the risk/downside? KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 28

Connected Strategy to move up the hierarchy of needs Only a deep connection can address more fundamental needs Deep Connection Fundamental Needs Only if fundamental needs are addressed, does a customer accept a deep connection KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 29

Repeat: Two positive feedback loops KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 30

Connected Delivery Model Connection Architecture Revenue Model Technology Infrastructure KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 31

Connection Architectures KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 32

Who can fulfill your multiple financial needs? • Paying for transactions (merchants or friends) • Financing your project • Investment management and advice Connected Producer: Main connection is between the firm and customers KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 33

Connected Producer Customers Firm information product, service KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 34

Examples: Connected Producers Push up WTP: • Penn Health System • • • Under. Armour (My. Fitness Pal; Map. My. Fitness), Nike (Nike+ Training Club) EA, Valve (Video games; freemium) Disney Park (Magic Band: RFID + radio) Carnival (smart medallion) VRI (remote-patient monitoring platform) Lower cost: • Progressive (snapshot device) Lower Cost through sharing of a common resource: • Amazon Webservices, Microsoft Azure (rent the cloud) • Car 2 go (Daimler: 14, 000 vehicles in 30 cities in eight countries) KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 35

Connected Retailer Suppliers Firm Customers information product, service KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 36

Examples: Connected Retailers • • • Amazon (with own warehouse) zip. Car Overstock. com Plated, Blue Apron (meal kit delivery business) Netflix, Hulu, Amazon Video (movies, TV shows) Spotify, Pandora, i. Tunes (music) Birchbox (beauty related items each month) Trunk Club, Stitch. Fix (monthly curated boxes of apparel) Coursera, Ed. X (on-line learning, content produced by universities) Ideel (flash-sales of designer apparel) Rent the Runway (rent designer dresses) KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 37

Connected Market Maker Firm inf orm l a r r e f e r Suppliers atio n Customers product, service KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 38

Examples: Connected Market Makers • • • Expedia, Orbitz Cars. com, Autotrader. com (link to car dealers and individuals) Amazon Marketplace (access to many retailers) Wayfair (connect to 7000 home furnishing suppliers who ship directly) Open Table (restaurant reservations) Grub. Hub (on-line ordering of restaurant food) Class Pass (link to boutique fitness studios) Spot Hero (find open spots in car garages) Angie’s List (user reviews and allows members to connect to local businesses) KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 39

Crowd Orchestrators Firm inf orm l a r r e f e r Suppliers atio n Customers product, service KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 40

Examples: Crowd Orchestrators • • • Uber. X, Lyft, Bla Car, Relayrides (longer term car rental) Airbnb (room rental) Ebay, Etsy (with some B 2 C) Instacart (grocery shopping service) Prosper. Funding (match borrowers with lenders) Kickstarter (match investors with creators) Stub. Hub (organize resale of tickets; owned by e. Bay) Amazon Mechanical Turk (on-line tasks) Task. Rabbit (find a nanny, gardener, furniture assembly, etc. ) Donorschoose (link donors with causes) Teladoc (telehealth provider) Innocentive (link innovation problems to inventors) KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 41

Peer-to-Peer (P 2 P) Network Creator information product, service KNOWLEDGE FOR ACTION Third-parties, for instance, advertisers, potential employers Complementary products and services owned by P 2 P Network Creator Nicolaj Siggelkow & Christian Terwiesch 42

Transaction P 2 P Network Creators • We can distinguish between three types of P 2 P Network Creators, depending on they monetize the network • Transaction P 2 P Network Creators charge for using the network, either as a transaction fee or as a membership fee. • Examples: • • • Betfair (allow people to bid on sporting events against each other, not against a bookmaker) Transferwise (P 2 P currency exchange) Match. com, e. Harmony. com KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 43

Access P 2 P Network Creators • Access P 2 P Network Creators do not charge to join the network, but they sell access to the network participants and to the data that these participants create. Most frequent buyer are advertisers. • Examples: • • • Linked. In Facebook You. Tube Pinterest Tripadvisor Yelp KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 44

Complementor P 2 P Network Creators • Complementor P 2 P Network Creators establish networks, usually with free membership, as a complementor to other products or services they sell. • Examples: • • • Nike sponsored on-line running “clubs” On-line patient communities created by health care providers or pharmaceutical companies As before, firms may engage more than one operating model: • Venmo: Charge for transactions using credit cards; free transactions for internal transfers. KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 45

Connected Strategy Matrix Connected Producer Connected Retailer Connected Market Maker Crowd Orchestrator P 2 P Network Creator Respond-to -Desire Curated offering Coach Behavior Automatic Execution 46 KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch

