Understanding Value Exchange Models
Deep Dive into Value Exchange Models
Do you understand your value exchange model? The economic value of a software-enabled solution is the benefits a customer receives less their costs. How a customer exchanges money for this value represents a critical design decision for product leaders with substantial, long-term implications for their underlying technical and business architectures as well as the sustainability of their solution. This topic is often misunderstood in product management.
Are you curious how your value exchange model directly influences the profitability of your business model? Join Carlton Nettleton (SVP of Product) for the next installment of my Maximize Your Software Profits series:
Understanding Value Exchange Models was recorded on Tuesday 11/8/2022 and explored:
- The 6 patterns describing how value can be exchanged between customers and producers of software-enabled solutions
- The Profit Implications of Value Exchange
- Usage, Software Architecture, and In-License Agreements
Note: Transcript produced with the help of AI. Please ignore spelling, punctuation or other grammar-related errors.
Bob Ternes 00:00
Call Center. I'll kick us off here. And thanks for mostly Thank you. Thank you for everybody for joining Good evening to those folks across the pond. Good night to and and Good Day to everybody else. Welcome again to our webinar on value exchange models. My name is Bob Turnus. And I'm the Director of Client delivery here at Applied frameworks. Now, for those of you who are new to applied frameworks, we are a management consulting firm that guides you in discovering the product management, and software development practices that best fit your business and your customers. Now, whatever frameworks or techniques we use to get there, we're all about improving our client's business outcomes. Our goal is to help you make more money, more profits, and yet do so sustainably. And I mean that in all uses of that word. We specialize in three main areas. The first is product management for which we offer a robust online learning journey available for all product professionals. We're also experts in Lean and Agile best practices as found in safe and Scrum with a large and growing stable of CSTs SPC ts nspcs. And finally, we've created our own framework called profit streams, which is the underpinning of our webinar today. Profit streams helps organizations maximize the profitability and sustainability of both software and also software enabled products and services. So that's us welcome. Again, we got a couple of housekeeping items before we get started. And as a reminder, this webinar is being recorded shortly after the webinar will send out a recording of the session along with the slides presented. We also even though this is a presentation, we certainly want, we want audience interaction. We want to hear your questions. Now, even though we just had this lively chat session, we'd instead ask you to use the q&a function in zoom to ask any questions. So that way we can capture those questions, answer them throughout the session. And then also, if there are any that we don't answer during the session, we'll answer them afterwards and include that as part of our follow up email with the recording, and the session. So I think that's all the housekeeping items. And now, I'd love to introduce our presenter today, who is a certified scrum trainer, a longtime change agent, with deep experience in product. And then finally the instructor for our course and product streams, which is a topic I'll return to at the end of our session. And with that, I will hand it over to our presenter, Carlton Nettleton.
Carlton Nettleton 02:46
All right, well, hey, thank you very much, Bob. And thank you everyone for attending. I've got a short. I've got some slides here. Not sure how short they are. But we'll put them up to kind of get us started. Got to do something here. Background, okay. So I just want to make sure we get this all set up properly and not doing it. I don't use slides. I apologize for everyone for this little. Except I think that will solve the problem. Alright. So this is our topic today we're going to start about understanding value exchange models, which are part of the applied streaming frameworks, profit stream framework. And let's talk a little bit more about my background here. I am the SVP of product here at Applied frameworks and Certified Scrum trainer. I've been involved with Agile software development for 20 years starting out as a programmer with extreme programming. And I live in work in Portugal and I have a puppy Boston Terrier puppy named Bruno. Bob really has kind of talked about our what we do at Applied frameworks. And the part that I want to add to that is really thinking about how do we help your business, create more profitable software enabled solutions, right. So a lot of people will talk about value and value is talking about value exchange, that is the gateway to profit. But what we're going to talk about here is these value exchange models because if you don't design a good value exchange model, you're never going to get to profit. So that's my puppy, brand new. So let's talk about some past experiences where you've exchanged some value. And I'd like you to think back to the last personal or professional item that you purchased. And think about what did you buy? And it can be anything that you bought. It could be something you bought online, it could be something about the store. Okay, and once you have that in mind, please type your responses into chat. Right So if what was the last thing that you bought either personally or professionally, either online or in person? Above, you can type something into chat too, right?
Bob Ternes 05:11
Yes, absolutely. So
Carlton Nettleton 05:16And I get distracted for chat. So what's in chat that looks kind of interesting. Bob, what are some things that people have bought?
