L12 Digital Transformation
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Software is changing the way traditional business operate. People now have smartphones in their pockets - a supercomputer that is 25,000 times more powerful and the minicomputers of the 1960s. This is changing people´s behaviour and how people shop and use services. The organizational structure created in the 20th century cannot survive when new digital solution are being offered. Software is changing the way traditional business operate. People now have smartphones in their pockets - a supercomputer that is 25,000 times more powerful and the minicomputers of the 1960s. This is changing people´s behaviour and how people shop and use services. The organisational structure created in the 20th century cannot survive when new digital solution are being offered. The hierarchical structure of these established companies assumes high coordination cost due to human activity. But when the coordination cost drops The organisational structure that companies in the 20th century established was based on the fact that employees needed to do all the work. The coordination cost was high due to the effort and cost of employees, housing etc. Now we have software that can do this for use and the coordination cost drops to close-to-zero. Another thing is that things become free. Consider Flickr. Anybody can sign up and use the service for free. Only a fraction of the users get pro account and pay. How can Flickr make money on that? It turns out that services like this can. Many businesses make money by giving things away. How can that possibly work? The music business has suffered severely with digital distribution of content. Should musicians put all there songs on YouTube? What is the future business model for music?
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L12 Digital Transformation
- 2. Broadcasting
- 3. Media in the 20th Century Print Radio TV CD/DVDs 1900 2000 Analog, Broadcast, One-2-many, copies to sell
- 4. Consumerism in the 20th Century You need help, here is a product for you
- 5. Communication in the 20th Century Phone call Postal Letter Talk with Clerk Analog, slow and expensive - coordination cost is high 1900 2000
- 6. Travelling in the 20th Century How would you organise a vacation at a beach resort in the Mediterranean in 1971? How many people would need to become involved?
- 7. Coordination To solve coordination, hierarchical structures must be formed Corporate structure with layers of middle managers Coordination cost is high and involves many people Getting things done is expensive and slow Hierarchy
- 8. Fifth Technological Revolution starts Intel 1971 The Technology Trigger 1971
- 9. PDP-8 Computer from DEC in March 1965 Cost 18.500 USD 50.000 machines sold 12 bit architecture 32K memory 0,5 MIPS MIPS: millions instruction per second iPhone 6 Smartphone from September 2015 Cost $649 Sold 10 million phones in 3 days 64 bit architecture 128GB “capacity” 25.000 MIPS
- 10. 2000 2010 iMac iPhone iMac G3 Mac OS 9.0.4 500 MHz PowerPC G3 CPU, 128MB Memory Screen - 786K pixels Storage - 30GB Hard Drive iPhone 4 iOS 4.0 1 Ghz ARM A4 CPU, 512MB Memory Screen - 614K pixels Storage - 32GB Flash Drive MOORE’S LAW
- 13. INTERNET – 3 BILLION PEOPLE + 3 BILLION COMING ONLINE
- 14. SOFTWARE AND DATA ARE IN THE CLOUD
- 16. COMPUTERS, PHONES, DEVICES ARE JUST GATEWAYS TO THE CLOUD
- 17. Mainframe 1947 Minicomputer 1965 PC 1981 1995 Internet Smartphone 2007 The Shortening Waves
- 18. Clay Shirky: Institutions vs. collaboration TED Talk 2005
- 20. Coordination Cost All of the financial cost and institutional difficulties arranging group output Form an institution - get resources together 1. Management Problem 2. Structure - economic, legal, physical etc. 3. Inherently exclusionary 4. Professional class
- 21. Solving the Coordination Cost Cost of communication is now basically zero and universal Put the cooperation into the infrastructure Design a system that coordinates the output of the system as a byproduct of operating the system with out regard to institutional models
