The B2C2B era and its implications for us

Tom Tunguz had a great post introducing B2C2B (business-to-consumer-to-business) companies. The image below explains the idea –

B2C2BThe best way to understand this is to see what happened with the iPhone. In the 80s and 90s, all B2B productivity applications needed to be approved by 1 central corporate gatekeeper – the head of IT. IBM’s initial success in making Windows the corporate standard was attributed to that all powerful line – “No one ever got fired for buying an IBM.” This was a time when computing was necessarily expensive.

Over time, however, thanks to advances in technology and the Moore’s law, personal computing became inexpensive. So, consumers were soon able to crunch spreadsheets and store data at home. By the mid 2000s, enterprise apps weren’t better than consumer apps. In fact, in many cases, they were worse.

The iPhone flipped the old model of B2B sales completely. The product was so good that consumers who fell in love with it began badgering their IT departments to allow them to plug into the official network (that had become easier too). And, soon, the iPhone became a corporate standard across leading companies without Apple having to negotiate with any IT department. The iPhone as just the beginning – we’ve seen this across the board with companies who’ve had tremendous success with B2C2B.

There are a few interesting implications of this shift –
1. Every consumer facing enterprise productivity company in the future will need to grasp this concept and design applications that appeal to customers. The only companies that can escape this effect, for now, are companies that work on the back end.

2. That said, Amazon Web Services, AWS, is a prime (apt word when referring to Amazon) example of the B2C2B phenomenon and a role model for companies working on back end infrastructure. A cornerstone of AWS’ success has been customer love. It has made the lives of startups and entrepreneurs so much better. And, it has been rewarded with more trust as these startups and entrepreneurs have become successful. It, in turn, has proved itself worthy of that trust by providing the back end for companies such as Netflix and Dropbox.

3. Speaking of Dropbox, Dropbox’s move to Enterprise was inevitable. There’s a lot of money to be made selling to companies. And, Dropbox’s success was definitely an illustration of the B2C2B idea. Users loved Dropbox and found ways to use it within their teams at work. Over time, it made sense for corporate IT to embrace Dropbox. However, it is in that step that Dropbox had a few teething troubles. Corporate IT managers wanted more admin and security controls. This, in turn, underscores the challenges with B2C2B. Previously, you could just build products that kept corporate IT managers happy. Now, they have to feel in control AND the users have to love it, too.

4. Companies like Uber are experiencing this effect, too. Uber is already expensed more than taxi cabs. How long before companies strike enterprise level deals with Uber without Uber having to go seek them out?

5. For every positive story, there are companies that have experienced the pain caused by this shift. Microsoft Exchange is a prime example. Too many Exchange users complained about their unhappiness with having to manually archive their Microsoft email every 2 months because space limits on Exchange were outdated. So, there’s been a continuous shift to Gmail. Again, users love it. Companies follow.

6. Speaking of Microsoft, I wouldn’t extrapolate Microsoft Exchange’s troubles to Office. Despite advances made by all Office competitors, including Google Docs, Microsoft Excel and OneNote are still outstanding. And, PowerPoint does its job. (Word, however, is a travesty – can someone fix that?) It is great that Microsoft is proactively figuring out how to make using Office easier in the cloud. They are still the leaders here and the lead is theirs to lose.

7. As cool as “B2C2B” sounds, this isn’t a new world shift. Investment banks and management consulting firms have pursued this strategy for a very long time. There’s a reason that the Goldman’s and McKinsey’s of the world have “client first” written all over their walls. User satisfaction has led to company adoption in all of professional services. Aside from the fact that treating people well is simply the right thing to do, for professional service firms, treating people well is source of competitive advantage. Most of these alumni become future clients.

That said, there is a crucial point of difference. In the case of the internet, aside from the fact that network effects are more powerful (professional services have network effects, too), marginal cost is zero.

8. Google, Facebook, LinkedIn and Twitter are probably the 4 most influential B2C2B companies of the internet era. Their success is built on the same blueprint – build products that users engage on and customers (advertisers in all cases and others like recruiters in the case of LinkedIn) will follow. It makes sense that media was among the first industries to feel the power of the B2C2B shift. The first sign of customer love is their attention. Companies that do well to capture attention will continue to drive the online advertising market size upward. And, this, in turn, illustrates why valuations for consumer internet companies are off the roof. They are, after all, no longer “consumer” internet companies.

9. That, in turn, is why Facebook’s acquisition of Instagram could be among the best tech acquisition deals ever. Photos and messaging dominate attention in the mobile era. While Whatsapp has a few global competitors, Instagram helps Facebook dominate the world of photos. That’s incredible value of 1 billion dollars.

10. In “How Google Works” by Jonathan Rosenberg and Eric Schmidt, Jonathan and Eric share examples of many decisions Google made that resulted in a loss of revenue for Google but were still executes as they agreed it would be great for the user. I think those examples don’t share the complete picture. Sure, it might have lost revenue in the short run. But, in the long run, B2C2B dictates that the user’s love is far more important for long term revenue. So, keeping the user first isn’t a competitive advantage, it is a competitive necessity.

11. We are in an era where “customer is king” is, for the first time in history, very close to being true. We have more B2C2B companies than ever before and more will be created in the coming decade. Thus, it follows that the B2C2B companies will likely experience most success under leadership that cares about. Now, it isn’t just about what the product can do. It, truly is, about how the product makes the user feel.

12. I’ll finish up with a provocative point. There was a rush of people flocking towards entrepreneurship in the last decade as everyone seemed to be vying to be the next Facebook. For the many who were working for large corporations shipping products to nameless and faceless organizations, building products for human beings they could see, touch and feel felt really empowering. We are social animals after all. And, we want our work to count. Change enough people’s lives and you will change the world, after all. This has resulted in a chain reaction of schools and politicians emphasizing the importance of entrepreneurship. All of this is good. With the advent of B2C2B, however, I would assert that a few of those assumptions will, and should, be challenged. While the gains of creating a startup that goes on to become the next Facebook are, indeed, outsized, I would argue that there are more opportunities than ever before to touch the lives of real customers. That’s what the B2C2B era has done for us.

What makes this all interesting is that the rules of engagement in this era are shifting really quickly. This is why “preferred qualifications” list in technology jobs read like a description for superwomen/men. Entrepreneurship and innovation are mentioned as required traits too often in too many job descriptions. It shouldn’t be surprising, though. With all these shifts, being able to learn, empathize with customers and build products and services that resonate are more important than ever before. And, that’s why I believe schools need to spend time on discussions around “being entrepreneurial” vs. “being an entrepreneur.” We don’t need more companies. We need better companies.

B2C2B, to me, is among the most profound shifts we’ve seen in the past few years. What makes this all incredibly exciting is that this is all just the beginning…