Bob Ternes 05:25
Yeah, we have an E bike. Kudos to an investment in fitness. Ski jackets. Similarly, plan line. Charlene Newton, ski pants, apparently skiing is, is on the horizon? Boxing gloves. We're very fitness oriented groups.
Carlton Nettleton 05:42
Yeah, writing this all down. Okay, cool. We got a good variety of things here. And so one final question, though, that I want to ask you as it relates to our topic in this scenario that you identified either the ebike the plant like the boxing gloves, or the ski equipment? How was value exchange? Right. Think about that. What happened when you made that purchase? How did you do that exchange? Once you've thought about that, type that in the chat, let's see how people are exchanging value today. See,
Bob Ternes 06:25
we have some, some purchases on Amazon.
Carlton Nettleton 06:28
Okay, so Amazon.
Bob Ternes 06:32
Okay, a couple of other items that people have purchased. One is an iPad, and Marcus purchased them LifeStraw, which I have one of those things are kind of neat. But what does it I'd say it's a straw, you can drink? Water Source Filters it automatically for you.
Carlton Nettleton 06:46
Okay. And I got a question about, okay. And we're sounds like a lot of these things were purchased online.
Bob Ternes 06:54
Yes. In addition to Amazon, there was another online store, an outdoor shop, likely in person. And then. And then we have somebody after my own heart who researched their Ebeid for months, before purchasing direct from their own website.
Carlton Nettleton 07:11
Alright, so you also got it directly from the manufacturer through their website. That's an interesting observation here, right. And in this webinar, we're going to explore the mechanics of value exchange. Right? So I think I would propose there's a little bit more going on beyond just hey, I went to their website and bought these items, right? And especially for a software enabled solution, right? This needs to be designed, you need to think as the product manager about, okay, how am I going to design this exchange of value that my solution provides for money. And my goal here is to help you better understand this process this process so that you can design more profitable value exchange solutions for your software enabled solutions. Alright. So here's our short agenda for today. Introductions done that was our definition of value. What is value exchange, and how is value exchanged in the solutions. So the end of this, right is going to be talking a little bit about different solutions that are out there today, software enabled solutions, and we're going to try to apply what we've learned. So I encourage you to take some notes, because the end is going to be a quiz. I do want to start though this webinar talking about what's our definition of value, because this, this is important for us to think about value exchange. So let's talk about this topic. In the previous webinar, we talked about ideas on how to quantify values. So if you want to learn more about that, I believe we can get you access to that webinar. And quantifying value is that first step that you need to take to ensure that your solutions are profitable. So let's review some of those key points that I discussed, to lay the foundation for understanding value exchange. So for me, value is one of those really nebulous terms in product management. And as most of you are aware, right, describing and quantifying value is a hard problem for product managers and proposed product owners, right. And I believe this is true, because value is one of those quantities, that you know it when you see it. But when it's not present, it's hard to describe its absence. And if you take a look at that picture on the left, right, I think value is a lot like that image. Right. But I would propose that value is not the building in that picture. Right? Because we can't describe the building the building's tangible, concrete, but we made it concrete but it's measurable. I would propose that the building is our solution to how you is the fog that surrounds the building. Right and like fog value feels and feels intangible, but I am going to propose that the reality is a little bit different Right, we can quantify value, right? But what makes value feel intangible is because we've been using the wrong definition. Or we don't have a definition, or we don't have a definition that enables us to quantify it. And if we had a better definition for value, then I feel that value snaps into focus. Right. And this is our definition of value at Applied frameworks. Benefits A customer receives less the price the firm extracts. And we'd like this definition is the founded definition in our profit streams book, because two reasons One, it's quantifiable benefits a customer receives, we can quantify that Right? to It links to profit. And that, you know, is the price the firm extracts, right? So this definition allows us to start to think about how to quantify value. But if all the troubles product managers and product owners had with understanding quantifying communicating value could be resolved with a better definition, than this problem would have been resolved a long time ago, right? There's got to be something a little bit more. And what I propose is that a little bit more is that we're not seeing the hidden value. Right? Most software enabled solutions offer their customers a great deal of value. But for whatever reason, that value has not been revealed to the customer. It's like the iceberg, right? That's the ship going around the solution. Right, and the ship sees there's the iceberg there. But like most icebergs, most of it's under the water. And since it's not been made to about visible to the customer values not been made visible, the customer can appreciate it all they know is like, yeah, there's some stuff above the water, right? And if they can't appreciate all the ways value is provided to them, then they will not pay a premium for the solution. Right. So how can we make all this valuable visible? Well, companies called applied frameworks. So I would propose it by using a framework like this one, right? This framework here, the dimension and magnitude framework, this is the value quantification