What’s “the next big thing”? Coming from Silicon Valley, I often get this question from executives around the world. Usually, they frame the question in terms of the next wave of technology innovation. They want to know what’s the next big technology that could disrupt everything?
That’s an important question, but I often shift the question to disruptive business models. Too often we get distracted by the latest new technology, but we don’t spend enough time thinking about the profoundly new business models enabled by these technologies. We fail to ask the Willie Sutton question: “where’s the money?”
In this context, I’m intrigued by the growing potential to scale a business model that’s been around for centuries, but only for the very wealthy and successful. It’s what I call the “trusted advisor.” What’s that? It’s someone who, rather than sitting on the other side trying to push more and more products and services to me, crosses the table to sit next to me and gets to know me so well that he/she can proactively recommend things to me that I had not even asked about, but that turn out to be extremely relevant to my context, needs and aspirations.
From affluent niches to mass market
The very wealthy have had trusted advisors for ages, in the form of wealth managers, concierge doctors or personal shoppers. This business model worked for them because the very wealthy could spend enough to justify the significant time and effort it required to get to know those people deeply enough to become trusted advisors. The rest of us simply could not access this kind of expertise and advice.
But that’s all changing now. With the advent of Big Data, sophisticated analytics, social software, the Internet of Things and cloud computing, just to name a few of the enabling technologies, the “trusted advisor” business model now has the potential to expand from the niche of the very wealthy to become a mass market event. These technologies make it feasible to compile a detailed understanding of the social and economic context of the individual at much lower cost than previously imaginable. We don’t have to submit to detailed interviews or fill out endless questionnaires to provide this information. The trusted advisor, with our permission, can simply watch and analyze the “digital exhaust” from our activities to develop deep insight into who we are and what is important to us.
Not only is this opportunity emerging because of the untapped capabilities of a growing array of digital technology. It also addresses an unmet need that a growing number of us have given the long-term forces that are driving the Big Shift on a global scale. The Big Shift is significantly expanding and rapidly evolving the array of options that are competing for our attention and money, and providing us with far more information about these options than we ever had before.
Yet, the truth of the matter is that, even with amazing technology advances, we still only have 24 hours in the day. One of our growing needs is to increase our ROA – in this case, return on attention. If we had a trusted advisor or agent who knew us intimately and who could help us sift through all the options available to us, we’d get far more value per unit of attention than we ever could on our own.
But, the key is we would need to deeply trust the business serving as our advisor or agent. How does that trust get built and preserved over time? This is especially challenging in a world where all the surveys indicate we are rapidly losing trust in all of the traditional institutions – businesses, governments, schools and all kinds of civic institutions.
Trust comes in part from the realization that the business knows us as an individual very broadly and deeply and is not just treating us as one more nameless consumer based on aggregated data that covers only a slice of our existence. That’s the easy part, given the new technologies that are increasingly powerful and cost effective in capturing, compiling and analyzing large amounts of data related to our activities and interests.
The real challenge is in convincing us that the business will use all of this data to serve our interests, rather than the interests of others who are trying to “target” and “own” us. For a business to do this, it must reverse the trend of current online business models that have been moving from subscription based revenue models to advertising based business models.
As long as the business depends upon advertisers or commissions from vendors for its revenue, can there be any doubt about where the loyalty of that business lies? It will first and foremost be loyal to the advertisers that pay the bills. If I am truly going to trust my advisor or agent, I have to be willing to pay that business for its services and be confident that the business is not being paid by the product or service vendors trying to reach me.
As mentioned above, the good news is that new technology platforms are significantly reducing the cost of building and running such an agent business at scale. The result is that the subscription services are likely to be increasingly affordable to a growing segment of the population.
There’s another key ingredient for trust. We need to be confident that the business will not artificially constrain our choices but instead provide us with the full array of options that are available and relevant to us. This will make it very difficult for the Internet-based businesses that are diligently trying to build “walled gardens” to keep us from venturing out and exploring broader options.
It also makes it very difficult for any established product or service vendor to build the trust necessary to play the trusted advisor role. If you have some products or services that you’re trying to sell me, how can I trust you to present me the options offered by other competing product or service vendors? Would you really be willing to recommend a competitor’s products or services if they were in fact better suited to my needs?
Doc Searls, in his great book, The Intention Economy and its concept of “vendor relationship management,” came close to identifying the opportunity for a trusted advisor. My only reservation about his concept is that it tends to be very transaction focused and triggered by an explicit intention of the user. The trusted advisor concept that I am outlining goes well beyond transactions to be helpful to the users in getting maximum value from the products and services they are using after purchase. It requires a deep relationship and understanding of the context and aspirations of each of us to be as helpful as possible in achieving our aspirations and adhering to our values. The trusted advisor also doesn’t just wait for us to express an intention – it helps to shape intentions by proactively suggesting actions that we hadn’t even thought about but that turn out to be enormously valuable.
The disruptive potential of trusted advisors
The trusted advisor business is likely to be disruptive to established businesses, both on the Internet and in the bricks and mortar space. Internet businesses have become deeply addicted to advertising revenue models and will find it very challenging to shift to a subscription based model. Bricks and mortar businesses – whether product manufacturers or retailers – have their own products that they’re trying to sell and would be deeply averse to recommending products or services sold by competitors.
But this is also why the mass market trusted advisor business model is such an interesting opportunity. There’s a white space out there defined by untapped capabilities and unmet customer needs that existing players will find very challenging to address.
