11436 SSO

Your Demand Chain Is Dying

MichaelE
Jun 13, 2018

Until recently, one of my favorite places to see a movie was this theater in Cupertino, California—not because it had the area’s biggest screens, best seats, or most ear-shattering speakers, per se (though all of those were fine), but because it resided in a dead mall: 1 million+ square feet of real estate that, aside from the theater and an ice cream shop, was largely, eerily unoccupied.

It was a great place to beat the crowds because, well, often there were fewer of them—but alas, the theater closed earlier this year, as the mall began moving through development planning processes toward whatever the vast space’s next incarnation happens to be. Perhaps apartments where instead of watching movies on big silver screens, people will watch them on smartphones, tablets, and maybe even augmented reality wearable devices.

This sort of situation is growing more common. Last year, thousands of retail stores closed, and Wall Street analysts project that up to a quarter of all U.S. malls may close by 2022. It’s also part of a bigger phenomenon that stretches far beyond malls or retail.

Some 25 percent of U.S. households now buy groceries online, for example. Three-fifths of adults under 30 watch TV primarily via streaming. Nearly half of U.S. consumers conduct their finances via digital channels, without visiting brick-and-mortar bank branches. Car buyers may be as likely to get their first impression of a new vehicle via a rideshare experience as through a dealership commercial—and that’s if ridesharing hasn’t deterred would-be buyers from making a purchase.

Across these examples and many more, the old channels through which enterprises attracted and satisfied customer demand are dying.

It’s not about any one channel

Many culprits are behind these channel deaths, including a range of macroeconomic factors—but one of the throughlines in the trend, of course, is digital disruption. The way we buy things and consume services in a world of ubiquitous connectivity, proliferating mobile devices, and agile software experiences is different than the way we did those things in the analog days.

For many legacy enterprises, this is a significant threat. Customers want to buy products and consume services on their own terms, when and where they choose, with as little friction and as much convenience as possible. Companies that can’t meet this challenge today may not be in business tomorrow.

To survive, organizations shouldn’t approach dying channels as a piecemeal problem or as a series of projects. Business leaders can’t just say, “We have a store, a website, a smartphone app—we must be good to go.” It’s not about being in any single channel. It’s not enough to sell online — organizations need to develop the ongoing agility to able to sell anywhere and everywhere.

Using APIs to build new channels

Business doesn’t just occupy physical space anymore. Rather, it is increasingly expressed as software—software that can be quickly leveraged to insert the business in new contexts and enable new business models at potentially any scale. What used to occur at a physical point of sale or a brick-and-mortar showroom can now also occur via mobile apps, voice interfaces, augmented reality, and much more. For application developers, these software expressions typically take the form of application programming interfaces, or APIs.

If a consumer orders groceries through an app, that app has been constructed by developers using APIs—inventory APIs that call up the products the consumer can buy, APIs that give access to systems of record so the customer’s profile and order history are accessible, APIs for shipping functionality and to accept payments, perhaps even an API that lets the developers leverage machine learning so the app can give the customer intelligent recommendations in the future. If you think of those groceries as the products a chef uses to make a fine meal, then think of APIs as the products that developers use to create digital experiences.

When an organization expresses part of its business as an API, it can then leverage the API to more easily adapt to changing conditions. Western Union built API products around its core money transfer service, then used those APIs to build a Facebook chatbot, for example. Given that over 1,700 bank branches closed last year and more consumers are turning to digital options for their financial services, this was a smart strategy. As my colleague David Andrzejek put it in the Financial Brand, when confronted with changes to how customers interact with physical branches, Western Union “opened a ‘branch’ inside a social network” to meet users where they preferred to be.

Crucially, it’s not enough for a business to simply possess APIs or to connect systems. The idea is that the API is a product that empowers developers to unlock new opportunities—that is, the APIs should express core aspects of the business and be designed not just for exposure but also to facilitate easy developer consumption.

Walgreens, for example, has adapted to changing customer behavior by making its photo printing services available as an API product so developers can build apps that let users snap smartphone pictures and immediately send them for prints. The brand also offers APIs products for, among other things, creating apps that let customers fulfill prescriptions and that give users Walgreens loyalty points for various activities.

As an entirely API-based company that helps developers build new brokerage services, Tradier takes this idea even further.

“We wanted to take everything that is locked within the four walls of a legacy brokerage firm and empower developers to build amazing products that people have never seen before,” said Tradier founder, chairman, and CEO Dan Raju. “We have learned over time to think of ourselves as an API product company that is enabling an ecosystem.”

 

Digital ecosystems: the answer to channel death

APIs can provide internal value, such as facilitating platform consolidation or accelerating internal development. But because APIs can represent aspects of the business that can be modularly combined in new ways, they also provide value externally—e.g., more rapidly onboarding partners, tapping into the creativity of independent developer communities, and harnessing what other ecosystem partners have already built to fill go-to-market gaps. These external use cases are what ecosystem participation is all about — and how many companies are adapting to shifting channels and changing customer behavior.

Brazilian retailer Magazine Luiza, for example, used APIs to open its online marketplace to external sellers, complementing its own inventory with a potentially limitless ecosystem of third-party participants. Replacing a legacy e-commerce model that supported only 35,000 SKUs, the new global online marketplace features more than 1.5 million.

Weather media and big data company AccuWeather has similarly tapped external ecosystems to open new channels. The company had a well-established process for onboarding its numerous enterprise partners but lacked an adequate system for engaging with SMBs and independent developers.

In today’s economy, this posed a potential risk. “A single developer always has the potential to be working on the next big thing, and become our next big enterprise partner,” said AccuWeather senior technical account manager Mark Iannelli. “We needed a way to reach them.”

The company’s solution was to create monetized API products tailored to different types of developer needs and to make the APIs available via a user-friendly developer portal that contains documentation, testing tool, and other resources developers need to get up and running quickly. AccuWeather offers APIs with near real time weather data, for example, but it also offers options with more periodic updates for developers who require lighter data overhead.

Within 10 months of launch, developers had created 24,000 global accounts via the portal, and 11,000 API keys had been issued. The effort has significantly broadened the range of developers working with AccuWeather’s APIs, and it is helping the company to build out the variety of channels in which it operates, which vary from mobile, smart car, and smart TV apps to traditional print and radio services. AccuWeather now processes over 35 billion daily API requests for its data and services.

 

Evolution is inevitable but failure doesn’t have to be

Channels will continue to rise and fall—and even to blend. In retail, for example, consumers increasingly expect actions in apps to be reflected in physical locations, actions in physical locations to be reflected in apps, and apps to improve and augment the experience of physical locations.

The key is to accept this sort of change as an inevitability—just as nature evolves, so too does business. Enterprises can embrace this inevitability by adopting an approach that provides the adaptability, extensibility, and agility to continually evolve: API-first development coupled with broad ecosystem participation.

As enterprise leaders build out their ecosystem strategies, they should be wary that ecosystem participation sometimes becomes conflated with imitating the large platform companies that sit at the center of many ecosystems. This conversation isn’t about that. Most companies aren’t going to become gravitational platforms that the rest of the ecosystem revolves around, à la Google or Facebook or Netflix. But to get value out of the ecosystem, they won’t need to because ecosystems aren’t about attracting everyone else—they’re about mutual reinforcement, network effects, and scale.

“You are actually participating along with an entire set of players of which you are just another,” said Tradier’s Dan Raju. “It is not a hub-and-spoke architecture where you’re in the center of the hub. It is an ecosystem idea where you along with everyone else is delivering value for the entire ecosystem, and you are just enabling and empowering.”

This post originally appeared in Medium.

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