What is a digital product?

Even before defining digital product management, let’s start from the beginning, that is, defining what is software and what is a digital product. Later, I’ll talk about what is digital product management and what are the main characteristics of being a good product manager.

I’ll also approach the differences between a product manager and a product owner, as well as when is the right time for the company to have a product manager. Lastly, I’ll give some leadership tips for product managers who are responsible for leading without being no one’s “boss”.

Are you ready? 🙂

What is a digital product?

Before defining a digital product based on software, I think it would be good for us to define what is software. According to Wikipedia on Software:

Software is any set of instructions that directs a computer processor (hardware) to perform specific operations.

In this Wikipedia article, there’s even a comparison between software and music, in which the author compares musical instruments to hardware, and the music (performed in these instruments) to software. I find this comparison very interesting.

Great, we already have a definition of software but what is a digital product?

You have certainly used some digital products; after all, the internet is made of them. Google, Facebook, and Twitter are good examples of what you’ve used or maybe use on a daily basis. When you shop on Amazon or on eBay, you are using a software product as well. The internet banking system from your bank can also be considered one, such as Netflix, that you can access from your computer, smartphone, tablet, or even directly from your TV.

The smartphone operational systems iOS and Android are software products. There are also the offline software products: the best known are the Microsoft Office, AutoCAD, SAP, and others; the least known, the embedded software inside hardware that is not computers, nor tablets, nor smartphones, but printers, TVs, videogame consoles, voting machine, network equipment such as routers, switches, hubs, and firewalls, etc.

A digital product is any software that has users.

So, can any software can be considered a digital product? No, because there is software that doesn’t have any users. They are the software that interfaces with other ones. Some examples are:

  • Hardware drivers that translate the information between the device and the applications or operational system.
  • Firmware, which is the set of operational instructions programmed directly into the hardware of an electronic equipment.
  • Compatibility layer, that allows software to run in an environment in which it was not originally programmed to run, such as a host system.

However, even this kind of software benefits from the concepts and practices of digital product management that I’ll approach in this book.

Types of digital products

Digital products can be categorized in different ways, depending on how we see them. We can look, as described previously, to the way that the product is delivered to users (online, offline, embedded), or according to what it does: e-mail, e-commerce, payment, e-mail marketing, content management, education, communication, collaboration, reports, entertaining, operational system, ERP, CRM, etc.

Another way — my favorite, because puts the user in the center — is to look and categorize products according to for whom it solves the problem. From this point of view, we can have three types of software products:

  • For end customers: in this type of product, a problem is solved for end customers who are willing to pay in order to use the software. Some examples are Netflix, LinkedIn and online games. There are also software products for end customers who pay indirectly, i.e., customers pay for another service and the software product is only a small part of this service. Some examples are internet banking, school or college intranets, access to lab exams and embedded software in general. E-commerce websites also belong to this category, since their use is free and the fee is paid by the products you buy and are delivered to you.
  • For companies: this type of product solves companies’ problems, who are more willing to pay for a software than the end customer. Some examples are Locaweb, Google AdWords, SAP, AutoCAD and Microsoft Office.
  • Mixed: in this case, the product solves the problem both for end customers and companies. Usually, this type of product doesn’t have any cost for the end customer; companies pay the bill. The most common model for revenue generation in this type of product is advertising, paid for the company when the final customer sees it, clicks on it or buys something because of it. A great example is Google Search, which is a software product for end customers, and Google AdWords, a software product for companies.

Note that, while describing each type, I had the concern of getting clear who’s paying the bill. This is very important because every software product has costs. Even though the costs might be hidden, they do exist; ergo, every software product needs to generate income in some way.

Even though I prefer to categorize software products while understanding to whom it solves the problem, there are other ways of classifying them. For example, Netflix is a software product for the final user, but also an online software product for entertainment.

These categorizations have a direct impact on the daily work of the product manager, i.e., different types of products require different types of product management skills. Managing an ERP is different from managing an e-mail marketing product. Managing an online product is different from managing a mobile app product. Managing a consumer product is different from managing a product for companies.

Digital or traditional?

Most recently I realized another way to categorize not only the software product but also the company that owns the software product, and this categorization has a HUGE impact not only on how a product manager manages her product but also on the role of the product manager in the organization that owns the product.

Digital companies

We all know digital companies. Google with its main product, Google Search and GMail. Amazon Web Services. Facebook. Instagram. WhasApp. SAP. Salesforce. Zendesk. The companies I worked for (Locaweb and Conta Azul). All of these companies sell their software products to their customers. The product is the core of the company. If there’s no software product, there’s no company. Can you imagine Google without Google Search software? Or Instagram without the Instagram app? Or Zendesk without Zendesk software?

In these companies, product management is the core of the company. Product management is responsible for defining a good portion – if not all – of the vision and the strategy of the company. The role of the product manager in this company is central.

Traditional companies

In the other end of the spectrum, there are what we can call the traditional companies. These companies sell products and services that are not software. However, all of them are in a way or another passing through some sort of digital transformation, i.e., learning how to use digital technology to improve their business. Examples of improvements that can result from the use of digital technologies are:

  • enhanced customer relationship.
  • data gathering and insights.
  • innovation through rapid experimentation.
  • increased process speed and quality through automation.

I’ll give some known Brazilian examples. Itau, one of the biggest Brazilian banks founded in 1924, is investing a lot to become digital, with internet banking and its app. From time to time they launch TV campaigns to show this transformation. Itau is 91 years old. Magazine Luiza, a physical retail chain founded in 1957, has also been investing a lot in its digital presence. They are well known in Brazil for their online presence and their app.