framework that I shared in the last webinar. And it has some sections, which are, you know, both are really quite important here. The first is what segment is receiving the value. Okay. Next is what value does the solution provide the customer? We want to talk a little bit about the economic impact of the value, how could this potential value be measured? Here's the key I would propose is how can this economic impact be expressed as a formula? Right? And then we have to think about what changes does the customer need to make in order to realize the value and start to think a little bit about this is something that's easy customer can do is require a small amount of effort? Or is this going to be hard, but these are going to be some major changes? And then finally, we want to look at well, where, you know, if how does the value impact the customer's business itself? Is it going to increase revenue? Okay, that's great. decrease costs, or avoid help the customer avoid risk. Right? And I think, once we have this framework, we really can start to quantify, start to quantify value, right? And for me that this framework provides product managers and product owners a robust tool in which to identify what dimensions of the software enabled solution offer value to the customer, and then quantify the magnitude of that value and without the step, right. customer value analysis is nothing more than strongly held opinions based on qualitative data and expert judgment. Right, this framework is the start of being able to quantify our value. Okay. Okay, so that's summary of what we need to know from the previous webinar in order to deep dive into topic about exchange. So before we make that transition, what sort of questions if any, do we have? So if you had a question, put it in the q&a. We'll just kind of a moment or two, to see if people have any questions about the last webinar.
Bob Ternes 14:36
And again, if you're unfamiliar with the Zoom interface, just hover over the toolbar and click the q&a function icon, which has a couple of little speech bubbles. And that allows you the interface to input questions.
Carlton Nettleton 14:47
Yeah, thank you, Bob, for that. So you know, Bob, I think I you were traveling when I did the last webinar on quantifying that I may,
Bob Ternes 15:03
I may? Yes, I believe I was. Yeah, I was over on your side of the pond?
Carlton Nettleton 15:07
I think so. Yeah. You know, so, for me, I think the key from that last webinar, those couple of slides that I showed there, number one is going to up our game around defining value, I think it is important to recognize that we have to make that hidden value visible. Right. And then finally, it really is around using the magnitude and dimension framework. Right, now we have a way to start to do that economic analysis, right, which is really, really important. All right, what stats questions any. And on those topics that
Bob Ternes 15:51
you just described, Carlton, were there any questions or discussions or commentary from those participants
Carlton Nettleton 15:57
from the last session? You know, I can't recall the moment. That's fine. I mean, it was a 40. You know, I'm trying to condense down 4555 minutes of informations slide. So, alright, hey, if there's not any questions out, that's fine. Let's, let's keep moving. So, next topic, let's talk about value exchange. And to do that, we need to return to some what I call first principles of Product Management. And for most of you, this is going to be a review. But bear with me, Since establishing this common vocabulary towards discussion of value exchanges, important stuff, the first concept, I would say is elementary, right, and we're going to talk about definitions between product and service. This definition here, originates with Stephen Haines, he's an author of a book called The Product Managers Desk Reference. I like it a lot, big thick book. And it's a good desk reference for any sort of product management, physical goods, or software and solutions. I like Stephen Haines his definition because it's broad, and it covers everything from physical goods, like the Sharpie, to something like a software enabled solution like Netflix, right. And for me, a good example of a product is the game of Monopoly. Right. And monopoly is a physical good, it is a game that you play with your family members to enjoy spending time with people. And as long as I be competitive, as long as I spend, and own this box, spend the money for the game and own this box, this product will continue to deliver me value and benefits that I associated with it right? time with my family, maybe do a little bit of competitive nature, right? As long as the box is there, and all the pieces are present, I get benefits from this product. Right? Service, on the other hand, relies on human labor. Right. And for me, this is how a service differs from product. Right? So for a service, if we take the human labor, we remove the human labor from the equation, the customer doesn't receive any value from the enterprise. And my example that I like to use here is thinking about dry cleaning. Right? Without the human element, right dry cleaning is just a pile of dirty clothes. You need someone to actually do the labor in order for this service to generate value for me, right. So, definition product definition for service. So why are we spending time on this topic? This is really, like I said Elementary, because products and services are the vehicles of value exchange between producers and customers. Right. So let's talk about then value exchange right, and a value exchange system. So all value exchange systems fall these four basic steps. Customers have unmet need unmet needs in the forms of jobs, pains and gains. Okay. Producers, businesses and enterprises build products and services to help customers achieve these unmet needs. Customers consume the products and services from producers. And in exchange, customers give producers monies, or in some cases data to use the products and services. This is what's called the value exchange system. And when we talk about understanding value exchange, this part is the part we want to zoom in on and the reason why we want to focus our attention here today