It's a Kind of Magic: Business Models and Algorithms

Through the years, the key measures of user satisfaction could still be explained by Maslow's Hierarchy of Needs. Everybody needs to eat, sleep, feel secure, interact, feel relevant. Opportunities are created in the space between what we need and what we want. The market and economic behavior, in general, change organically in order to break the balance and expand this space, which could create more opportunities.

From a consumer standpoint, we could say that:

Needs are fulfilled by products. Desire is fulfilled by magic

As the number of elements in each person's Maslow Pyramid basis grows (connectivity, information, constant feedback), the market is challenged and companies are forced to review their products and services, event their business models, in order to remain relevant.

The evolution of Products, Services and Business Models usually regards pricing, time-to-market, contracting, delivery model. Cost reduction allows lower prices, automation improves time-to-market, digital platforms and logistics enable efficient delivery models, efficient delivery models allow lower prices and so on. 

Products work as platform for magic. Here are some examples:

• Smartphones are platforms for entertainment (music, movie and games on demand), healthcare (exercise monitoring, well-being and good habits), shopping (payments, in-app purchases) and so on. For Apple and Google, it is more important to have your iCloud and Google Drive account than just offer you a smartphone;
• Social Networks are platforms for marketing (A-B testing, advertising, home pages), social engagement (campaigns, interaction, support), behavior analysis (trending topics, preferences, content and browsing history). Twitter and Facebook, for example, offer a lot of functionalities for targeted marketing;
• Video Streaming solutions are platforms for content. Youtube, for example, became a platform for exclusive content. Youtubers produce and deliver content for millions of users everyday. Snapchat and Periscope also create a meaningful context around content for their users;
• Even light bulbs, they are now becoming platforms for well-being, productivity or even entertainment, as they are now supporting network connections and offering APIs for developers to bring customized behavior (intensity, color, blinking) for consumers.

How can we manage to combine business models, products and service offerings with costing, great user experience, and relevance to produce magic? Algorithms, my friend. Algorithms.

And by algorithms, in this case, I don't mean just the traditional definition of a "structured set of logical computational instructions to solve a problem". What I mean is:

Algorithms represent a strategic combination of computational elements to transform people's life.

In other words: algorithms are the magic, the secret sauce. And they cannot be restricted only to IT professionals. Every entrepreneur should have a good understanding of the "Computational Periodic Table" and what kind of combinations they could make between the elements to create fantastic things.

Gartner Research Institute created the concept of Programmable Business Models, and describe this transformation as follows:

Digital transformation requires business models that are dynamic, dispersed, opportunistic and shared to keep up with the rapid pace of disruption and change. Algorithmic business will require the widespread creation and availability of goal-seeking and self-optimizing algorithms. Business models and algorithms could be dynamic, dispersed, opportunistic and shared through marketplaces if they become programmable

This Digital Business Model has a good relationship with the concept of Exponential Organizations, introduced by Salim Ismail in his book. In his work, he describes two acronyms related to exponential organizations: SCALE and IDEAS, summarized as Staff on Demand, Community, Algorithms, Leased Assets and Engagement; Interfaces, Dashboards, Experimentation, Autonomy and Social.

These references are a very good place to start a transformation in your business, having algorithms as a great allied in this journey.

What do you think? Are you ready to understand the matrix and create your own white rabbit or are you willing to follow the woman in the red dress?