EXERCISE: CONNECTED ARCHITECTURES Nicolaj Siggelkow Christian Terwiesch Wharton School KNOWLEDGE FOR ACTION

Exercise Lifestyle Devices • Please use the Connected Strategy Matrix to plot the firms that are discussed in the case on “Health, Fitness, and Lifestyle Devices and Apps” • Imagine a new app/device and place it in the matrix KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 48

Connected Strategy Matrix Connected Producer Connected Retailer Connected Market Maker Crowd Orchestrator P 2 P Network Creator Respond-to -Desire Curated offering Coach Behavior Automatic Execution 49 KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch

Connected Strategy Matrix Connected Producer Connected Retailer Connected Market Maker Crowd Orchestrator P 2 P Network Creator Respond-to. Desire Curated offering Coach Behavior Automatic Execution KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 50

Revenue Models KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch

In the next 30 years of their life, the average American, will spend $10 k on dental care The Power Brush 2050 (left side of room) You develop the Power Brush 2050 toothbrush The Power Brush 2050 destroys many more plaques or cavities compared to existing brushes. It has a cost of $200 per unit in production and the toothbrush would last for 5 years, except for the toothbrush head that should be renewed every six weeks. What revenue model would you pick? What constraints do you have in designing a revenue model for the Power Brush 2050? Smart Connect XL 3000 (right side) You develop the Smart Connect XL 3000 brush The Smart Connect XL 3000 toothbrush which detects plaques or cavities before patients or even dentists are aware of the problem, it guides the patient in the brushing process, and it automatically makes an appointment with a dentist when needed. It has a cost of $300 per unit in production and the toothbrush would last for 5 years, except for the toothbrush head that should be renewed every six weeks. What revenue model would you pick? What is better now? KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch

Revenue model options • • • Extract value through purchase price (e. g. , $600) Extract value through renewables: e. g. $200 but high price on replacement heads Subscription on replacement heads: $10/month Subscription: get toothbrush for free but pay $40/month including replacement heads (like cell phones) $0. 1/minute of brushing? Optional app that helps the customer in her brushing behavior for a one time fee of $10 or a monthly subscription Give the toothbrush to the insurance companies for free and then ask to be paid 50% of the savings relative to past patient expenses. Collect data about brushing behavior, including what time our customer gets up in the morning and when (or what!) they eat. Sell this data to Starbucks the customer’s life insurance Become a trusted partner in oral hygiene and have the Smart Connect XL 3000 be the platform on which all oral care transactions are organized, making money on toothpaste or dental floss. KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 53

Some Economics We mostly rely on fixed prices paid upfront Three problems for the customer • Limited information: how much value will I (the customer) derive from this? • Limited trust: will you (the firm) live up to your promise? • Transactional friction: each money transfer will cost me effort Three problems for the firm • Limited ability to price discriminate: how much do you (the customer) want it? • Limited trust: will you use it as you are supposed to and tell me the outcome? • Transactional friction: each transaction costs me money Connected Customer Relationships overcome these problems Prices now can depend on anything at anytime => larger dimensionality But: what should we do? KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 54

Principle 1: Think Value Creation First • The previously discussed problems caused local decision optimization, leading to sub-optimal outcomes • • What is the optimal action of both parties in the vertically integrated firm? Start with those actions and think of what incentives/prices have to be in place to make that happen? Most relevant problem: customers “under buy” Other Example: Progressive Insurance - Consumer drives carefully - Insurance offers a low rate • • KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 55

Principle 2: Trust in your technology • • You know your technology is good, the customer does not (yet) Myopia and risk aversion will keep customer from buying Better: pay for performance Examples - Solar panel installations - Value based payments in healthcare KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 56

Principle 3: Think Ecosystem, not Supply Chain • • • In a supply chain, you only have two directions to go for money Other parties benefit when your innovation succeeds Examples: - Insurance in healthcare - Nike running shoes and their virtual running club - Gyms getting more money from health insurance than from their members KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 57

Principle 4: Pay as you go • • • Customer needs are uncertain and changing Given a lump-sum payment upfront, they will “under buy”, destroying system wide value (principle 1) Micropayments are now possible Also helps with myopia/risk aversion Especially problematic for low marginal cost / high profit margin products Examples: - Software as a service - Video games / in app purchases KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 58

Principle 5: Pay with data • • “Data is the new currency” Lots of money is made by giving product away for free and use data for: • • - advertising (Google, Gmail, Maps…) - referrals (Mint, Zillow) Other applications? What potential downsides exist for an honest consumer? KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 59