is because profitable value exchange systems for a software enabled system solution are at random, right, they are designed by product managers and product owners. In fact, for a software enabled solution, there are seven common patterns, which we call value exchange models, and we're gonna talk about them in a second. But before we explore those patterns, how customers exchange money for value represents a critical design decision for a product manager, because those choices that we make on this value exchange system, right, have substantial long term implication for solutions, underlying technical and business architectures, as well as the sustainability of the solution. design choices made here about value exchange directly influence the profitability of the software enabled solutions, business model. And since I brought up that topic, right, what we're looking at here is not your business model. This is just the value exchange system, a business model is a series of choices that describe how your business creates, captures, delivers value, right, so the value exchange system is just one part of your business model. Right. And value exchange is, like I said, just this one part, so let's kind of talk a little bit more about how you might describe your business model using our applied frameworks, profit stream canvas, right? This is what business model or how you might document a business model for a software enabled solution. Right. And what you see here is this IP that we're creating with our profit stream books, with our CEO, Jason Tanner, and our Chief Innovation Officer, Luke Coleman, are really trying to explore how the how a business model for a software enabled solution is unique. And you can see that there are 10 components or 10 blocks here, you'll see the one that I've highlighted in green is the one we're talking about today, which is called value exchange. Right? But when you think about the software, the business model of software enabled solution, it is complex, and these components are interdependent, it is a system. Right? So you can't look at these things in isolation. Right? Now the blocks in orange, are adjacent to value exchange, customer pricing and solution. Right. So notice Pricing and Value exchange, they are directly, next one another in this model, right? So choices made in the value exchange block will impact pricing, and choices made in pricing can affect value exchange are choices made in solution, are choices made in your customer value analysis, right? These pieces are all interconnected. in yellow are three box related to relationships, your customer licenses for compliance, and your solution licenses. And whatever pattern you select for your value exchange model, that's the green block. Right? Has to be supported in these blocks. And so one area think about value exchange, how do we design the exchange of value and money, you can see impacts six different blocks and your business model. Right. So this is really kind of complex. So we're just kind of zooming in on one piece. But keep in mind this is there's a lot going on here. Okay, so I mentioned that there were seven patterns. Let's let's talk about that. Right. So here are the seven common value exchange models for software enabled solution. So let's dig a little deeper into these models by defining them and then offering you some familiar examples so that we can make them a little bit more accessible. Okay. database access. This is a well known pattern found in many b2b b2b. So business professional and b2c solutions is probably I would say one of the most familiar patterns on this list. Right? A lot of people are familiar with time based access. And a couple examples here, right? Windows right? In the case of Windows, customers purchase or purchase perpetual access to the solution offered by Microsoft, right in that case, its operating system. For Disney plus, right customers purchase time based access one year to Disney's entire collection of movies and TV shows. Right? That's what time based access you have access for something for a fixed amount of time. So next up after time based access transaction. This is what I would say another way well known in common value exchange model that is probably familiar to most people. And one of the defining characteristics of this model or this pattern is establishing what is the unit of work, right. And once that unit of work has been established, every time that unit of work is executed, money changes hands. And for me thinking about example, for this one is stripe for us, we use stripe as a solution to process credit card transactions. Right. And every time a customer enrolls in one of our in person or on demand courses, right, that's the clear, measurable and measurable unit of work enrollment. Stripe retains 2.9% of the total purchase plus 30 cents on every enrollment slash transaction. Our third value exchange model is meter. This model might not be as familiar as the previous two models, because it's not typically found in many b2c or b2b business professional applications. But it is used in some b2b solutions. And I think the key to understanding meter is you're counting something, right. And while I was researching the webinar, Amazon Web Services was one of the first examples that came to mind. Right. But as I did some more research and thought more about the problem, I think, time spent using a supercomputer, like at the San Diego Supercomputer Center, so I'm originally from San Diego, right? Is another solution, which relies on theater. Alright, so your time that you have on the supercomputer is limited, you buy blocks of time, and then they you know, the processing time and then you they count how much of it you use, and when it's all gone, if you have to buy more. Okay, next up hardware. So many people might overlook this pattern, since what can customer buys from the producer is a physical thing, right? It's hardware. But without the software that is pre loaded on to the to the device, the hardware is essentially inert. Right. For instance, an Apple Watch comes pre installed with iOS and a number of apps, a calculator, music, compass, stopwatch, timer, phone, apps, etc, right, which enabled the hardware to