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Digital Disruption: From Transforming a Product to Disrupting an Industry

mikeshaw747

In studying The Digitization of Everything and the new styles of business that it enables (my posts on this are here and here), I’ve noticed a pattern...

 

Digitization starts by replacing the analog product with a digital product - the record and magnetic tape was replaced by the CD; the magnetic tape video by the DVD; money by credit cards with pins (in most countries); and the thermostat by a digital version.

 

But as digitization in each industry spreads, that industry becomes redefined. Because the Digitization of Everything is relatively new to many industries, we haven’t yet seen the redefinition, but we have a pretty good idea of what is going to happen.

 

Let’s look at a number of examples - examples of industries where redefinition has already happened and industries where we believe it going to happen. Let’s start with an easy one - the music industry.

 

The layout of this blog post is as follows...

 

A. The Disruption of the Music Industry

B. The Disruption of the Transport Industry

C. Health and Wellness

D. Retail Banking

E. The Home

F. The Trick to control the Primary Interface

G. Industry Hopping is Getting Easier

H. So what?

I.  Related Blog Posts

 

 

A. The Disruption of the Music Industry

We started with digitization of product - the CD. Then Apple and Sony and others created the personal music storage device, most famously, the iPod. But importantly, Apple also created iTunes. At the time, I used a Sony device. It had better sound and better battery life than the iPod. But, and this is very important, the Sony equivalent of iTunes was a nightmare to use (I can’t remember its name - the trauma of trying to use it has caused my to mind to wipe it from my memory). iTunes won out. 

 

It was the start of the redefinition of an industry because the “primary customer contact point” had moved from the many thousands of record stores to one supplier, iTunes.

 

Then Spotify and other streaming services realised that kids don’t want to “own” music. To them, music is a transient thing like a picture of their friend riding backwards on a donkey dressed as Father Christmas. Play lists are probably more important than the actual tracks, and playlists are something you share, something you recommend, and cool playlists are something you “follow”. Also, music is something you should have access to from your TV (I often use Spotify on my smart TV), your car, your various mobile devices and your laptop. Another redefinition of the music industry.

 

2. music collage.png

 

What a massive shift from buying and lovingly caring for an album costing what appeared to a cash strapped teenager to be a fortune!

 

So, firstly music went from analog to digital. Once it was digital, its supply and its use could be totally disrupted and the industry change forever.

 

 

B. The Disruption of the Transport Industry

Taxis aren’t digital (yet), but their supply is becoming digitally driven. Uber has seen to that. Taxi rides in San Fransisco are down over 70% because of Uber. Car ownership in large cities like London is down in part because of car sharing services like ZipCar.

 

Bike sharing is popular in cities like Barcelona, Paris and London. Last week, Paris introduce rental of e-bikes.

 

Self-driving cars and trucks will change the transport industry. I suspect that in cities we’ll see a significant increase in car sharing / rental. Or, to put it another way, taxation will make it unattractive for large city dwellers to own and use their own cars. In fact, Paris has already banned older trucks from its streets and will soon do the same for older cars.

 

In the future, many millions of sensors and AI-based systems will attempt to minimize our journey times. Systems are already in use in countries like the UK where ambulances have the traffic lights automatically changed in their favour, and taxi drivers are told what speed to drive at to minimize their journey times.

 

And when we are all in electric, self-driving cars, what will we do? We'll want to be entertained or we'll want to work. This is, I'm sure, a future state that has not escaped both Apple and Google.

 

2. transport collage.png

 

C. Health and Wellness

In March this year, The Times (of London) published an article on how silicon valley was going after “big pharma”. It as a wide ranging discussion about how companies like Google could probably do a better job of drugs research than existing pharmaceutical companies.

 

I think that there is more to it than this. What we all want is wellness - we would prefer to never be sick in the first place. 

 

Products like FitBit are the tip of the wellness iceberg. There is now a lot of research into true self health monitoring. 

 

There is a breathalizer that can detect certain cancers. Google has developed a pill that, followed by a urine test, will detect other cancers.  IBM has created a micro-blood test. It takes just one drop of blood and perform a number of tests upon this drop. DNA sequencing is now relatively inexpensive and the cost is still falling sharply. Google has fired up a project (from the same team that created Google Glass) to create a watch designed for medical use.