Other good examples of traditional companies investing in digital are airlines and hotels. They have websites and apps so customers can buy tickets, make reservations, interact with their customers.

In traditional companies, their products or services exist, and probably existed for a long time without digital technology. Executives and shareholders are beginning to understand how digital technologies can impact their businesses and are investing in digital transformation. In these companies, software product management is an enabler, but it is not the core. Normally it is part of a team named “the digital team”. Product managers will have to earn their space, showing how technology can impact the business.

The third type of company: born-digital traditional companies

These types of companies have traditional products or services that can exist without technology. However, as they have included technology since their beginning as a strategic capability, they look like digital companies.

Everyone considers them as tech companies and, in a sense, they are. Technology is at the core of their strategy. On the other hand, when we take a closer look, their product is not technology. Their product is enabled and potentialized by digital technology. Amazon’s products are goods (books, computers, cell phones, etc.). Netflix and YouTube’s product is video content. Spotify’s product is audio content. Airbnb is an advertisement business that generates leads to the advertised houses being offered for rent. Google Adwords is also an advertisement business that generates leads to whatever product or service is advertised. Nubank, a Brazilian digital bank, offers credit card and bank account services like any bank. Uber and Lyft main service is transportation. Rappi, a Colombian delivery service, and iFood and GrubHub, food delivery services, are what I just wrote, delivery services. And Gympass offers access to more than 50,000 gyms and studios around the world.

Examples of born-digital traditional companies

Their products are not technology. Their products are not software. Digital technology and software enable and potentialize their products. For this reason, product management is very important but is not central to the definition of the company vision and strategy. Product managers will have a very important role in defining and executing the company vision and strategy, but they will not have a central role.

Product or platform?

More and more we see software products that can be categorized as platforms. There are many examples from big tech companies such as:

  • Google, which with two products (Search and AdWords) created a platform connecting people who search information on internet to people who want to advertise things on internet.
  • Facebook, that started as a platform in which friends could find each other and exchange information, and then became a platform in which advertisers can talk to people through ads and fan pages.
  • LinkedIn, a platform for professionals, companies and, most recently, advertisers.
  • Apple, that connect software developers with iPhone, iPad and Macs with their AppStore. Another Apple platform is iTunes, connecting media producers with people interested in music, films, series, and books.
  • Amazon Kindle, a platform that allows publishing houses or authors to publish books for people interested in these contents.

By the way, some of those companies have more than one single platform such as Google, Apple, and Amazon.

Besides those big technology companies, there are also more recent examples:

  • Uber, connecting drivers to people who need transportation.
  • Airbnb, that connects owners of properties for short-period rental to people who want to rent properties in such conditions.
  • Bitcoin, a digital asset and payment system. The more users it has and more companies accept Bitcoin as payment, the better.

There are also examples of platforms that are not necessarily based in technology, like shopping malls, which put stores, restaurants and movie theatres next to people who want to buy, eat and have fun.

What are platforms?

Platforms are systems that get more valuable as more people use them.

In other words, they are systems strongly based on the concept of the network effect. A network effect is an effect by which a given software is more valuable when more users use the software.

Platform

There are two types of platforms:

  • Single-side platforms: are those that, the more users they get, the better. Using an old example, the FAX machine. It was not worth having one if only one person would use it; the more people using it, the better. The same is valid for social network (Facebook, Twitter, etc.).
  • Cross-side or multi-side platforms: those in which there are two or more different groups of people that use the platform in distinct ways and that benefit from this different way that each group uses it. This type can be divided in three categories:

Technologic platform: in which the platform is the operating system and, on one side we have the user and, on the other, we have operational system developers: Linux, Windows, and Android.

Exchange platform: it gathers buyers and sellers: MercadoLivre, Uber, and Airbnb.

Content platform: the content is the focus, and monetization usually takes place through ads (Google, Facebook, and news portals).

The following is an example of a technologic platform with 5 sides:

Android operation system seen as a 5-side platforma

It is important not to confuse the concept of platform in the product context with the concept of technical or computer platform. A computer platform is any computer environment where software applications are going to run at. In the product context, as we defined previously, we name it as a product platform when there are gains to users the more users are using the product.

In a 2019 book called The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power (https://www.amazon.com/Business-Platforms-Strategy-Competition-Innovation/dp/0062896326), the authors categorize platforms into either transaction platforms where transactions happen (marketplaces, ad networks, streaming, access to networks of houses, riders, gyms, etc.) and innovation platforms where new value is built on top of the platform (operating systems, app stores, AWS, etc.).

One important aspect mentioned in the book is that transaction platforms are somewhat easy to be copied and replaced, while innovation platforms are a bit harder to be copied and replaced due to all the technology investment that participants of the platform do to be part of the platform. Many transaction platforms evolve to become hybrid platforms, i.e., incorporate innovation characteristics to enable their users to build new value on top of the existing platforms.

In this chapter, we saw the definitions of software, digital product, and platform, let’s now uncover what is software product management.

Digital Product Management Books

Do you work with digital products? Do you want to know more about how to manage a digital product to increase its chances of success, solve its user’s problems and achieve the company objectives? Check out my Digital Product Management bundle with my 3 books where I share what I learned during my almost 30 years of experience in creating and managing digital products:

  • Startup Guide: How startups and established companies can create profitable digital products
  • Product Management: How to increase the chances of success of your digital product
  • Leading Product Development: The art and science of managing product teams

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