provide value to the customer, right? That watch really doesn't provide you a lot of value, or as much value that you're going to pay Apple for unless it has software on it. Right. And the thing that makes actually the Apple Watch really interesting is that you can add more apps if you want, which makes this piece of hardware customizable, and that might be quite valuable to certain market segments. The other item here is called the revolution instant glow touchscreen toaster, which offers 63 precise toast settings, seven Browning levels, an automatic raising and lowering mechanism, plus a countdown timer with an adjustable cheerful finishing time. All of that is powered by software, right with our software, that is just a piece of junk that sits on your counter, you can't really use it. So let's move on to talk a little bit about service. This pattern shows up in many solutions as a way to connect consumers, businesses and professionals to outsource domestic and international labor. Alright, two examples here. First is Instacart. Right? I think many people might be familiar with this example as a result of the pandemic. Right. This solution allows you to select grocery items from your preferred supermarket and offered same days delivery. Fiverr is a solution which allows businesses and professionals to complete project based work by leveraging the skills of freelancers anywhere in the world. What makes these built a service type value exchange is that if we remove the human factor from these solutions, the solution is incapable of delivering the value to the customer. Right? Take away Instacart take away humans, you don't get your groceries, take away the people on Fiverr you don't get your project work done. Next up is a model which highlights what I think one of the unique qualities of a software enabled solution is that's data. Right? And there are many, many ways in which a software enabled solution is different from a physical good, right? This is a physical good. This here I found is a software enabled solution. But one way in which the data one way these software enabled solutions are different. Is that software day Will solutions generate data or contain data? Right? And that data that the software enables solution has generated or contains is at the heart of the value exchange model. Having access to this data could be valuable to the right parties in the right context. So let's take a look at a couple examples here. First, is Carfax, right? It's a solution which offers for a fee about $40 to complete history of a used vehicle. So if you're buying a used car, this information could be quite valuable for you like what happened to the car? What's the title history. Next, maybe you want to fly around the galaxy in a personal starship? Maybe, right, this Jedi defender class cruiser can be purchased for use in an online game. But it's going to cost you what's called 2400 cartel coins or the equivalent of 20 USD, right. So this is data that you buy, so that you can improve your experience in the online game. And then finally, we have our last value exchange model performance. And while this model is not very common, it is another option for a solution Designer. In essence, producers take a cut of the action when the customer use the solution. However, this model is different than transaction because, right, the customer must receive a positive benefit, and increase revenue or cost savings in order for the value to be exchanged. Right with transaction. Once the Unit Award at work is executed, regardless of the benefits of the customer, the producers paid here, we have you know, we have a unit of work that may or you know that might be executed. But the customer must receive this policy to benefit more revenue or cost savings. And example here. So in Davao, this one's a little tricky to research. But what they have done is they have created a software enabled solution to provide customers advice on optimal price points for products in a variety of domains ranging from aerospace to healthcare. They cover lots of type of stuff, and so they have a lot different customers. And since this company has selected performance as their value exchange model, then Davao will only receive payment if their price recommendations results in positive revenue increase to the customer, if not, the Davao receives zero compensation. All right. Most of the models, what sort of questions people have at this point? Um, thanks for
Bob Ternes 32:53
your your comments. One of our participants, Carlton mentions, this is great stuff. And I love the introduction of these models. I think it should at least provoke some thought, or questions from our participants, either about any individual models, or the aggregate, or all of them in total. What questions or thoughts do people have? And also, do you see anything that, like maybe there's a business that you're curious about, and you'd like to see where it slots into these value exchange models?
Carlton Nettleton 33:26
We could try that. I mean, that's kind of the next sec. Sec. The last part of this webinar is to look at some existing businesses and try to, you know, think about what is their value exchange model. One of the things that, you know, was talking with our Chief Innovation Officer, just yesterday afternoon, and didn't get into the update of the webinar. But Luke shared with me this idea of, well, businesses have a primary value exchange model. And then they may also have secondary and tertiary, which I thought was kind of interesting. So when we're looking at some of these examples coming up, what we're talking about is their primary value exchange model. But they may have other types of additional ways in which they exchange value for money with their customers. And that that is common that you would have more than one value exchange model. And I was kind of coming to that conclusion on my own doing the research because it was hard to because it just made sense to me as a product manager like well, there's more than one way in which I exchange value with our customers. So
Bob Ternes 34:31
interests interesting, I've been on all sides as a question in the chat. Can you use two value exchange models when starting up?