When trusted advisor businesses begin to establish themselves, they could begin to capture much of the economic value that today is held by traditional product and service businesses and retailers. These trusted advisor businesses will now have a much deeper and intimate relationship with the customer than any of these traditional companies have been able to establish and they will have a growing ability to shape customer purchasing behavior.
These trusted advisor businesses could ultimately become infomediaries – a business concept that I first explored in Net Worth. Infomediaries have the potential to shift the ownership of customer data from the product and service vendors to the customers themselves. In this case, the trusted advisor could become the custodian of customer data and, subject to the direction of the customers, manage it on their behalf and determine who can have access to the data and under what conditions.
As we’ll see below, the rise of trusted advisors could also undermine the scale advantages that have driven the growth of established businesses in the past, creating an interesting structural advantage over time that could marginalize large, established players.
Economies of scale and scope
The rewards will be significant for companies that target and successfully occupy the trusted advisor role. The economics driving this business model have powerful economies of scale and scope. The more I know about you as an individual customer, the more helpful I can be to you in terms of recommending things that are truly relevant to you.
This, by the way, is a key obstacle for product and service vendors – they typically see only a slice of the activity of the customer. It’s the classic “share of wallet” problem – for example, if I’m a bank, am I handling 90% of your financial activity or only 10%?
Economies of scale and scope go one step further as well. The more customers I serve as a trusted advisor, the more helpful I can be to each customer, since I am in a better position to look for patterns of needs and value across a larger number of more diverse customers. This can often prompt valuable recommendations: “You haven’t expressed an interest in this, but I’ve noticed that many people like you are using and getting a lot of value from this product or service. Would you be interested in more information about it?” And the more customers I serve as a trusted advisor, the more insight I can gain from feedback loops in terms of responses to recommendations that I’ve made. I’ll learn a lot faster than a business that is serving a narrower segment of customers.
As a result, the mass market trusted advisor business enabled by digital technology is likely to become very concentrated over time. In the early stages, we are likely to see trusted advisors emerge in specific domains like financial services, wellness and healthcare, home ownership and travel. Over time, though, leaders in each of these individual domains are likely to extend out into adjacent domains, until the trusted advisor is helping customers across all domains of their activity. Think about it. As an example, if I’m advising you about your financial needs and I know more about your health, wouldn’t I be more helpful to you on a variety of fronts, including issues like investment goals and insurance coverage?
On a macro-economic front, the rise of trusted advisors is likely to accelerate fragmentation in other parts of the economy, especially in product and service businesses. A niche product or service business is likely to have much more success in connecting with the most relevant customers if there are trusted advisors that are investing in getting to know the individual needs of customers.
In contrast, the tendency of many consumer product businesses to consolidate in order to get preferred positioning in large “big box” retailers will likely diminish as trusted advisors become more active in shaping customer purchase activity and demonstrate their unwillingness to be influenced by product or service vendors.
And what about all those “big box” retailers? Will customers have as much need for their breadth of selection in a brick and mortar store if they are becoming more reliant on trusted advisors who can help them to quickly narrow the selection of what they might be looking for?
A path forward for existing companies
Does that mean that existing companies are precluded from addressing this emerging business opportunity? Not necessarily. It will be challenging, but there are evolutionary paths that existing companies might pursue. In particular, they might begin to develop a different approach to marketing, something that I have called “collaboration marketing.”
Rather than staying wedded to traditional push-based marketing approaches that focus on intercepting, isolating and insulating the “target” customer, collaboration marketing harnesses the power of pull to attract customers, motivating them to seek you out because you are becoming more and more helpful, assisting them to get more value from the products you’re selling. One of the most effective way to be helpful to customers is by mobilizing a large number of third parties who have complementary products and services that can help the customer get more value from your own products and services.
Companies that master the techniques of collaboration marketing will start to build more trust with customers based on their increasing helpfulness in addressing the customer’s needs. As I’ve suggested earlier though, companies traveling this path will ultimately need to make a very difficult choice if they are truly going to win the deep trust that they will need from the customer. They will eventually need to shed their own product businesses to reinforce with customers that they are truly impartial in terms of evaluating the full array of products and services that might be relevant to their needs. I have explored the “unbundling” imperative for existing companies in a Harvard Business Review article here.
The mass market trusted advisor role is not here yet, but companies aspiring to target this role should not be complacent and sit on the sidelines. This new type of business will be driven by powerful economies of scale and scope that will make it increasingly difficult to challenge early entrants once they build critical mass. This is a business that will not be kind to “fast followers.”
Given this, what should companies who are intrigued by this business opportunity do? Here are some early steps you might want to consider taking:
- Assess the customer data you might already have and determine where and how you might be able to proactively help customers (and resist the temptation to use this data for narrow cross-sell and up-sell purposes)
- Determine how you might be able to harness the Internet of Things and other technology to gain even more insight into who your customers are, how they are actually using the products and services you have sold them and their broader context
- Seek out and mobilize third parties that can help add value to the customers you are serving and connect them to your customers in ways that help them and provide you with more data and insight regarding their needs
- Find ways to engage in short term value exchanges that will demonstrate to customers that you are using their data to increase the value that they derive from your products and services and that will motivate them to share even more data with you
Remember, it’s not about the data you capture but the value that you unleash from the data and deliver back to the customer. The data will ultimately migrate to the businesses that can create the most value for the customer from the data.