People tend to over-complicate what is glaringly obvious most of the time.
Amazon, Apple, Facebook and Google are four of the most important companies of our age. Each in slightly different ways, but more similarly than differently, have won big in this digital, exponential age by doing a couple of things consistently and systematically:
• Using consumer data to power their services
• Recognising that all business models have that data as an implicit party in the business model, and then organising the economics for their industry, re-imagined as an ecosystem
• Using their reach, distribution, audience, scale as a ‘highway’ for applications to drive over (the Ap Stores). They understand that start-ups and applications are really just revenue-generating algorithms or digital cars in search of a route to market and a customer base to exploit.
In essence, these are the characteristics of ‘platforms’. They are open to the revenue in the App Economy and take advantage of the infrastructure.
There are really three versions of the future:
• The technology platform companies mentioned above, and a couple others like LinkedIn and Salesforce.com take over every industry. There is a lot of evidence for this assault.
• The second vision of the future however is that the digital disruptors – the Ubers, the Teslas the AirBnBs – become the new dominant platforms in niche (but massive) ecosystems – cars, homes, transportation etc.
• But what about the rest of the universe? 95% of the iceberg is neither in category 1 or 2. What is their fight back strategy? Where do they go, what do they read, how should they react?
Could it be that the answer is actually very simple? Imitate those with momentum? Take a page out of the playbook of the winners? But be sure you understand why they won.
Those non-technology, traditional firms – the incumbents (whether banks, insurance companies, retailers, newspaper groups, radio stations, telcos, healthcare organisations etc) – are preyed on by investment bankers who try to get them to buy companies, and consulting firms who tell them that they are more smart than them and could they outsource strategy to them. And many of these traditional, non-tech mid to large enterprises self-inflict with no outside help. One telco has created a massive program of taking 10% equity stakes in baby companies in each for off space across Europe. They hail it as a success, but actually all they have done is to create a kindergarten. Their revenues are worsening. They created a cost-center, not a future revenue line.
The battle today is one of future P&L’s. The Balance Sheet takes care of itself if you have a winning revenue and profit story. In this digital transformation as the world goes network and we all enter an exponential age, it’s a game of attracting the digital cars or revenue-generating algorithms over your highway. Goliath needs to be the highway; David is the car looking for the on-ramp.
There is a relative win here for most. One rather boring retailer in the north of England with 6 million customers sells clothing to low-income folks. That’s 6 million customers. That’s a highway. You don’t need to posh or sexy to be an effective highway for start-ups with a serious understanding of how to build digital revenues in your space.
Imagine if the telco mentioned above instead of focusing on taking 1,000 ten percent equity stakes in start-ups in exchange for office space had focused on 4 to 6 trials a year giving access not to 300 million of their customers but 30,000 or 300,000 customers. If they had said to the digital applications vying for their attention: ‘We’ll give you a shot but in X period of time, you need to prove Y revenue over Z customer base.’ Some would do just that, and many would fail. But the controlled experiment would have generated some fast knowledge about revenue-generation in the digital age for the telco. They would have some strong contenders for potential material revenue streams, instead of having spent tens of millions on a cost center.
So perhaps it’s really as simple as all business models will approach that of how Apple re-organised the music industry with clear economics for all stakeholders. Perhaps we don’t have to look too much further than to recognise that consumer data is the third party in your company’s business model; it’s just really a question of whether you know it and are on to it. Google says that it organises the economics of the information industry, but it actually organises the economics of the information industry. And you and I get jackshit for the use of our data. Free search, ok.
Money doesn’t solve the fundamentals of problems in business, actually. If the business model is flawed, no amount of throwing money at the problem will save the day. Traditional, non-tech firms need to spend as little money as possible to figure out whether a new revenue stream is going to become material, and constraining capital forces all parties to solve for x.
X is the answer to the question of how do I build a digital strategy. The good news is that Goliaths in every sector don’t need to innovate because a more nimble David is out there somewhere solving the problem of your future revenue streams for you. The job of the CEO of the bank, insurance company, retailer, media firm etc is first to open up and become a platform company, that is cloud-centric, and open to the Ap Economy. Secondly, to build a consistent and reliable means to engage with the Davids who know things about your customers, what they want and how the business models are going to emerge.
When David and Goliath dance, they have the possibility to organise a set of clear economics for the ecosystem in which they operate where all of the stakeholders or ‘Natural Allies) are incentivised to pull the proposition into scale and market maturity. This is Ecosystem Economics®, and it will predict and explain the winners in this digital, exponential age that is happening around us.
There is a fight back strategy for the rest of the world who are neither Digital Disruptors nor tech platform companies. Imitate the platforms and embrace the digital disruption by embracing digital enablers or Digital Davids.