Carlton Nettleton 34:39
Oh, I well. Yes, you can. Absolutely. So there's one example that I'm thinking of where it has to really accessible, something like LinkedIn that has two value exchange models. One value exchange model for LinkedIn is time based access. Right? If you Get if you want to get one of the more advanced versions of LinkedIn time based access to that, right, you have a subscription for a year. Right. And if you think about, they also have another value exchange model, which is, which is a meter. So if you want to send out in messages to other people that aren't in your network, so your basic package, I think, if you think $89 a year, I'm not sure exactly what the price is, you get like 130 in messages a month, that's a meter right after 30, you have to keep paying. So time based access to get access to the advanced tools in the platform. Right. And then if you want to go and have send out additional in messages to people outside your network, you get 30. And then to purchase more of those is an additional meter. So that's something that you can't there's a limited resource that you can
Bob Ternes 36:05
interest in LinkedIn also has its advertising revenue as well, which is another.
Carlton Nettleton 36:11
That case, though, who is the? That's interesting question. And I have to think about that one, because there is the advertising revenue. And that almost to me feels like a transaction. And I'll explain why that's the case. Let's see if there's any other questions in a minute. What additional questions if people have no open questions
Bob Ternes 36:40
or no questions are appearing in the chat.
Carlton Nettleton 36:44
All right. So at the beginning of webinars, so we'd have a quiz. So let's check your understand these value exchange models. And we'll return to why I said advertising and take as a transaction. Okay, so before we start the quiz, right, I want to give you a hint that will help you answer the questions. Right. Money goes where the interest flows. Right. And so what does that mean? Right? And I like this picture here, because mine did have this concept of follow the money, right? It means that if you want to determine the value exchange model, follow what happens after the money exchanges hand. Right? What does the customer get or think they're getting after giving the producer cash. And so when we talked about brought up this idea of LinkedIn has the advertising revenue, my first thought was, it's a transaction. Right? I as the customer want to advertise on LinkedIn, I give LinkedIn money. What do I expect to happen? I expect them to run an ad. Right? So that's kind of a transaction, right? A unit of work happens, right? I want to create ad and then after I pay them the money, ads run at some predefined time or, or market that I want to attack feels like a transaction. So this is going to help us following the money will help us figure out okay, where, what is the value exchange model going on? Right, so let's let's get started. And let's come up with our first poll. Right. So but let's use one of those polls there. Yeah. Airbnb, what is the value exchange model? I realized that with an international
Bob Ternes 38:46
crowd, there may be some participants not familiar with Airbnb.
Carlton Nettleton 38:52
Yes, the good point. So Airbnb is a vacation rental service, I suppose like if you want to go and rent a room or a house from someone else's, that, that someone's an owner in a different city, you can do that. So let's give a couple of hints. How are you starting to see people kind of put some ideas? So first off, it's not meter. So we're not counting something. And it is not service? Right? We don't doesn't require air b&b doesn't require human labor for us to reserve that space. All right. We're going to close the poll bot and see what we come up with.
People are people are putting thought into this, Carlton. It's great.
Carlton Nettleton 39:46
Oh, yeah, no, it's this.
Bob Ternes 39:49
You know, and what and by the way, as folks are working through these examples, this is something that we do internally at applied fryums We talk about an organization a bit As even an industry, we try to identify those value exchange models. The process of thinking about this is really revelatory, really, this kind of a new mode of thought that it takes a bit to get into. But once you start to see these these value exchange models, it's just fascinating to think about how they underpin the businesses that they support.
Carlton Nettleton 40:22
Yeah. So So yeah, and for me, I have to say, This is my first time encountering this. This was tough to figure out, but just have to train your mind to figure out how do you follow the money? So like I said, it's not meter. It's not service. See one more Bob, sip and get one more response,
Bob Ternes 40:43
more response? And five more seconds. Yeah.