- 22. New Solutions New solutions get built on the Internet infrastructure Napster in 1999 Music Industry goes crazy
- 23. New Solutions New solutions get built on the Internet infrastructure BitTorrent in 2001 Music Industry goes even more crazy
- 24. New Solutions New solutions get built on the Internet infrastructure Youtube 2005 Content creators go crazy
- 29. Monty Payton goes to War
- 32. YouTube Monty Python Videos Boost DVD Sales 23,000%
- 34. Airbnb Airbnb is bigger than Hilton Has more than 2 millions listing Does not own any rooms or apartments
- 37. Uber Uber has 327,000 active drivers in the US 40 millions rides per month globally Don’t own a single car
- 38. Uber Protests
- 39. THE TRANSFORMATION DECADE 2010 2020 BUSINESS MODELS OF THE 20TH CENTURY BUSINESS MODELS OF THE 21TH CENTURY
- 40. HIERARCHAL NETWORK 20th Century 21th Century
- 41. THE DIGITAL DECADE THE CONTENT ESCAPES THE FORM INTERNET DISRUPTION BEGINS 1900 2000 From hierarchical structure to networks From broadcasting to streaming - long tail From Read-only culture to read-write culture The Move to Networks THE TRANSFORMATION DECADE BUSINESS MODELS CHANGE SMARTPHONES REAL TIME SOFTWARE CLOUD AND AI 2010
- 42. 2010 2020 Defined Industry Boundaries Single-purpose Products Producers and Consumers Buying Economy Hierarchical Structure Platforms, ecosystems Connected Smart Products User as producer, co-creation Sharing economy Network Structure The Transformation Decade Broadcasting Streaming Gatekeepers Algorithms 2010 2020
- 43. What is happening to traditional businesses is that they are getting challenged by digital real-time software base network companies It the transformation of old established physical way of doing business into new ways that are optimized around real-time software systems This is called Digital Transformation Digital Transformation
- 44. Software is becoming the change agent of all business If the internet has not disrupted a business, it will Traditional industries like retail, shipping, banking, insurance, law firms, health and the list goes on… Digital Transformation
- 45. Any business that is built around a hierarchy with high coordination cost, will be crushed by a networked software solution with low coordination cost
- 46. Finance Healthcare Retail Transportation Education ? Any industry
- 47. Banking
- 48. CAN BANKS SURVIVE 20% DROP IN REVENUES
- 49. Traditional Banking Highly established and structured organisations Conservative and secretive Slow and expensive Not very transparent with endless “hidden fees”
- 51. Retail
- 53. The evidence suggests its just a matter of time
- 54. Sales at US retail stores on Black Friday fell to $10.4 billion this year, down from $11.6 billion in 2014 Source: ShopperTrak image: Huffington Post Canada
- 55. On-line sales are growing Source: BI Intelligence
- 56. IBM said spending was up 17.8% from Cyber Monday 2014, and more customers than ever opted to browse deals on their mobile devices.
- 57. According to Amazon’s holiday period stats, there were 10 times as many same-day deliveries this year in comparison to two years ago.
- 58. And delivery services are exploding…
- 59. “Retail guys are going to go out of business and ecommerce will become the place everyone buys. You are not going to have a choice. We’re still pre-death of retail, and we’re already seeing a huge wave of growth. The best in class are going to get better and better. We view this as a long term opportunity.” — Mark Andreessen
- 60. Retail is fundamentally implausible economic structure You combine the fixed cost of real estate with inventory Every retailer is put in a highly leveraged position Few can survive a decline of 20 to 30 percent in revenues There is fundamentally a better model
- 61. Music Industry
- 63. A) People that just steals, they will never pay B) People that want to try before buy - if they like they pay C) People that want something but it is not available D) Copyright laws don’t apply anymore - its not piracy Reasons for Piracy
- 65. Content Creation in the 20th Century Image from Jyrki J.J. Kasvi
- 66. Image from Jyrki J.J. Kasvi Content Creation in the 21st Century
- 67. Can this delivery method compete?