 

2. Google med watch.png

(Mock-up of Google's new Medical Watch)

 

We can imagine a situation where you can cheaply and easily check all the markers (your DNA, your gut bacteria, your blood state) for cancer, heart disease, strokes and the like. An app (provided by, or linked into the overall health apps of, Google and Apple) would then suggest and monitor the exercise you need to do and the food you need to eat, plotting the progress of your markers as a result.

 

Apple and Google would then become your primary wellness interface. They could then link to healthcare providers should you become sick after all that wellness assistance.

 

 

D. Retail Banking

In a recent letter to shareholders, JP Morgan CEO Jamie Dimon warned of growing competition for Wall Street in the form of tech start-ups. “Silicon Valley is coming,” Dimon said in the letter, which touched on technologies as varied as mobile payments, bitcoin and peer-to-peer lending. “There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking,” the CEO warned.

 

The Times article I referred to above highlighted Google and Apple’s desire to become the primary payment method for all of us, allowing them to cut banks out of the transaction completely. The Economist just wrote an excellent article on how “fintech” startups have the banks in their sights.

 

The Chinese equivalent of WhatsApps, WeChat, allows user to user payments thru its application.  Again, WeChat has become the primary payment interface, allowing them to determine what happens in the backend. SnapChat also allows inter-user payments. Twitter has now followed suit.

 

Crowdfunding is now a viable way of raising money. And creative new schemes are being “experimented with” all the time. Again, The Economist has an excellent article on this. The crowdfunding market will reach $35b by the end of 2015, having grown 167% between 2013 and 2014 and over 100% between 2014 and 2015.

 

There are some that believe that the existing banking system may be completely bypassed by the something like BitCoin

 

2. banking collage.png

 

E. The Home

We are seeing a change in the way that energy is generated and used. The Times (of London) talks about how we are getting closer to replacing fossil fuels with wind and solar energy - even Saudi Arabia believes it. 

 

Technologies like Tesla’s new batteries for the home allow us to create energy “in the small”, and to buy energy at low prices for use later.

 

Digitisation will affect the kitchen - IKEA just created a concept kitchen for the year 2025 which is full of digitization. Our lighting systems will be more efficient and digitally controlled. As will our audio and video systems.

 

2. ikea kitchen.png

 

(IKEA's "Concept 2025 Kitchen")

 

In countries where clean water is scarce and expensive, digitization will help with the use and recycling of drinkable water.

Will there be one primary controller for the whole house, or, as the head of Nest believes, will there be separate systems for energy, for lighting, for audio, for drinking water? 

 

Whatever happens, there will be a fight for any customer interaction points. Apple and Google (Nest) will play here - they have already made announcements.

 

 

F. The trick is to control the primary customer interface

If we go back to the music industry, what Apple did was take control of the primary customer interface thru iTunes. It was then able to control the rest of the supply chain.

 

Apple, Google and WeChat (and maybe FaceBook, Twitter, SnapChat and WhatsApp) will be able to redefine the retail banking industry. If you are the primary interface with your customer, you are in a good position to control the supply chain behind you. For example, Apple took the primary interface to customers when it invented iTunes and the iPod. They then controlled the music supply chain (i.e. the music providers) behind iTunes. That’s how they changed the music industry. Spotify has done similarly.

 

Right now, Apple, Google, Microsoft and others are fighting to become the primary user interface that you use in your home and in your car.

 

2. apple in car.png

 (The first version of Apple's In-car system, Apple CarPlay)

 

A similar battle will occur for personal wellness. Is the primary interface the Apple or Google fitness app, or your FitBit app (assuming the FitBit continues to be enhanced to measure things like blood lipids and the like). I suspect that it will be Apple and Google that will win because your wellness monitoring information will come from a number of sources.

 

 

G. Industry Hopping is Getting Easier

In a recent Harvard Business Review article, Professor Ron Adner from Dartmouth College’s Tuck School of Business talks about how Apple, in its jump from iPod to iPhone, and Tesla, in its jump from electric cars to “Powerwall” home energy, are performing “ecosystem carryover”. They use the relationships, the R&D setup and the supply chains from one business to hop to another.

