We caught up with Robert at his home in Los Angeles, between his many meetings working with the Amazon teams across the globe.

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Loft: Considering your extensive experience integrating digital and physical ecosystems, I'd like to know where you think the magic happens in these environments. Given that technology and human interaction are foundational pillars, what, in your opinion, differentiates a good digital-physical ecosystem from an exceptional one? Is it user-centricity, technology enablement, or something else? When presented with a brief to build a system with both digital and physical components, like Post-It Notes with a digital infrastructure, what's your initial approach?

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Robert: That's a great question, and it touches on a crucial lesson I've learned the hard way. In discussing the pillars of physical and digital ecosystems versus human interaction, a critical, often overlooked component is the business goals underpinning the solution. Without clear business directives on sustainability, no technological enthusiasm can guarantee success. 

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For instance, consider the example of the Post-it app. There was significant excitement about digitizing the physical act of writing on a Post-it and extending its value digitally. However, despite the technology and the potential, there was no clear business model on how this would generate profit. This lack of a financial strategy led to what The Economist termed "irrational exuberance," where financial viability was assumed to follow from a great user experience. Unfortunately, without a direct or indirect revenue plan, funding and support eventually dwindled.

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Another example from a B2B perspective involves digitally connected safety equipment designed to improve user outcomes. The system required substantial infrastructure, making it too complex and costly to install and maintain, regardless of the sales or subscription model for the devices. Again, without a well-thought-out plan for the ecosystem's financial viability, the project was not sustainable. These examples highlight that without integrating a solid business strategy from the outset, no amount of innovative design or user experience can compensate for the absence of a viable business model. This pillar is essential for supporting and sustaining the ecosystem's other elements.

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Without integrating a solid business strategy from the outset, no amount of innovative design or user experience can compensate for the absence of a viable business model.

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Loft: I'm really glad you brought this up. When clients come to us wanting a digital ecosystem, we often remind them that it's a long-term commitment, not just a product you can ship and forget. Unlike a simple device, like a remote, which might only need occasional updates, a digital ecosystem involves continuous updates, refinements, and maintenance. Considering this, how do you ensure that there's a solid business case to support the ongoing investment required for a digital ecosystem, and what strategies do you recommend to avoid potential pitfalls?

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Robert: It's crucial to recognize the unique challenges that come with launching a product that introduces new behaviors or components into a client's existing ecosystem. This isn't just about selling a product; it's about fostering a relationship with various teams, including IT, who must integrate and support this new element within their systems. Achieving this requires building a significant level of trust, and providing the necessary support, which inherently involves substantial costs. Unlike traditional product sales where the interaction might end with a simple training session, this approach demands ongoing engagement and resources.

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This isn't just about selling a product; it's about fostering a relationship with various teams, including IT, who must integrate and support this new element within their systems.

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Loft: Do you think a digital-first company, with roots primarily in technology, is better prepared for ecosystem design? Or is a company that has traditionally focused on physical products more equipped to integrate digital components? Additionally, do you see significant shortcomings in either approach?

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Robert: It boils down to the company’s DNA and its approach to creating value. Companies accustomed to manufacturing at scale and deriving revenue from physical sales might struggle with the transition to digital products, not just in terms of production but also in monetizing them. The comfort level with digital revenue timing and sources can be challenging. For product-first companies that view digital offerings as an extension of their brand, there may be more willingness to absorb short-term losses associated with initial digital investments, like setting up cloud services. This perspective helps them maintain the brand promise they've established with their physical products. Conversely, digital-first companies transitioning to physical products face different challenges. While they are used to front-loading capital for development and expecting ongoing costs to decrease, the physical product lifecycle requires continual capital for production updates and new launches, plus additional considerations like returns and safety.

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Both types of companies can succeed in integrating digital or physical elements into their ecosystems, but success often hinges more on the company's culture and its adaptability to new business models rather than just on existing competencies.

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Loft: This makes a lot of sense. It seems to come down to leadership, doesn't it? As we wrap up, I want to acknowledge how enlightening this discussion has been, exactly what I was hoping for given your expertise. Knowing that even well-established companies all face similar challenges, do you think there truly is no "Holy Grail" in managing these issues? Is it all about adapting leadership strategies to handle common challenges across the industry?

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Robert: Indeed, even Apple is often upheld as a benchmark in both hardware and software sectors due to their thoughtful and considered approach. For example, during the recent WWDC announcements, Apple’s strategy on AI was typical of their style. They are careful to ensure that technology use cases support user experience before fully committing. Initially, they often integrate existing technologies to add value for users, while potentially developing their solutions in parallel. This cautious approach is similar to their initial strategy with the iPhone, where they used Google Maps before developing their mapping application. Apple has mastered its hardware strategy and continues to refine its approach to digital integration. There are certainly more detailed insights out there, but this encapsulates their overall strategy quite well.

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Loft: These are great insights. Successfully integrating software and hardware strategies with iterative technology adoption, and focusing on delivering value to customers, seem to be the real magic bullets for long-term success in ecosystem development. Thank you so much for your amazing insights and good luck on your upcoming product launches.

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