Carlton Nettleton 40:52
Okay. Let's see. All right. So time based access was the one that received the most votes. Reality is Airbnb is a transaction. Right? And the reason why it's a transaction is how does the money flow as a guest, right, I find a lovely apartment for $500 For nights. And I decided to make that reservation. That reservation is a clear and measurable unit of work, which begins the transaction. Right. And the host pays Airbnb, a 3% fee on the $500, they collect from the guest. And the guest pays Airbnb 14%, on top of the $500 that was sent to the host. Alright, the clear, measurable, measurable, clear and measurable unit of work is the reservation on the Airbnb solution to this transaction. It's not time based access, because I don't I don't create an account to use an infant use. I don't have a subscription to go onto Airbnb and pick as many locations and houses that I want. Right? I time based access would be okay. You can have use Airbnb in any city for any number of houses, as long as it's available. Let's move to the next question. Next question. Alright, so what we're gonna have here is fast track. So if you're not familiar, Fast Track is an electronic toll collection system in the state of California. And it eliminates the need for automobiles to stop and pay fees at toll booths. Right? So these are the pictures, both pictures are super highways in the state of California in the United States. Many other states in the United States have similar systems. So the idea is that you have this, there's this little device that allows you just to drive down the superhighway or the freeway, and it will pay some type of toll. So, Bob, let's get that next poll. Let's figure out what is the value exchange model of Fast Track? meter? Hardware time based access or transaction? What do people think? Good engagement in this poll. Oh, yeah, this one's interesting, right? So let the key to figuring out this one is who's the customer? Right? You got to figure out who the customer is. And so one of the things I want to tell you it's not time based access. And I would also propose it's not meter.
Bob Ternes 44:09
It's not me. It's
Carlton Nettleton 44:10
not meter. Remember, you got to figure out who's the customer for this one. Not time based access. Not meter. And I think we've got the all the I think we've got the numbers. So let's, let's reveal the results. All right. So got a good split here, right? People think it's meter talk, but it's not meter. And some people think it's transaction. People think it's hardware. So the key like I said, the unlocking this, who's the customer? The customer of Fast Track is the state of California. They bought the hardware. But without the software that powers the hardware, the solution offers no value to the state of California. So what hardware did they purchase? They purchase a number of cameras to read your license plates. Right? So they establish all these cameras all over the freeways. And there's, there's algorithms that are able to read and process that information, kind of know where you are. There's reporting systems, right? There's a whole bunch of software that makes this hardware actually work. And so the this, this is a hardware solution. Right? It's not meter. And the reason I say it's not theater, because we're not counting something, right, the state of California, at least yet is not limiting the number of cars that can actually be on the freeway at one moment. Right? They're not saying, hey, you know, we only want 500,000 cars on the freeway at this time? If you, right, they're not they're not counting the cars. It's not transaction because the current state of California is the one purchasing the hardware purchasing the fast track. Now, if you think about it, from a consumer point of view, right, you are then the customer of the state of California and wants to use fast track. And that case, yeah, probably might be transaction. Because you are paying. Right.
Bob Ternes 46:32
Yeah. And I think that's the biggest insight and, Carlton is that it's really tempting to think that because this tool solution is deployed to individual drivers to use that as the customer in this value exchange model, but in but as positioned here, State of California is actually the customer fast track. That's, that's really quite interesting. That's what Fast Track is. That's who they sell to. That's really quite interesting. Yeah,
Carlton Nettleton 46:57
the technology there, right. And the thing I kind of would say here, that might be a secondary value exchange model. But remember, the people who are producing Fast Track aren't really collecting the tolls. Right. So California is collecting tolls. Right. Yeah, I mean, you start thinking, and again, you've got to follow the money. And like I said, Follow who the customer is. Okay, let's go on next one. I think there's only three more left, if I remember correctly. Alright. So slack, let's get the poll up here. So people, I think most people know what slack is. It's an internal messaging system. So the goal is to replace email. So let's see what people think. What do you think slack is how to Slack work? Was the value exchange? Got some early results here. Okay, let's see. Let's see. Let's see. All right, so a couple heads. So it's not going to be data. And it's not going to be transaction. If it were transaction, right, if we follow the money, that means every time I send a message in Slack, I have to pay slack. Right. That's not how Slack works. Alright.