 

2. Tesla Powerwall.png

(Tesla's PowerWall home energy storage systems)

 

While a small startup may have trouble competing with the large banks, no-one is going to question Apple or Google’s ability to finance a move into retail banking or wellness / pharmaceuticals.

 

Professor Adner argues that ecosystem crossover works well when markets become similar. I believe that the Digitization of Everything means that markets like more similar all the time - retail banking is a data movement, transaction and big data analysis problem. The Times argues that much of what big pharmaceuticals does is about data collection and analysis, something you’ve probably noticed that Google is quite good at  :  -)

 

 

H. So What?


When we start thinking about the Ditigization of Everything, the temptation is to think of an analog product that has become digital or a new product that is digital (like the FitBit).

 

But once information becomes digital, whole industries can be redefined by digitally savvy companies like Apple and Google or by startups like Spotify once was.

 

In a future blog post I’ll look at what this The Digitization of Everything means to the central IT department. Does it have a role to play? If so, how does it need to change to embrace these changes?

 

 

I. Related Blog Posts

 

Below is a list of related blog posts on The Digitization of Everything and Core / Fluid IT:

      

1. The Digitization of Everything and A New Style of Business : digitally-based, software-powered products allow the business to do things very differently. We can release "minimum viable product", we can experiment with new products we can "continuously innovate". 

 

2. Digital Disuption: From Transforming a Product to Disrupting an Industry (this blog post) : digitization starts with a digital product that replaces the analog one. Think CD or DVD or home thermostat. But, once products are digital, the business model can be disrupted - think Spotify, think "the connected home", think Uber, think AirBnB. This blog looks at this disruption for a number of industries including transportation, retail banking and the connected home. 

 

3.  Digitization of Everything and the role of Central IT : digital disruptions are "software powered". Which is great because IT creates software, doesn't it? But it's a very different style of software development to that that we used for our Systems of Record. 

 

4.  Capitalize on The Digitization of Everything with two different IT modes : IT can't be innovative, cool, experimental and reliable, careful and solid using the same people, the same behaviours, the same processes, the same supplier relationships. We need to split IT into two - Core IT and Fluid IT.

 

5.  The Guardian Function - making the Core / Fluid IT co-operation work : If the two parts of IT, the Fluid and the Core, don't cooperate with each other, we'll eventually become uncompetitive and inefficient across the whole organization We need to ensure that the two parts of IT work well together. This is part technology (as discussed in the next blog post) and partly about governance, finance and attitudes. This blog post talks about "The Guardian Function"; that function that ensures the cooperation works. 

 

6. The Five Areas of Cooperation between Core and Fluid IT : I've broken the technical aspects of cooperation between Core and Fluid IT into five areas : i. Service Brokering, ii. Continuous Delivery, iii. Creating a best-in-class user experience, iv. Big Data and v. Protecting your assets. This blog post looks at these five areas in overview.

 

7.  Service Brokering for Core and Fluid IT cooperation : This post dives into what customers tell me is the most important of the five cooperation areas; Service Brokering. 

 

8. How to get to Continuous Delivery and thus, Continuous Innovation : This post looks at the second cooperation area; getting Continuous Delivery of new functionality. This entails a flow of new releases from Fluid across to Core IT. It is, of course, DevOps, but I've put a Core/Fluid IT spin on it. 

 

9. How to create an Engaging, Best-in-class  Digital User Experience : Digital products pretty much always mean either a mobile application and / or a smart device like a smart cooker, a smart thermostat, or a smart shopping trolley. We need to ensure that the user experience of that mobile application or smart device is best-in-class. How do we do this across our Fluid and Core IT teams?

 

My "scoop.it" topic on the Digitzation of Everything - a couple of times a week, I post interesting articles on what's happening in the world of "the Digitization of Everything".

 

Everything I post releated to The Digitization of Everything I also tweet  -  @mike_j_shaw. 

 

Or, "connect" to me in LinkedIn - Mike Shaw at HP.

 

Mike Shaw
Director Strategic Marketing

twitter.gif@mike_j_shaw
linkedin.gifMike Shaw

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About the Author

mikeshaw747

Mike has been with HPE for 30 years. Half of that time was in research and development, mainly as an architect. The other 15 years has been spent in product management, product marketing, and now, strategic marketing. .

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