hannahjara
Thoughts on
Smart Connected Products
in the Context of Business
by Hannah Jara
In 2023, solutions are so easily available at your fingertips at very affordable prices. The COVID-19 pandemic only accelerated the accessibility of such solutions with the advent of Shopee and Lazada in the Philippines. Although smart homes (with an integrated system for many if its appliances) are only commonly seen in high income households, this did not prevent companies from creating affordable smart devices that can be used by low to middle income families. I can still recall that when one of our light bulbs went dim, I tried to look for alternatives in Shopee and found one that has three distinct features: a remote control to change the colors of the bulb, a feature where you can have the lights transition from one color to another, and a speaker that connects via Bluetooth [1]. And all for 400 pesos! It instantly transformed my bedroom into a semi-club when desired, where the color pops from blue to green to yellow to red, with loud sounds from its speaker coming from my phone’s Youtube Premium account. It also allowed us to watch movies from my laptop with the sounds emanating from the said lightbulb. Unfortunately, after two months it gave up and we switched back to a typical light bulb.
This product is a good example of how smart, connected devices transform customer experience. With its emergence, it is difficult for marketers to identify what features to focus on that will not compromise the company’s financials, but also give a competitive advantage to their product. Having an open system of connectivity between products of different companies can either serve as an advantage or disadvantage. Although there is a tight competition among many devices in terms of which has the greatest number of features (that will maximize the price being paid by customers), I also noticed that it is still important to identify the customer segment that one product hopes to sell to.
A smart lampshade with roughly the same features can have stark price differences depending on the market they want to sell to, especially if one brand is already relatively bought by an elite group compared to another. In many cases, especially for the middle to high income classes, buying a smart product is on the basis of brand rather than functionality, for the sole purpose of appearing affluent. Another reason is that an established brand appears to be more reliable and gives the impression that it is less likely to break any time soon, compared to a cheaper brand. For the Philippines, this is commonly seen in products being sold as that from Europe or America versus those sold from China, with the former being viewed as “high quality” while the latter is perceived as “unreliable”. However, this is mostly seen for smart connected devices that have software integrated into the physical device; it is difficult to tell the difference when it came to software or service-based platforms if country source mattered in terms of quality.
The article "How Smart, Connected Products Are Transforming Competition" by Michael Porter and James Heppelmann mentioned an important concept where physical components can be commoditized or eventually replaced by software. For many products, the epitome of a smart connected device is the smartphone.
This revolutionary product is the only physical device one needs to operate several other products (in the form of apps). Hence, it is easier for many developers to profit because they no longer need to manufacture physical components, thereby channeling their research and development more into the functionality of software applications and online platforms. This is particularly true for Android mobile applications, where independent developers simply need to latch on to the system. However, the low barrier to entry also means there is high competition in the app development sector, driving profitability low, but also driving innovation faster. Although detrimental to businesses, the competitiveness brought about by these smart devices also open the doors to faster technological development that ultimately is for the betterment of humanity. As people say, we’ve seen more progress in the last 100 years than in the last 1,000 years.
For businesses that are traditionally not in the tech space, however, the open system does not serve as a threat, especially if one can have the first mover advantage. In my personal experience working in the business sector, the COVID-19 pandemic pushed our industry to shift to an online mode of delivering services.
Our greatest competitor that time decided to develop their online application in-house, while we decided to outsource the development to a software startup firm. Eventually, we were able to release a more advanced application in the fastest time, compared to our competitor that released one a few months after, with a less appealing user interface. This allowed high profitability and gave us a bigger market share for about a year. However, when the competitor was able to keep up with the software and considering that they had a bigger brand name, they were able to regain their market share, thereby limiting our profits in succeeding months.
Although brands like Apple prevent competition by keeping a closed system for their devices and software, they have slightly opened restrictions by permitting their iPhone and Macbooks to connect via Bluetooth to android devices. This is what the article referred to as a hybrid system where there is sufficient restriction to keep them at a competitive advantage, but also enough connectivity to Android systems to improve customer experience. However, as much as high competition pushes technology at a faster pace, a closed system can also hinder progress, especially if the management becomes complacent that they have established a strong enough brand. What may be profitable for a company, therefore, can be a disservice to humanity.
However, before any real breakthroughs actually occur, some products that become highly competitive reach a point that they are more similar than different. For example, for project collaboration platforms like Monday.com, ProofHub, Trello, ClickUp, etc., prices hardly differ with each offering the same one-week or one-month trial period. This heightens the bargaining power of both customers and suppliers (i.e., the software developers) because it is easier to switch between products. Hence for many of these companies, the “human aspect” of the business becomes one of the biggest advantages. When a customer has an emotional connection with the service provider, it becomes more difficult to switch. I also observed this among banking services in the country. While many certainly make use of mobile apps with good user interface, the customer service is what sets BDO apart from the others, with it being awarded as the Best Bank in the Philippines at the Best Financial Institution Awards 2022 [2]. Hence, although smart, connected products close the gap between the customer and the product in most cases, retaining and improving on the human aspect of service delivery can still drive profitability.
References:
[1] See product here: https://shopee.ph/UFO-Speaker-Bulb-With-Sound-i.102834492.4050198167
[2] See: https://www.bdo.com.ph/news-and-articles/BDO-Unibank-Best-Bank-Philippines-Award-Alpha-Southeast-Asia-Best-Financial-Institution-Awards-2022-BDO-Trust-BDO-Capital-BDO-Securities-BDO-Private-Bank#:~:text=(BDO)%20was%20awarded%20the%20Best,and%20trust%20funds%20under%20management.