Digital Disruption – You Can’t Run Away From it
Digital disruption is a digital transformation that is caused by emerging digital technologies and business models. These innovative new technologies and models can impact the value of existing products and services offered in the industry. The rapid increase in the use of mobile devices for personal use and work, a shift sometimes referred to as the consumerisation of IT Services, has increased the potential for digital disruption across many industries. Digital disruption is more than a catchy buzzphrase. It is a real threat, and yet so many would rather cross their fingers and hope for things to continue status quo. For small nations, such as Singapore, their dependence in global trade is integral to their survival and success. However, due to certain limitations, Singapore, like other small nations, does not have the size nor clout to set the agenda in global trade practices and agreements. We need to be adaptable to the opportunities that are available to us. In many cases, we need to be willing collaborators to help the key initiators (USA, EU, OECD, etc) sustain the momentum for changes that foster global trade that are beneficial to our long-term survival. Basically, there are 10 hyper-disruptive business models:
The Subscription Model
“Locks in customers” by taking a IT product or service that is traditionally purchased on an ad hoc basis, and locking-in repeat custom by charging a subscription fee for continued access to the product/service. Examples include Netflix, Kindle, and Dollar Shave Club.
The Freemium Model
Usually disrupts through digital sampling, where users pay for a basic service or product with their data or ‘eyeballs’, rather than money, and then charging to upgrade to the full offer. This model works for products and services where the marginal cost of each additional unit is low. Works where marginal cost for extra units and distribution are lower than advertising revenue or the sale of personal data. Examples include Spotify, Dropbox, and Candy Crush.
The Free Model
Disrupts with an ‘if-you’re-not-paying-for-the-product-you-are-the-product’ model that involves selling personal data or ‘advertising eyeballs’ harvested by offering consumers a ‘free’ product or service that captures their data/attention.
Similar to the Freemium Model, revenue is made in the form of advertising and data harvesting. Examples include Google and Facebook.
The Marketplace Model
Disrupts with the provision of a digital marketplace that brings together buyers and sellers directly, in return for a transaction or placement fee or commission. Revenue is earned as in the form of a percentage of transaction fees, or an upfront cost to list a product or service on the platform. Examples include eBay and Aliexpress.
The Access-over-Ownership Model
Disrupts by providing temporary access to goods and services traditionally only available through purchase. Includes ‘Sharing Economy’ disruptors, which takes a commission from people monetising their assets (home, car, capital) by lending them to ‘borrowers’. Examples include: Smove Singapore, Airbnb, and Mini Fashion Bar.
The Hypermarket Model
Disrupts by ‘brand bombing’ using sheer market power and scale to crush competition, often by selling below cost price.
Examples include: Amazon, Zalora, and Zalando.
The Experience Model
Disrupts by providing a superior experience, for which people are prepared to pay Customers are usually willing to pay a premium due to the special experience attained when interacting with the company or product. Examples include: Coachella, Disneyland, and Apple.
The Pyramid Model
The “Pyramid” sits on top of a horde of affiliates and resellers. Disrupts by recruiting an army of resellers and affiliates who are often paid on a commission-only model. Examples include: Amazon and Bodyblendz.
The On-Demand Model
Disrupts by monetising time and selling instant-access at a premium. Includes taking a commission frompeople with money but no time who pay for goods and services delivered or fulfilled by people with time but no money. Commission is then earned from the service providers who conversely often have time but not money. Examples include: Uber, Operator, and Taskrabbit.
The Ecosystem Model
Disrupts by selling an interlocking and interdependent suite of products and services that increase in value as more are purchased. Creates consumer dependency. Creates brand loyalty and dependency by offering a whole suite of products and services that work in tandem with one another. Examples include: Apple and Google.
What can we do about digital disruption?
It is an uphill task to fight digital disruption, especially with numerous new disruptive technologies and business models expected in the near future. However, one cannot simply admit defeat and needs to equip themselves to face what’s coming. According to IBM’s Global C-suite study into the age of digital disruption, digital interaction has seen a 19% increase from 2013 to 2015, and CxOs are focused on creating more digital, individualized experiences. Also, over half are also partnering with other companies to drive innovation and accelerate growth. It also found that decentralised decision-making is rising in popularity too, “to get closer to the action”. The study also identified two types of businesses – “Torchbearers” and “Market Followers”. Torchbearers, 5% of those surveyed, have strong reputations as innovators, with higher revenue growth and profitability than others in their industry.”Market Followers” have a significantly lower profile and financial success as compared to the Torchbearers, comprising 34% of companies surveyed.Torchbearers are more likely to enter new markets and decentralize, and are overall more prepared to deal with digital disruption by “stripping out bureaucracy” and adopting strategies of digital disrupters.
Strategies to Respond to Digital Disruption
The Block Strategy
Using all means available to inhibit the disruptor. These means can include claiming patent or copyright infringement, erecting regulatory hurdles, and using other legal barriers.
This offensive strategy aims to sustain the competitive gains associated with disruption. It focuses on maximizing the market opportunities and extending a company’s occupancy of the value vacancy. Often, a company differentiates its disruptive offering to extend the cost value, experience value and platform value it delivers for customers.
Taking over the middle space
Build an online forum bringing buyers and sellers together to swap insights and develop a healthy ecosystem. Other than positioning yourself as a thought leader and gaining valuable insights in your industry, doing this also helps you avoid being left out of the conversation in future.
Disrupt the Current Business Strategy
Launching a new product or service that competes directly with the disruptor, and leveraging inherent strengths such as size, market knowledge, brand, access to capital, and relationships to build the new business.
Looking outward rather than inward
Assess your ecosystem and ask yourself whether it has the ability to recognize new trends and technologies to prepare for the future. Look not just at your competitors, but your partners and customers, so you get a well-rounded view. Another good option would be to seek professional assistance from digital transformation consulting services.
The Exit Strategy
Exiting the business entirely and returning capital to investors, ideally through a sale of the business while value still exists (e.g. MySpace selling itself to Newscorp)
Retreat into a Strategic Niche
The Retreat strategy often results is a much smaller market size than the legacy core segment. However, these smaller niche markets can remain profitable, and existing capabilities can be used to serve them. By itself, this strategy will result in massive restructuring due to the smaller market size, but in conjunction with other strategies, it can provide a profitable niche business.
Profit from overlooked assets
Many digital disruptions take advantage of assets that have been underutilised. This approach is feasible because of the way digital technology reduces friction and reveals options. The sharing economy businesses that sell access to unused time in privately owned automobiles, production plants, homes, and office spaces changed their industries by monetizing their assets’ previously unused capacity.