- 68. Subscription to vast repository of music Very accessible and relevant Music Subscription
- 69. In the LP/CD era, the industry was based in scarcity model of economics Only few artists became popstarts - professionalised and limited Today, consumers don’t want to pay as much as they did for music Add to that, the fact that anybody can be a musician and be on Soundcloud or Spotify World of Music
- 72. “Every industry that becomes digital becomes free” - Chris Anderson, Editor WIRED Freeconomics
- 73. The Economy of the Free Source: Free! Why $0.00 Is the Future of Business Subsidising Products is well known Cross-subsidy Now, a different sort of free has emerged The new model is based on the fact that the cost of products themselves is falling fast
- 76. A Taxonomy of Free "Freemium" What's free: Web software and services, some content Free to whom: users of the basic version Subscription model of media Varying tiers of content, from free to expensive, or a premium "pro" version The 1% Rule - 1% of a community does all the work F2P in the video games industry
- 77. A Taxonomy of Free Advertising What's free: content, services, software, and more Free to whom: everyone Examples Yahoo's pay-per-pageview banners Google's pay-per-click text ads, Amazon's pay-per-transaction "affiliate ads" Paid inclusion in search results Paid listing in information services Lead generation
- 79. A Taxonomy of Free Cross-subsidies What's free: any product that entices you to pay for something else Free to whom: everyone willing to pay eventually, one way or another Examples Give the music, sell concerts
- 80. A Taxonomy of Free Zero marginal cost What's free: things that can be distributed without an appreciable cost to anyone Free to whom: everyone Examples On-line music Digital reproduction and peer-to-peer distribution, the real cost of distributing music has truly hit bottom
- 81. A Taxonomy of Free Labor exchange What's free: Web sites and services Free to whom: all users, since the act of using these sites and services actually creates something of value Examples Free porn if you solve a few captchas Rating stories on Digg, voting on Yahoo Answers, or using Google's 411 service
- 82. A Taxonomy of Free Gift economy What's free: the whole enchilada, be it open source software or user-generated content Free to whom: everyone Examples Wikipedia Zero-cost distribution has turned sharing into an industry
- 83. Economy of Abundance Traditional products exist in the economy of scarcity When the cost of copying and distributing becomes close to nothing, the economy shifts You can’t sell copies – their worthless It’s not only about money - time and respect are also important So is your digital footprint
- 84. You can’t sell copiesthey’re worthless
- 85. 25 Videostores, DVD, late fees, clutter Everything, anywhere, anytime (almost) BEFORE NOW CHANGE IN CONSUMER BEHAVIOR
- 86. Printed books, magazines Digital, automatically delivered, interactive BEFORE NOW CHANGE IN CONSUMER BEHAVIOUR
- 87. Own, store, clutter Rent, subscribe, stream OWNERLESS LIFESTYLE BEFOE NOW
- 90. What can you sell?and make money?
- 91. Accessibility
- 92. Immediacy
- 93. Personalization
- 94. Authenticity
- 95. Patronage
- 96. Interpretation
- 97. Embodiment
- 98. Findability
- 99. How can you marketyour Products?
- 101. TRADITIONAL PRODUCTION OF CONTENT "1984"
- 102. TRADITIONAL PRODUCTION OF CONTENT
- 103. TRADITIONAL PRODUCTION OF CONTENT Benchmark: Production budget: $900,000 Audience: ~ 50,000,000
- 105. USER GENERATED PRODUCTION OF CONTENT
- 106. USER GENERATED PRODUCTION OF CONTENT Benchmark: Production budget: $0 Audience: 814,105,854
- 108. Use the medium people use From marketing to conversation
- 111. Marketing becomes a real-time improvisation
- 113. CONVERSATION
- 114. Discoverability Online web sites and product reviews Social media, Facebook, Pinterest, Twitter etc Youtube, Vimeo etc Buying Buying online Show rooming and buying online Buying in-store has to be an experience - shareable Rating Social media, Facebook, Pinterest, Twitter etc If it is not shareable, it did not happen Use the medium people use
- 116. $3,500 Taylor Guitar
- 119. The YouTube video was posted on July 6, 2009 It amassed 150,000 views within one day, prompting United to contact Carroll saying it hoped to right the wrong 13.3 million by September 2013 http://en.wikipedia.org/wiki/United_Breaks_Guitars
- 120. Within 4 days of the video being posted online, United Airlines' stock price fell 10%, costing stockholders about $180 million in value
- 122. STARBUCKS KNOWS THE CONVERSATION
- 127. CONVERSATION
- 129. NEXT Rise of the machine Assignment 2 Draft