How has economic evolution changed the way birthday cakes are made? In their classical Harvard business review article, Joseph Pine IIand James H. Gilmore asked this question and gave their answer:
- In an agrarian economy, parents make birthday cakes by themselves.
- In an industrial economy, parents purchase premixed ingredients from the market.
- In a service economy, parents order cakes as a yearly service for their kids.
- In an experience economy, there will be “experience vendors” who could create an awesome birthday party for kids.
Their framework is also applicable to software.
- Agrarian economy: every business needs to write software for their use cases.
- Industrial economy: there are software vendors dedicated to building software, which could be purchased by customers to solve their needs.
- Service Economy: The software is delivered as a service (often as a subscription) and it would still require customers to build upon the service to create an awesome experience. This is the Software-as-a-Service (SaaS) model.
- Experience Economy: We are entering a new era of Software-as-a-Experience (SaaE). In the SaaE model, we use software to directly orchestrate experiences for our users. Software is not considered only a utility, but a conduit of digital experiences.
SaaE is a fundamental leap forward for the SaaS business model because it significantly reduces the friction for creating awesome user experiences. According to Joseph and James,
an experience occurs when a company intentionally uses services as the stage, and goods as props, to engage individual customers in a way that creates a memorable event. … No two people can have the same experience, because each experience derives from the interaction between the staged event (like a theatrical play) and the individual’s state of mind.
In the SaaS model, the software service itself is rigid. There is a predetermined way, often determined during the product build stage, to use the software. Users would continue their subscription only if the problem they face could be solved by the predetermined software flow. When this is no longer the case, customers would churn.
In the SaaE model, the software would be adaptive rather than rigid. The ultimate goal is to deliver the best experience to users by staging a sequence of software services intentionally.
To reach the goal, we need two new software layers:
- A feedback-collection layer that could continually integrate the feedback from each customer to the product.
- A learning layer for software behaviors to adjust the software services to deliver the best customer experience.
The two layers were not practical in the software building process before because it would take an enormous amount of effort to personalize the software flow for each user.
The advancement of AI has made personalizing unique experiences for each user possible. We have already done it — YouTube’s personalized feed creates a unique video watching experience for every user, and Amazon’s product recommendation has created a unique purchase experience for every customer.
Those systems are currently referred to as recommendation systems. But this is just the tip of the iceberg for a large paradigm shift – the advent of the “Software-as-a-Experience” age.