Digital Business

INB 201

See page 31 for data on sector digitization

How does this suggest business opportunities?

t the data so

Competitive dynamics are increasingly determined by who develops the right digital assets.ale labels weren’t fake,

Sectors such as media are moving from physical to digital products, and companies in alltypes of industries are building massive data repositories. Among the most prized assets are digital platforms, such those created by Facebook, iTunes, eBay, Amazon, LinkedIn, and Airbnb. Even beyond these well-known examples, companies in traditional sectors are beginning to focus on data, platforms, and connectivity as the key to interactions, transactions, and innovation. Consider the automotive industry, where digital platforms have transformed the customer decision journey. Consumers now save time and money by searching and comparing vehicles online before they make a purchase—and their online activity leaves a data trail that dealers can use to identify selling opportunities. Technology is also embedded within the physical product: cars now feature GPS and next-generation safety systems, maintenance alerts, Bluetooth connectivity, and entertainment systems. Tesla has pioneered some of the most sophisticated connected cars to date, using wireless software downloads to add new features and fixes—and now even self-driving capabilities— to existing cars.

Example

From 2000 to 2014, online hotel booking revenue increased tenfold, but the number of US travel agents fell by 48 percent. Value is shifting from physical intermediaries and asset holders (including not only travel agents but also hotel owners themselves) to digital intermediaries and to consumers.

Trends

Value chains break apart, creating openings for specialization and new competitors

Low marginal costs and network effects create hyperscale advantages

In the pre-digital era, economies of scale were usually achieved by building large networks of factories or amassing equipment. While physical processes have marginal costs, digital platforms make the cost of doing one more transaction or creating one more peer-to- peer connection trivial, giving digital companies a distinct advantage.The combination of low-marginal-cost economics and platform architecture has allowed the most successful high-tech firms to achieve a scale that was once impossible—and to do so in record time. Facebook was launched in 2004; a decade later, its monthly active users outnumber the population of China. The power of platform economics is reflected in the gross margins enjoyed by software companies, which can run as high as 80 percent, the highest of any industry. Controlling a general-use platform allows companies to become primary digital touch points for millions of people. It gives them access to an extensive amount of data on their users, which can lead to yet more capabilities being added to the platforms.

Industry boundaries become blurred

Once digital players have established themselves as leaders in one market, they have a striking ability to move into new areas. Amazon went from selling books to adding virtually every retail category; later it created its own self-publishing platform and began to offer cloud-based business services. Tech firms are making forays into the automotive industry.

Prepare for tougher, 360-degree competition. Geographic and sector boundaries mean very little in a more digital world. New competitors that look nothing like traditional industry leaders can become market leaders practically overnight.

Source: digitalamerica.pdf

See PP 43-49 for industry changes

Box 4. Measuring the US digital economy against global peers

There is a contradiction at the heart of the US digital economy. The United States is home to pioneering high-tech firms, and it remains at the center of a global web of cross-border collaboration for ICT-related patents and scientific publications. But while US companies and universities are recognized as digital leaders, many households and individuals are not as wired. This gap becomes apparent when the United States is viewed against peer economies.

Our Country Digitization Index aggregates a variety of indicators from various sources measuring ICT supply and innovation, business use, consumer use, and government use. Japan, Sweden, and the United Kingdom outperform the United States across all of these categories. The overall results place

the United States only 11th among 34 OECD member states (Exhibit 26). Its performance is stronger on indicators that measure innovation and business use (such as B2B digital transactions and online advertising) than on indicators focusing on consumer or government use.

The United States ranks 12th out of 34 countries for consumer use, reflecting the extent of its digital divide. The United States is among the lowest-ranking OECD countries for both household penetration and average speed of fixed broadband. It also posts some of the highest costs for high-speed broadband service.

The Americans who are online lead highly digital lives. But US households and individuals, on average, are less wired than those in northern Europe, Japan, South Korea, New Zealand, and Israel. Nearly 80 percent of UK residents have ordered goods and services online; the share in the United States is less than 60 percent. More than 95 percent of 65-to-74-year-olds in Scandinavia use the Internet versus less than 80 percent of US seniors.

Converting to a digital business is one of the most important trends in business today:

  • adopt new, unanticipated, and more decentralized forms of digitization and technological innovation,
  • usedigitization to reshape their business models.
  • Digitization makes many existing businesses obsolete
  • Disruptive innovation is everywhere
  • Creates new business opportunities

New Business Environment

  • Computers are everywhere
  • People increasingly use technological devices to gain unprecedented kinds of control over and engagement with their personal and work lives, actively managing appliances, transportation, entertainment choices, homes, shopping forays, manufacturing processes, and equipment maintenance, among many other activities.
  • This new machine age is affecting virtually every industry — B2B and B2C — by producing a multiplicity of purchasing and behavioral pathways for individuals and firmly shifting the balance of power to consumers.
  • End-users, not upstream companies, increasingly dictate the bespoke shape of the products and services theyare offered, as well as the price they pay, their suppliers, their deadlines, and the channels they use.
  • Greatest opportunity is for market savvy, extremely flexible firms to supply digital business capabilities for the slow-footed firms

New kinds of employees for digital business

  • Tech savvy
  • Creative
  • Entrepreneurial
  • Handles ambiguity
  • Rapid learner

Example: Digital Marketing and Operations

  • Marketing Operations has become very important
  • Digital marketing operations involves the application of capabilities, processes, structures, and technologies to cost-effectively exploit and scale the interactivity, targeting, personalization, and optimization of digital channels.
  • Delivers speed, agility, iterative development, experimentation, and responsiveness
  • Tracking, analyzing, and interpreting customer behavior and attitudes should be an ongoing, often moment-to-moment undertaking that is critical not only to targeting and shaping relevant content and experiences but also to optimizing how they’re delivered
  • This requires a wide range of data and sophisticated tools to analyze specific customer segments and their behavior to spot opportunities and predict future actions.
  • Establishing “war rooms” to monitor and react to social-media conversations
  • Clickfox
  • Identify and fix “bad” customer experiences

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