2013-04-25

The Rise of Pre-Commerce

The sharing economy and crowdfunding have fundamentally altered the way we develop products.

Business is social. At its core is a seemingly endless series of social interactions—not just internal relationships, but external ones as well, involving investors, suppliers, resellers, customers, government agencies, even competitors. Over time, these ongoing conversations and exchanges fundamentally shape the products, partnerships, and value footprint of every successful brand.

While the social nature of business is nothing new, the recent rise of globally networked social media and the growth of the sharing economy has changed the rules of the game. Old business models are coming apart at the seams. Outsourcing, crowd funding, viral marketing and access or subscription-based services are challenging historically favored strategies in many areas—including, perhaps most surprisingly, product development. The fantasy that the customer waits for products to be developed and distributed suddenly appears to be so last century.

Welcome to pre-commerce, a powerful product development engine fueled by social networks and propagated by designers publicly honing their voice and story. In some industries, community voices just became more powerful than executive off-sites and PowerPoint.

Company as driver: Top down

At the height of the Industrial Age, product development followed a more or less linear road map from manufacturer to customer, with established corporations unilaterally defining new offerings, design specifications, production volume, timing, pricing, positioning, shape, color and distribution channels. In this model, data from surveys, focus groups and customer feedback provide a certain amount of advance intelligence, but there’s always a good deal of guesswork involved in forecasting market demand. Guess wrong and you end up with a warehouse full of unwanted widgets, a tarnished brand and a boardroom full of angry investors.

Top-down product development worked well enough for the big guns of 20th-century commerce—wealthy corporations that excel at refining consumer products through multiple iterations and cultivating brands across multiple generations. But this approach tends to favor large organizations that can afford to invest heavily in R&D, and also absorb the cost of swinging and missing a few times before knocking one into the bleachers. For smaller players, it’s one strike and you’re out.

Community takes the wheel: An outside-in approach

The social media platforms that link millions of people in radically horizontal relationships have enabled a new twist in the product development cycle.

The process goes something like this: A company or individual comes up with a product concept and puts together a low-cost web-based presentation to pitch the idea directly to potential micro-investors and/or customers. In many cases, the essence of the pitch is fully contained in a short video featuring a prototype demo and a personal appeal from the product designer or company founder. Almost always, a palpably human story is what sells these products and programs. The pitch is published online, typically on a crowd funding site such as Kickstarter, Indiegogo, Catarse, Ulule or Quirky, and promoted via social networks like Facebook, Twitter and Pinterest.

These products and services typically exist only as ideas or prototypes. The proposition is that the product will only make it into your hands if the developer reaches a defined threshold of support from a community of fans (and future customers). In other cases, developers can test the market by selling early-stage products at very low volume through incubation-oriented ecommerce marketplaces like Etsy or Threadless. Either way, the developer has the luxury of refining a product based on real customer feedback before deciding whether or not to ramp up production.

Accelerating innovation and ditching waste

When people first began to contemplate the impact of social media on business, much of the attention was pulled in the natural direction of customer support and public relations. Now that we all have the ability to connect, collaborate and act together in numbers, social media has emerged as a powerful thread that connects business innovators to customers. Since 2009, nearly $2.8 billion has been raised on crowd- and community funding services, a substantial portion of which funded new products or businesses. This means that products are being bought (or not) before they are made and distributed.

This model is scrappy and sensible. It reduces waste, encourages innovation, gives smaller players a shot at the marketplace, and ensures a built-in community of customers who will support entrepreneurs from the start. If proposed projects or products do not secure a minimal level of support, that insight alone is highly valuable—both financially and for brand equity.

I call this model pre-commerce (riffing on the term "pretail" coined by trendwatching). It may soon become an essential pre-launch step for any product road map.

Risks and Rewards: The Path Ahead

There are new challenges that go along with the presale of a product from a nascent or nonexistent company. One of the principal problems has been a lack of due diligence regarding the feasibility of the product proposed and presold. With no third party evaluating the project developer’s competence, presumer backers incur the risk of late or no delivery.

For players big and small, here’s something else to consider: Pre-commerce gives competitors early access to strategic information that would otherwise be considered company confidential. However in the increasingly open, connected and transparent world of social media, access to new ideas, product prototypes and community interest is readily available. Additionally, many product ideas come from outside our organizations. The visibility within and between companies makes the pulse of innovation accelerate and easily cross borders.

We are early. To date, this method has been used almost exclusively by upstarts. Going forward it’s not hard to imagine that well established brands like GE, Proctor and Gamble, Unilever and Bupa will source and test new product ideas beyond their organizational walls. As product cycle times decrease and the cost of waste (unused inventories, patents and talent) increases, the scope and frequency of experiments will grow. All the incentives and much of the infrastructure are already in place.

Now is the time. What separates your brand and company from a world of innovative independent designers is only a semi-permeable membrane. Invite, explore, learn and refine your company’s reach and capacity to provoke innovation through pre-commerce.

Kelly Rakowski/Co.Exist (Illustration)

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2 Comments

  • kevin fullerton

    "but there’s always a good deal of guesswork involved in forecasting market demand". Taking this line from your article is case in point for one of the main features of our startup PartingOut.com. We have created an open venue for both large Auto Salvage Businesses and small independent or hobbyist to list and part out vehicles. In this industry the inventory or listing of each part can become guess work or blind hope once you have moved past the say top 20 parts. We believe in letting the market decide what gets listed by allowing the buyer to list the sellers parts initiating a negation to purchase in an accountable and equally shared  environment.  
    Good Article
    Kevin Fullerton founder PartingOut.com

  • Danielle Zarlino

    CISCO sponsored bots. Do you know that ever one of these brends, yes brends, are all AI. Where are the original thoughts? The game is on. Do you want to play with me? http://www.startmyripple.com +1 (614) 448-0090 @RipplnPlayers Coach Z (that's my dad) I am a college student thinking of where I will be in the next 100 hours not years. Local Community is where we all need to focus. What or how can you do anything for the guy or gal in the next state when you have real live people within walking distance that need some love or food or just a friend to talk with every day or so. Be a part of the shift not trend and create your own brending brigade of your own brenders and earn while you learn how to communicate better manage better and serve better every day using video and short code technology. CISCO ingress router bot rules rdf but you rule your own future should you join the revolution of brenders. Did you see the site map sent out today by our own tax dollars. Each page has different rdf. Why? Don't they all work for you? Do you have access to them as a first responder. Sir Tim Berners-Lee (make sure you enter his name the same way) vision of the semantic web will never reach it's full potential when you still have people today that don't understand the internet is not a game. The game is on. Do you want to play with me?