How to embrace new digital business models
The mass adoption of consumer broadband in the late nineties and early 2000’s helped firms like Amazon, Expedia and Intuit establish new business models and new ways of scaling to millions of customers. Selling products online and empowering customers to find the best deals on travel or financial services products changed market dynamics in a range of industries. But things aren’t slowing down. Quite the opposite, in fact.
Digital continues to change how your firm makes money. Perhaps not fundamentally yet for your firm, but don’t kid yourself, there are changes afoot. There’s obvious examples:
- Digital trumps physical distribution. Firms like Napster and Netflix are at the vanguard of shifting consumers from a world where they physically “owned” entertainment to an on-demand, consumption model, while traditional media firms like the BBC are increasingly launching digital services like iPlayer to compliment their traditional broadcast services. According to the IFPI’s 2015 report, Digital music revenues now on a par with physical globally, with streaming services like Spotify representing 23% of digital sales in 2014. Spotify now has approximately 80 million subscribers and continues on its rapid growth trajectory, with new services like Amazon Prime music hot on its heels. So while your hipster friends may tell you that vinyl isn’t dead, the convenience and cost-effectiveness of digital fulfillment has forever changed the entertainment world.
- Room and ride finding services are rattling the world of travel. The ecosystem effect has a profound impact on the ability of firms like Airbnb and Uber as they scale. Rapidly. Connecting customers who want something to providers who have exactly what they want, where and when they want it, means these disruptive startups scale via software, not by owning capital-intensive physical assets. Its why Airbnb is now valued at $20 bn and Uber at more than $50 bn. While both firms face legal challenges in many markets, they highlight the untapped potential of digital to change how firms both drive revenue and how their cost base is assembled.
- Peer-to-peer mobile banking thrives in developing nations. Farmers in Africa seeking micro loans of $10 to $20 can find lenders in real time because firms like Vodafone and Barclays provide banking services to the unbanked via their mobile account. Two thirds of Kenyans use mobile payments, like Vodafone’s M-Pesa. It’s an alternative to ATMs and even bank accounts. In India, Bharti Airtel has teamed up with Uber to allow customers to pay for taxi rides with their Airtel mobile wallet, while mobile payment platform Paytm topped 100 million subscribers in 2015.
But hey, these are just little disruptors, aren’t they, operating in markets that are nothing to do with ours? We don’t have anything to worry about, do we? I’m willing to bet someone said that, or something very much like it, at the board table of Blockbusters a few years ago. Now, firms that didn’t exist less than 10 years ago are hitting multi-billion dollar valuations and netting tens and even hundreds of millions of customers.
The reality is, we don’t know what innovations are going to appear over the next decade to digitize, democratize and otherwise ride roughshod over your industry. We do know that as digital becomes more pervasive, as more and more products become instrumented (and therefore capable of transmitting telemetry like location and usage) and more and more customers around the world make that critical mobile mindshift we’ve been talking about for a while and come to expect, even demand context aware, in-the-moment service, the opportunities to enhance existing revenue streams and create entirely new ones will be massive.
Our new report, How to embrace new digital business models, looks at the pioneers in this field. We interviewed and analysed a range of firms, both startups and traditional businesses like:
- Uber and Airbnb that are fueling the growing sharing economy.
- Second-wave disruptors like Dream Cheaper that are entering already disrupted markets with services that disintermediate even the digital disruptors.
- Platform businesses like Salesforce and Transport for London (TfL) that create a platform upon which others can innovate.
- New product companies like Tesla that may still make and sell physical things like cars, but build digital into the heart of their customer experience.
- And traditional firms like BMW, Nike and Walgreens that are learning to experiment in this brave new world.
So your industry may not be as vulnerable as to the forces of digital disruption as the media, entertainment or banking. But whether you firm manufactures high-end medical equipment or digs rocks out of the ground, digital can and probably will change the basis for competition in your field.
Your firm can position itself as a leader or a follower. Our new report looks at how to to plan your response.