What makes digital so disrupting? These are the 7 traits of digital that may disrupt your industry. Watch out!
Disruption (Photo credit: Tsahi Levent-Levi)
1) Zero marginal cost. Digital assets, software apps and online services have virtually zero marginal cost. That is, the cost of any additional sold unit is close to zero.
Case in point: A physical CD, newspaper, book, brochure, paper form, all of them have a cost per item. Copying an MP3, publishing a blog, distributing an ebook, filling an online form have zero marginal cost. Total costs are roughly the same for 1 download than for a million.
Impact: This is the biggest disruptor. This is the enabler of a paradigm-shift business model: freemium. Your revenue comes from a small percentage of paying customers while you give your product for free to millions of users. Why freemium?
- Free Advertising. The bigger the customer base the bigger impact of word of mouth.
- You occupy the market to avoid other players in the field. You create your blue ocean as you disincentive other players to enter a market you already serve for free.
- You get feedback from more customers. That means better insight into customer needs.
The result is a winner-takes-all approach. The goal with freemium is to dominate your space. You rule your own blue ocean.
2) Infinite flexibility. Software is malleable. Unlike product updates in the physical world, in software/digital products, updates have no major impacts. There is no need to change manufacturing lines. Many digital products provide for nearly invisible updates.
Case in point: Chrome release cycle of a major version every 6 weeks is an example of how easy is to keep the product in constant evolution. Users hardly notice.
Impact: That enables the Lean Startup. That is the philosophy behind Agile software development. Years ago building software had waterfall processes that resembled manufacturing. You get requirements, you build it, you test it and you release it. Nowadays it is about shipping the product as early as possible and learn from the feedback. Ship a Minimum Viable Product (MVP) good enough to test the concept with real customers. The insights from your customer are fed into the complete product. That can’t be easily replicated in the physical world. Customers today buy digital products that keep improving well after they purchased them. e.g. mobile apps.
3) Infinite connectivity. Everyone is connected now and everything will soon be too.
Case in point: 79% of North Americans are connected to the Internet. The Internet of Things is just beginning to emerge.
Impact: That means, companies have now more data sources to learn from. That means consumers have access to infinite amounts of information. Social networks have become the way to discover, filter and share information. Today, what is remarkable, spreads like a virus. Marketing has not only gone digital, it has gone social. Never was there the potential to reach so many for so little cost. In the old days, the size of your advertisement budget was a barrier of entry to your market. Those barriers are still working, but are more and more permeable.
4) Moore’s law only accelerates the zero marginal cost of heavier and heavier digital assets, such as video. Moore’s law and cloud computing are also decreasing barriers of entry to play digital, by reducing or eliminating the upfront investment in technology infrastructure.
Case in point: This is one of the forces behind Youtube turning into profits. Serving a 1080i video costs today a fraction of what serving a 240p did cost in 2006.
Impact: Startups don’t need a big investment to launch mass market consumer digital products. Dropbox is a case in point, too. Moore’s law is also partially responsible of the rise of Big Data. Now we can Manage infinite data and get fast insights from it. CIOs, CMOs and an emerging Data Science are all about it.
5) Personalization. This is derived from infinite flexibility. Digital products can be personalized to every single customer. This is mass personalization at virtually zero cost, compared to the physical world.
Case in point: Amazon’s amazing recommendation engine, that always gets to your frontpage those items you like.
Impact: Behaviors, friends behaviors, customer profiling, all is recorded and that makes recommendation and ad engines more and more intelligent. AI combined with big data promise personalized products adapted to each customer and context. From market segmentation, to micro segmentation, to a segment of one.
6) Social Media and Crowdsourcing. The self-service model of supermarkets and restaurants, is even simpler in the digital world. Users will fill in their own data, will review products, and will share to their friends. The crowds create and share content with tribes as never before. Social Media is word-of-mouth on steroids.
Case in point: Paper Encyclopedias released Appendixes units to keep up with updates. Wikipedia is updated in real-time. Second screen: Twitter trending topics are often correlated to TV shows.
Impact: Millions of Facebook users not only personalize their experience, but create content and personalize the experience of their friends. Tripadvisor and Amazon are examples of the fundamental role of customer reviews in the decision to buy. Twitter has become the social soundtrack of TV. That means you need to monitor Social Media proactively. You need to get some clarity from the noise. What they say about your brand will not be so easy to influence with a prime-time expensive ad campaign.
7) Mobility and Ubiquity. Mobile takes the Internet and all your digital assets wherever you are. Smartphones capabilities (cameras, sensors, location, customer info) provide an array of possibilities illustrated by the nearly one million apps available in the App Store and Google Play.
Case in point: Maps applications are replacing standalone GPS devices that were only surviving because of the offline maps. With connectivity everywhere, maps in the cloud become more reliable and up-to-date than stored maps.
Impact: Consumers are more informed than ever. People can check online on the store before to help in the buying decision. They can even ask their friend’s opinions in real-time using their phone cameras. Witnesses to major news end events have become first-line reporters.
Media has already been disrupted by digital. It will not be the only industry. Healthcare, education are next. How many weapons of digital disruption are already affecting your business? Do you have a strategy to defend yourself?