Clever solutions for obvious problems
Since the dawn of the Industrial Revolution, human progress has been largely driven by a focus on developing technical solutions to well-defined problems. The invention of the electric lightbulb was clearly going to be a hit, because humans had been meeting their need for light at night ever since we built the first campfire outside our cave. The lightbulb could perform the same task, but better.
However, if you’re looking for new problem to solve, you will need to find unmet needs in the marketplace. Discovering customer needs is inevitably a time consuming process, and many entrepreneurs choose instead to skip it and move quickly to the fun part – building innovative new products.
After all, Henry Ford famously insisted that customers would just tell him that they want a “faster horse”. Steve Jobs said that “people don’t know what they want until you show it to them”. Elon Musk claims to “do zero market research” and instead his team focuses on building products that the engineers themselves love.
Passion is a key driver of progress, and it’s certainly a challenge to get engineers fired up about customer research findings when it’s not a problem they have themselves. But increasingly, they don’t have to. Artificial Intelligence is happy to do it instead.
When AI is your engineer, competitive advantage doesn’t come from solutions
AI is fundamentally a “solutions machine”. Given enough examples of the outcome you’re looking for, or a definition of how to judge the solutions, or other sources of feedback, supervised machine learning algorithms can generate an infinite number of solutions.
Not only can it find solutions that no human would have thought of, it can often create them so cheaply that it becomes cost-effective to create bespoke solutions for a single customer.
That sounds wonderful, until you remember that your competitors have access to the exact same algorithms and AI services. In some cases, the talents of your Machine Learning experts might set you apart for a while, but increasingly these technologies are becoming accessible to all.
This fundamentally changes the game, in a way that most companies have yet to fully grasp. No longer is competitive advantage created by ingenious new technologies, it comes from the data you collect and from your ability to use AI to create customer value.
We are already seeing this play out, as tech giants dominate
Let’s illustrate this with an example. In the mid-90s, an entrepreneur starts selling a small selection of books online, because he realises that despite not having the cost of physical bookstores, the Internet will allow him to offer a convenient customer experience.
However, as his number of customers grows, the entrepreneur quickly realizes that the data about which books each customer has purchased reveals something about their needs and preferences. His team develops a “collaborative filtering” algorithm that uses this data to automatically generate personal recommendations for every customer.
In this way, Machine Learning provides a personalised customer experience that simply wouldn’t be cost effective to provide manually for a purchase as small as a book.
Customers appreciate the suggestions and make more purchases. The bookstore grows and diversifies, eventually becoming the most valuable company in the world. Yes, I’m talking about Amazon.
Truly knowing your customer is the hardest challenge
This is why people say that “data is the new oil”. Gathering more data about your customers and the world they inhabit is now the primary source of competitive advantage – not the ingenuity of the technical solutions that your engineers create.
It’s glaringly obvious that Google and Facebook understand the value of customer data, but outside the IT sector, not every company has realised how important it is to their future.
Let’s take cars for example. Elon Musk might proudly claim he does “zero market research” (even if his Twitter account tells another story), but he also knows that other companies will eventually catch up and make acceptably good electric vehicles. That’s why Tesla is investing so heavily in Artificial Intelligence, because they know that’s where this decade’s competitive advantage lies.
By including ‘self driving’ sensors in its cars long before Autopilot could even navigate out of your driveway safely, Tesla has built up more real-world driving data than any company on the planet. Even their competitors openly admit that this strategy has put them years ahead in the autonomous vehicle race.
However, they’re still missing masses of market opportunities, because their AI systems are mainly geared towards learning about the world around the vehicles, rather than the occupants inside. If Tesla’s team of elite AI engineers turned their attention towards discovering the needs of their customers, they might find that it helps them deliver a better customer experience more easily, and at a lower cost.
Faster isn’t always better
To take one example among many: if your electric car learned what type of cuisine you enjoy, it might suggest a leisurely lunch at a restaurant you’d love – giving your car much more time to charge than if it had sent you to quickly ‘Supercharge’ and grab fast food.
That might seem like a trivial change, but start running some numbers on the cost of providing superfast charging – such as upgrading electrical grid connections – and you’ll realise that the savings could quickly run into millions of dollars.
This is the mindset shift that companies need to make. Instead of shying away from the fuzzy complexity of customer needs, innovative companies need to embed their customer research processes into their products. Those that construct the best ‘flywheel’ that uses their product to get clearer insight into a customer’s needs will collect the data that AI needs to improve the customer experience – which boosts engagement, loyalty and growth – which unlocks more data, and so on.
The tech giants understand this, and are growing rapidly as a result. Now it’s time for everyone else to embed this new mindset into their company.