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I recently attended the Forbes Philanthropy Summit in New York where Bill Gates, Warren Buffet, Bono and others talked about the state of various global social inequalities. In one interesting session, Bono gave his take on what he calls the “Transparency Revolution” and how information transparency is the key to fighting the corruption sustaining these social inequalities in Third World Countries. The idea is that if corrupt political manipulations were known to the public, those behind them would be deterred from such practices fearing they could face the consequences of their actions.
Just as information transparency is working to expose and deter corruption in the Political World, it is also beginning to expose customer exploitation in the Business World. But few seem to grasp the magnitude of what it is about to mean.
For those of you in the Information Technology Industry, there is a famous saying that goes something like this — “No one ever gets fired for buying Cisco”
I first heard the phrase when I was in college and assumed it to reflect wide-spread customer endorsement of the great value proposition of Cisco’s solutions. That was my understanding anyway from an “Outsider” point of view. Later on, in my professional career (designing Information Technology), I began to see things entirely differently — this time as an “Insider.” I soon realized it was not Cisco customers promoting this saying, but rather it was an instrument designed by a collusion of the company’s own “Insiders” working together to strengthen their profit hold on their customers.
So, who are these “Insiders”? They are a collection of different groups brought together by a singular aligned common interest — to make the customer pay as much as possible. From huge sales, marketing, and business development organizations to multi-tiered distribution channels, to complex user experiences and certifications, professional system integrators, and post sales re-occurring support and licensing parties. Whether they know it or not, customers have been largely paying for a set of “relationships” that have nothing to do with technology value of the product they are paying money for. They are essentially getting ripped off.
Traditional company business models aren’t built to empower customers and pass on value to them. They are built to extract profitability from them. And information asymmetry gives them the perfect cover. But, with an increasingly connected world paving the way for more and more information transparency to the customer, all of this is about to change. No longer are “Insiders” able to control the flow of information. If a product is great, soon customers will tell other customers on the Web and rave reviews spread like wild fire. Similarly, if a product is bad or customers realize they are being ripped-off, relationships will provide little recourse to contain that information from being widely disseminated.
What does this mean moving forward? As an Engineer first who enjoys building great products, and a Businessman second who has no patience for politics and inefficiencies, I feel very fortunate to be at the early stages of my career in this point of time. Moving forward, I can say with certainty that the most successful tech companies of the future will be the ones who deliver the best products and technology value first and foremost which empower customers. This is very different than the traditional business model which leverages relationships to control information asymmetries and extract profit from customers.
Three companies that I believe are positioned well in an increasingly information transparent world are: Tesla (Electric Vehicles), Xiaomi (小米科技; Smartphones), and Ubiquiti Networks (Enterprise/Carrier Technology). What is important to note is that although these companies deliver technology value very efficiently, all take concentrated R&D approaches to produce leading edge performance products which in turn generate evangelism for their brands.
Recently, a new Tesla Model S has been parking next to me in my apartment garage. And each time I see it, I feel a growing impulse to buy one. There are many articles about Tesla’s business model and whether they have future staying power. I thought it might be interesting to give my insight on Tesla and the successful launch of the model S from a product designer perspective.
When people think of Tesla, they think of a company betting big on the idea of a future auto Industry dominated by electric cars. The company’s public relations and marketing campaigns are built around the “saving the planet” ideals of their electric drivetrain architecture. And it has worked beautifully — huge awareness has been created for the company virtually overnight.
However, behind Tesla’s whimsical vision of electric cars is a multitude of impracticalities including the car’s high price tag, cost of maintenance (battery life depreciation), and charging inconveniences which basically renders its use to a secondary commuting vehicle. Now ordinarily, this would be enough to scare away potential buyers. But not in this case. Why? Because people ultimately don’t buy Tesla cars because they are electric. In fact, when was the last time you have seen a “save the planet” activist drop 6 figures on a car?
The reason people buy the Model S is because it is an awesome product with key innovations both in industrial design and user experience that hypnotize prospective buyers into looking past impracticalities of the electric drivetrain. In effect, Tesla has “hooked” in prospective customers using a monster PR and marketing campaign leveraging the uniqueness and earth friendly attributes of the electric car vision, but have successfully converted them to owners with their great product design despite it being an electric car.
When people choose cars, it’s a very similar decision process to how they choose the clothes they wear. They select designs which reflect qualities or an identity they would like to project to others. Tesla’s designers did a great job of grafting certain qualities into their industrial design which strongly match those qualities their financial and demographic target market want to project. Essentially they have taken a traditionally conservative/functional sedan category and have reinvented it with an understated, wickedly cool factor.
