Relationships Are Eating the World

Note: This essay co-authored with Jason Smale

Much has been written about technology. First how “software is eating the world,” and more recently, how “mobile is eating the world.” But technology simply serves as the catalyst to the true competitive advantage that is taking over. It’s not mobile or software that are eating the world. It’s designing world-class experiences based on customer understanding. In fact, it’s customer relationships that are eating the world.

The customer experience is the next competitive battleground,” declared Dell’s now retired CIO Jerry Gregoire, to Fast Company back in 1999. At the time, the concept of customer experience was pretty innovative. Very few companies were deeply looking at how a customer felt about their product, rather than just how they used it. In many ways, this personalized experience harkens back to the “Good Old Days.”

“The Good Old Days”

Once upon a time, merchants knew their customers. The green grocer and butcher knew names and tastes. This knowledge led to personalized service. But times have changed. As David Marcus told Re/Code recently, “[We want to] change that interaction model to make it look and feel more like it used to in the good old days, when you walked into stores and had great interactions with the businesses you care about.” Customer service is how a customer experiences your company, your products, and your people.

Customer Service used to look like this … Contextual. Personal. Proactive.

As the 20th century progressed, more companies pursued scale. They used mass media to make people want things and build a moat of brand awareness; just ask Don Draper.

With scale comes challenges. It gets harder for companies to replicate processes and make it feel personal. Oftentimes, the importance of a personalized customer experience comes at the cost to efficiency. Take a few successful modern companies for example, that have resorted to very manual tactics to strengthen the customer relationship: McDonald’s nails the process, but no one feels special getting their Happy Meal. Walmart invests in Greeters to suggest friendliness (and deter theft), and Starbucks writes down your name on a cup. If you are enough of a coffee addict, you might know your neighborhood Starbucks barista, but you don’t have relationships with baristas across the country. In short, it’s hard for companies to scale relationships.

Today, modern companies create tailored experiences. Their technology investments enable intimacy with, and gain empathy for their customers. They know that communication, trust, and respect are the foundations of great relationships. Scale, convenience, and cheap prices no longer translate to market dominance.

The new market leaders have won partially by digitizing (and commoditizing) trust for consumers. As Ben Thompson, founder of the blog Stratechery notes: “The Uber and Airbnb examples are especially important: vacant rooms and taxis have not been digitized, but they have been disrupted.” Their competitive advantage is the combinatorial value of customer experience and assets in the network ( e.g. customer relationships, suppliers, etc).

Thompson describes this market disruption with his: “Aggregation Theory,” which states two key points about the Internet:

  1. distribution (of digital goods) is free; and
  2. transaction costs approach zero
When Distribution is free, Relationships become critical for achieving scale and building a sustainable competitive advantage

“Aggregation Theory”

Thompson (MB) says:

By extension, this means that the most important factor determining success is the user experience: the best distributors/aggregators/market-makers win by providing the best experience, which earns them the most consumers/users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle.”

Contrasting New Skool & Old Skool

These leading companies in the market pursue different operating rules (Sidebar: “Contrasting New Skool & Old Skool”). They focus on the customer experience, which permeates their operating cultures, business models, and investments; in some ways, it’s the way business was done historically.

Old Skool Rules

Many major companies continue to operate by the old rules. They lock customers into their product or service (e.g. cable; banks), because the switching costs are painfully high. Despite what companies may think, this market dynamic infects company culture. The customer begins to resent the company.

New Skool Rules

In the modern day, consumers choose where they do business. Moving forward, firms that are able to actively hear what is happening in the market, process the data, and formulate a response, are more likely to establish themselves as dominant players in the “modern economy.” They are seen as a trusted, reliable provider. “Trust develops when your favorite brands are looking out for you — if my car company knows that my car is due for service, why don’t they book my appointment and offer me some alternatives before I’ve even realized that I need service?,” remarked Pete Stein, the former CEO of Razorfish. Many of these new players have built competitive advantages unique to the new operating environment, fueled by the Internet’s distribution power and mobile phones.

So What?

So what does all of this mean? With “software” doing the eating, people rushed to digitize business processes and distribute information to customers, partners, and employees. When “mobile,” became the main course, companies built mobile apps with increasingly sophisticated functionality enabling real-time updates; for example, thanks to GPS, Walmart’s mobile app gives customers a different experience when you are in a Walmart store. Now it’s “relationships”, and companies need to think about how to manage the relationships and the communications that make them powerful, and potentially, a sustainable competitive advantage.

At Zendesk, we believe that great relationships start with communication. We are the choice of Unicorns, like Uber, Airbnb, Groupon and countless other modern companies (large and small), because we provide a platform for conversations that engender customer trust and allow companies to operate in the marketplace-driven economy. We build our platform to follow open standards, so it feels familiar to developers, and they can quickly iterate on it and personalize the communication over time. We also realize that we are in a modern era where companies have the flexibility to go best of breed and select the technology solution that best meets their operating needs. One of the many compelling advantages of the cloud, is that it allows customers to cost-effectively and efficiently invest in a best-of-breed technology stack, optimized against their business needs. We have a best-in-class live chat product, but if you want to bring your own, that’s fine. And importantly, our own products are built on an open platform to allow other companies to build fantastic integrations for our shared customers.

Relationships are complicated. We see modern companies succeeding because of the better relationship they build with their customers. Companies achieve this by leveraging technology to reach customers at scale, make those customers feel that their voice is heard and create a perception with customers that the business cares about them. This combination yields a strong customer base and a foundation for future growth.

Note: If you want to experience Zendesk for yourself, you can start a free 30 day trial here.

Special thanks to chris mctiernan, Daniel Kahn, Dan Kimerling, @Pencoyd, Tommy Leep + @PeteStein211 for reading drafts & providing feedback.