Data protection Connected Strategies are based on trust. Only if you safeguard your customers’ data and use it in transparent ways will the customers continue to allow you to move up their hierarchy of needs. • What procedures do we have in place to stay informed about data protection and privacy regulations in all the geographies in which we are active? • How do we keep up with how public opinion is changing with respect to these issues? • How do we currently obtain customer consent? How transparent is it to our customers what happens to their data? • What do we do to keep the data current and accurate? • What are our activities to keep the data safe and under what conditions do we notify customers of any breaches? KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 60

Technology Infrastructure KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch

Connected Strategy Idea • • • Customer comes home Door recognizes customer, opens the door, and starts brewing coffee You sell a guarantee that this will always happen: • There’s always coffee in the house • The coffee machine is always working KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 62

Deconstructing your Connected Strategy • Technologies do not have value per se, but users derive value from the technology performing a specific function • Start by asking, WHAT do we need the technology to accomplish? • Focus on the HOW later. • It’s useful to think about technology as a stack. At the lowest level, you’re concerned, e. g. , with physical transmission of bits. Higher levels take lower levels as given. Let’s start with the top level of the technology stack, the functions closest to the user. • Deconstruct your Connected Strategy along two dimensions KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 63

Two dimensions for deconstruction 1. First, ask what functions we have to accomplish in each element of our Connected Strategy: • • Recognize, Request, Respond, Repeat Connection Architecture, Revenue Model 2. Second, identify sub-functions using STAR • Sense, Transmit, Analyze, React Example: Recognize • Sense that our user has only 20 g of coffee left • Transmit this quantity information to a cloud or edge computer • Analyze information to determine whether the amount left less than the desired minimum quantity of 50 g • React and start the Request module to reorder coffee KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 64

Each sub-function is a “job-to-be-done” KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 65

Classification Tree Finger print Active Biometric Eye scan Enter pin code Action of user required Key card Machine Action of user not required How to identify a person? With ID device Without ID device Human Onsite Remote KNOWLEDGE FOR ACTION Person on-site Sense proximity via Bluetooth Sense proximity via NFC 2 D Face recognition Based on image Based on other 3 D Face recognition Combination of gait and personal body odor Remote doorman Nicolaj Siggelkow & Christian Terwiesch 66

Moving up the stack: Bottom-up innovation • So far we described a top-down approach: Identify sub-functions, then find technological solutions. • Yet technologies advance all the time. Improvements especially further down the stack can bubble up through the stack, allowing for new functionality (or at much lower cost), creating the possibility for new Connected Strategies. • For instance, vast improvements in voice recognition technology (IBM in ‘ 62 vs Google/Apple in 2010), driven by unrelated developments in data transmission, ubiquity of phones, and faster processing power • Use the matrix to keep track of technological developments. KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 67

What sub-functions could new technologies address? Recognize Become aware of the need Request Search and decide on option Order Respond Pay Receive Experience Repeat After sale Learn and improve Connection Architecture Connect parties in ecosystem Revenue Model Monetize customer relationship Sense Transmit Analyze React KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 68

Sensing technologies In this category, fit all technologies that directly measure aspects of the world that hold clues about the needs or desires of customers or that help users express their needs. • • Sensors (embedded in devices, in roads, wearable or ingestible) Gesture and voice interfaces Conversational platforms that make it easier for customers to express their needs (and ask for clarification if the need is not completely understood) Augmented and virtual reality KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 69

Transmitting technologies • • High-speed internet at homes and offices Smartphones Network slicing with 5 G Bluetooth Low Energy Li. Fi (wireless communication using light) Lo. Ra (wireless data communication over ranges up to 10 km with low power consumption) Blockchain (improving trust of transactions that are being carried out over networks) KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 70

Analyzing technologies • • • Rapid decrease in costs of computing Rapid decrease in costs of data storage World-wide cloud computing is feasible (also allows data to stay in particular geographic areas) Machine learning and deep learning algorithms Quantum computing KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 71

Acting technologies • Improvements in AI are allowing automated responses at vast scale that are becoming more and more personalized (e. g. , Google Duplex) • • 3 D printing Advanced robotics Autonomous vehicles Drones KNOWLEDGE FOR ACTION Nicolaj Siggelkow & Christian Terwiesch 72

Connected strategies Connected Customer Relationship Recognize Request Connected Delivery Model Respond Connection Architecture Revenue Model Repeat KNOWLEDGE FOR ACTION Technology Infrastructure Nicolaj Siggelkow & Christian Terwiesch 73