Bob Ternes 48:42
Skip this 10 seconds. sharing the
Carlton Nettleton 48:57
results? Yeah, let's take a look at that here. So again, a big split, right. So like I said, it's not transactional, we follow the money, right? I don't pay slack every time I send a message. Right? That's It's not that. I would propose it's not data. Because when you think about data, when you do the value exchange, you know, every time I use the software enabled solution gives me good data. So I pay money, and then they throw me back data. Right? There is valuable data within slack. I'm not debating that fact. Right. But that is not their about exchange model. It's time based access. Right? And think about how Slack works, right? You buy a subscription or the company buys a subscription for a year. Right? And within that year, you can use Slack as much or as little as you want. Right, I can send if I was spot, I could send a million messages to slack in a month. For a year, right? Slack doesn't care. Right? They're not gonna charge me per message. Right? And slack doesn't work on meter, right? There's no limit to the amount of messages that I can send. Now slack could make that choice that say, with your, your account Carlson, you can only send 1000 messages. Right. But they have made that choice to say, Listen, we don't care how many messages you send. Right, but you can all but you know, you can only send messages when you have an active account that account is based upon time based access. Okay. Let's move on. I think there's two more. Yeah. So far. So good, Bob.
Bob Ternes 50:47
Yeah, that's great. Yeah. It's kind of wheels turning.
Carlton Nettleton 50:52
Yeah. All right. Cool. Google Cloud. Let's take a look at Google Cloud. What is the value exchange of Google Cloud? Do you think meter data time based access or hardware? What do you how do you exchange value for money with Google Cloud?
Bob Ternes 51:32
In this example, of Carlson, we're principally looking at Google Cloud storage capabilities, correct?
Carlton Nettleton 51:38
Well, it could be storage, it could be some of the capabilities that are similar to how AWS serve their customers, which is a big hint right there. Alright, so it's not data. And it's not hardware? And 10 seconds. Yeah. 10 more seconds. Okay, sounds good. So, yeah, it is once good, right? This meter, right, there is a finite resource, which we are trying to constrain. And we are counting the use of that resource. Right. It's not necessarily time based access. Now, if you were talking specifically about maybe the Google suite of products, those often are time based access. So thank you, Bob, for asking me that clarifying question, right. So yeah, that's, uh, this is this is definitely meter. So good one. Excellent. Let's last one. Stitch Fix. Alright, so Stitch Fix is a clothing subscription box, where an in house stylus matches your personal preferences and selects five clothing and accessory items based on your choices and sends them to your house each month. That's what that's the value proposition here for this. And let's see what is data service time based access or transaction.
Bob Ternes 53:23
And let's move quickly on this. Let's give this 10 seconds to wrap up before the end. Yeah, we
Carlton Nettleton 53:28
do do thank you, Bob, for reminding us of the time. Last chance. All right. Wow, perfect. Yeah, this is service. I think this one's really easy, right? Because it is all about the human labor, right? Someone's got to take these things and put them into a box and put them in your house. That doesn't happen. Guess what, your data just sits at this fix computer, and you don't get anything. So really nice work. That's the end of our quiz. If you got four out of five of these questions, correct. Or you've got a perfect score, congratulations. Good job. If you didn't do at that level, that's okay to the like I said earlier, first time I encountered these concepts I struggled. And there's nothing wrong with struggling that just means you're learning something new. And that's great. That's the whole point of learning something new is like, Hey, I'm not an expert. That's the end of our webinar today. If you've got some questions, put them in the q&a. You could follow up with myself or Bob later. What's coming up next. You want to go deeper into software profit streams. We offer a course on maximizing software profits. The next course is scheduled. December 19 and 20. It's a two day online class. live instructor led And next is we have more webinars on our profit stream. Next up is what is the profit stream. And we are talking also about software license agreements, which are really a little bit dull, but really, really important to talk about as product manager, talking about profit engines, and then also thinking about in license agreement. So we've got a lot of good content coming up in the next month to really explore the IP that we are creating here to fly frameworks. Bob, you have any final things?
Bob Ternes 55:33
Excellent. Now you've done a great job wrapping up, Carlton. One final thing is, if anybody on the call, we'd like a partner to help you create or explore a new way of working, that helps you better reach your business outcomes with emphasis, emphasis on self sufficiency, and then also sustainable profitability. We'd love to have a chat, one of our we delight in meeting customers where they are, and taking them to where they want to be. So reach out. And also I will drop a link to the class in the chat. It will also be part of our follow up. We'd love to have you join us to learn more about profit streams.
Carlton Nettleton 56:08
No, thank you. Yeah. And if you want help with profit streams, we can do that for you. So you touch.
Bob Ternes 56:16
Thanks, everybody for attending. This was such a fun session, and we look forward to seeing you in more webinars and continue to stay connected to apply frameworks.
Carlton Nettleton 56:24
Yep. Thank you. Yeah, we will come up. See ya.