The best product designs can illicit emotional responses from their users. Often times, users can’t even describe why they are so fond of a particular product experience and this is precisely a reflection of great design. It’s analogous to a brilliantly crafted scene from a classic movie which grasps the viewer, but only after reviewing the scene over and over again, can one recognize and appreciate all the great details that had to come together to make it special. Tesla’s industrial design incorporates several small innovations that collectively create a hypnotic effect to the outside viewer. The design is equal parts elegant, fierce, and progressive; something difficult to do without appearing over the top. It’s completely cool without trying to be; and that is what makes it so attractive to its target market.
Here are a few of my favorite details of the industrial design
A. The lights: There is something very elegant about clean and bright pure white light. Tesla uses this lighting strategy throughout the car.
B. The remote: Tesla has designed the coolest remote entry key out there. A detail not nearly paid enough attention to by the auto Industry; it’s something the driver always has to carry around.
C. Integrated larger rims: Lots of car owners upgrade stock wheel rims to much larger rims to give their cars a more aggressive look. Although it looks great, it projects an “over the top” message. Inherent in the model S design is a symmetric balance that incorporates larger wheel rims. The result is a powerful but under-stated look.
D. Seamless retractable door handles: This is another small detail, but it has a huge psychological impact to the user. It encourages me to the conclusion “if they put all this thought into this traditionally overlooked small detail, then every detail of the car must have had equal attention to detail.”
E. Great design symmetry: By curving the side windows and tapering the interior cabin width, Tesla has created a look that is equal parts sedan and super car. From the side angle, it looks like a balanced sedan, but from the backside, it appears powerful with a low center of gravity more characteristic of a super-car. Again, they have managed to do this while maintaining an under-stated image.
The user experience of the model S is just as impressive.
Even though the original iPhone proved that a pure software-based interactive experience was a superior user experience, Industries outside of mobile computing have been slow to follow. Mechanical buttons and controls are completely primitive by today’s standards and so frustrating and cumbersome to use. Yet, the auto Industry has been slow to catch on.
Tesla gets it.
At the heart of the model S user experience is the giant touch screen. They could have settled for a 7″ or 10″ screen, but they went to a full 17″ screen from the start with a completely software-based interactive experience. It’s so obvious and superior in every way to a traditional car user experience. More efficient, intuitive, can easily be upgraded anytime, and just feels way cooler. Tesla is the first car company I have seen who understands that the future of great cars is not just about how they drive or specifications, but about how they interact with the driver. In a sense, the model S was designed to be a computing device itself.
Closing Thoughts and What I would do if I were Elon Musk
In addition to Tesla’s superior industrial design and user experience mastery, they have also exposed another huge inefficiency in the Industry: how cars are sold. In my opinion, the way cars are sold today is completely insane. Dealerships located in the middle of nowhere with huge amounts of diverse inventory? Clueless sales people who just waste customers’ time? And why does buying a car have to take a full day of sitting at a dealership completing a purchase? And are test drives really that important? Most people already know whether they will buy a car or not by the time they do their research and just sit in it — especially these days with all the information transparency the Internet provides.
Tesla’s retail store strategy is as obvious to me as their design direction. It’s far less costly than traditional dealerships to operate and it is far superior for marketing the car. The retail stores can effectively demonstrate the qualities and user experience the car offers as well as be strategically positioned at diverse locations with high consumer traffic. Best of all, they are not co-located with any other competitors like traditional dealerships are.
Although Tesla’s mission to grow an Industry of pure electric vehicles has proven to have great leverage in building powerful PR/marketing initiatives and public market valuations, I am not so sure it has great leverage in building a company that will disrupt the auto Industry and take the lion’s share of the profits.
1. Keep the current messaging of Tesa intact, emphasizing the benefits of electric vehicles, but shut-off R&D spending on pure electrical drivetrain vehicles and abandon the charging infrastructure network build-out
2. Take the incredible core strengths of the company (Industrial design, user experience, retail stores) and quickly re-focus them on a robustly manufacturable <$50K hybrid car that can be sold to the masses
3. Look for overseas production facilities and focus very quickly on expanding capacity and operational efficiency to close the operational competitive advantage gap the rest of the auto Industry has today.
The challenge Tesla faces is they have exposed now-obvious design and sales inefficiencies to the rest of their competitors in the Auto Industry. At the same time, they do not have the production capacity and operational efficiencies to be cost relevant against these same competitors. So, if they really want to disrupt the entire Industry, they will have to address their operational disadvantages before the Auto Industry takes notice and starts to incorporate the company’s own design and user experience innovations.