It’s flattering that over the past couple of months our Digital Disruptions report has received attention by the press – most recently in a provocative article featured in the Digital Business section of the December 3 edition of the Financial Times – and has generated inquiries from CSC clients, potential clients, and CSC Account Executives planning C-level innovation strategy events.

A few weeks ago, a company in the financial software sector seeking to understand how to deal with some major disruptions it was facing asked me to discuss possible strategies for advancing its business in the digital era.  The main challenge: how do you compete with Free? Free open source software that approached the company’s financial application capabilities was being produced by volunteer developers across the Internet in the same manner that the Linux operating system – highly successful in challenging Microsoft, IBM and Apple dominance – was developed in the early ‘90s. Ostensibly “free” [1] open source development is progressing from the realm of computer infrastructure software to the business application realm.[2]  What’s a company to do?

Experience Beats Product
The answer, we are learning, is for companies to:

• Innovate to provide value they are uniquely positioned to provide.
• Provide a platform upon which a community can form whose members collaboratively help to improve proprietary offerings and support each other.
• Create a complete customer experience that is greater than the sum of the company’s products and services.

For example, if a company sells accounting software that is being challenged by open source alternatives, why not position its new offering as not merely a software accounting product or service, but as the on ramp to the go-to place on the net for accounting information and advice, and the place to hang out with people who share an interest in accounting issues. (Where Bernard Madoff’s $50 billion disappeared to would probably be a very popular question there right now.)

Maybe start with an Accountapedia, a Wikipedia for accounting terms, issues, case studies, etc., accessed through the company’s Internet accounting site.  Set up an accounting-related social network à la Facebook, or maybe link with Facebook and MySpace and have the company’s accounting experts participate in discussions and advise its constituents. What about extending the relationship you have with customers via their computer to their mobile device, which they have with them 18 hours a day? What about hosting informative and entertaining events in virtual worlds, and providing various kinds of actual person-to-person support in the real world?  What about leveraging viral media so that, for example, people pass around links to your YouTube video that explains certain accounting concepts, or embed the video in their blogs?

The idea is to develop relationships with and among one’s customers that cannot easily be reproduced by software that is merely well-functioning and inexpensive. Empathize with your customers’ life and business challenges and provide a rich experience, not just a sterile product or service, that addresses these challenges.  Customers and advertisers may feel it’s worth paying for what you offer, despite the availability of Free.

Two Can Play at Open Source
At the same time, nothing is stopping companies from reducing their own costs by leveraging the abundance of open source software at their disposal. If as a traditional business you’ve had the upper hand until now, the trick, as in a game of chess, is not to obsess about holding onto your current and possibly fleeting advantage, but to translate your current advantage into a new one. You have at your disposal all the means your competition has, plus the unique characteristics with which you started out. Isn’t free enterprise wonderful?!

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[1] Open source software may not have an initial purchase price, but there are often other usage costs involved.
[2] Fore more on other products and services trending to free, see Chris Anderson’s cover article in Wired March 2008.