Datarisation and its transformative impact on industries

Banks and other established sectors are nervous of the transformative effect of the digital sector.  They should.  An interesting phenomenon explains the underlying cause, showing at a macro level its effects.

When an article, be it video, voice, code or text is transported over the internet that item has the economic value around it reduced, some to zero.   It affects anything that can be digitised and turned into data – products (music, books, software, media), services (phone calls, computing, ads), items (professional photography, designs), transactions (money, payment) -  and delivered over the internet, distressing the industries around them.  To the internet, they are all plain data, indistinguishable.  Content seems shorn of its makeup.  A different business model can then be applied and thus the rise of WeChat, Netflix, Amazon.com displacing the traditional voice providers (telcos), tv and bookstores.  It even affects sectors that can be ‘informationalised’ as with AirBnB ‘hotels’.  While categorised in the hospitality sector, AirBnB is really an information business - it owns no physical assets, its assets is information.  Truly, we’re in the information age.

Aereo (now defunct from legal challenges) seems to use this principle in its business model powerfully to stream tv over the internet, in the process reducing consumer cost.  Like Napster’s innovation bringing the peer-to-peer model (storing songs on consumers’ PC) to music and similarly neutered but re-birthed in different forms, the Aereo model may return.

In the process, there is also unbundling; there is a separation of content from delivery.  Datarisation affects distribution.  A radio station doesn’t need its transmission towers.  Banks don’t need their ATM networks and telcos of their telephone networks to deliver phone calls.  Such traditionally integrated industries re-structures as a result.  With their loss of control over distribution, they will also lose control over the ecosystem.  Once muscular in their relationship with partners they now need persuasive skills.

Further, its parts can be broken up.  Classified can now exist on its own from the rest of the newspaper.  Cable bundles in the cable tv industry unbundles.  Fixed line phones are optional at home.

The economics of the affected industries transform.

The high distribution cost is replaced with the cheaper internet, reducing input costs.  But highly profitable parts, like cable bundles are threatened.  Phone calls 20 years ago made up 99% of telcos’ revenue, now a fraction.

The value of datarisable products changes.  Voice conversations and messaging now has worth (when mined) even as phone call charges collapse.  Prices of movies and music are affected since discovery (search, recommendations by online providers, sharing on social networks) and distribution costs are lowered (internet) while reach is potentially higher (global internet).  Supply is also affected by the democratization of content.  YouTube, the popularity of user-generated videos and freebooting affect demand.  Similarly software can now be made through crowdsourcing which means they’re offered free.

Rules that apply to the digital economy are foisted upon them   So are the operating models and the culture of doing business online.  In many cases, it differs greatly from conventional business models.

“Unlike hotel and taxi companies that seek to constrain supply to keep prices high, Airbnb and Uber are creating structural assets that appreciate in value as they attract more and more new hosts/drivers (i.e. supply) and travellers (i.e. demand) to their platform, leading to the ultimate network effect.”

The middlemen industry, the mainstay of commerce is rapidly being dismantled as the internet facilitates a direct model.  It’s not going away but layers are reduced.

Competition increases since it’s now borderless but so too the opportunities.  One change is customer service.  Once mostly a lip service it’s now reframed as user experience and moved to the top of business strategy ala Amazon.com.  Competitors are now literally a click away. 

The peer-to-peer model is particularly impactful.  It’s destroying the business of traditional phone calls.  A person making a call to another is a person-to-person process.  Since the internet allows this to be carried out directly via mobile apps (WeChat), it bypasses the traditional telephone exchanges.  And in its basic form, banking is about a party lending to another via his deposits which is used as a loan.  It mirrors a p2p transaction, thus startups using this to replace some functions of the banks such as (p2p) lending, currency exchange and payments.  In fact the entire sharing economy, started by Napster and based on p2p is a huge and emerging economic sector, not only in terms of revenue but in efficient use of assets and productivity. 

Besides disrupting the software industry, the open source model brings new management principles.  Lean management and agile derives from the open source process.  It also improves product development, provides a mechanism to track trends continuously and inputs customers’ wants in situ. 

Let’s now look at the effect of datarisation on three industries.

Napster advanced the digitalisation of music and in the process caused the price of music to go down.  Music shouldn’t be free but datarisation reduced the cost of distribution and increased reach.  Likewise the tv/movie industry is transforming right before our eyes but it’s still early days.  Datarisation says prices will continue to fall.

With traditional voice calls datarised and thus revenue disappearing, telcos are being transformed.  Very simply, the future telco is the ISP.  Somehow I don’t think the incumbents see it this way.  Instead of innovating in the new internet economy, they seem more interested to turn the internet back to the old telco model where they control the ecosystem!  Datarisation suggests that’s not going to happen.

Datarisation of software means it’s really a services business now in the form of cloud computing and open source software.  We are witnessing re-sizing of the current giants of the traditional industry.

Any product that can be datarised will see its industry affected.

@tommichen7

©Thet Ngian Chen, internetbusinessmodelasia.blogspot.com (2012, 2013, 2014, 2015).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Thet Ngian Chen and internetbusinessmodelasia.blogspot.com with appropriate and specific direction to the original content.

Company Websites 2.0; it’s all about business 3/3

Click here for Part 1 ..websites of business are underused

And here for Part 2 ...suggestions to make it business oriented

User experience

Larger tech firms dedicate a team to continuously improve user experience of their sites, with good reason.

“One tenth of a second delay in the website will lose Amazon 1% of sales”

     – Amazon Rising, CNBC 2014

The quality of users’ interactions on a website is what user experience is about.  While this is a topic by itself, it really comes down to speed – how fast the user gets to whatever he is trying to reach.  It is a combination of:

  (1) response time (how fast a web page is served),

  (2) how little distractions (so he focus on his task, exiting quickest after he’s done),

  (3) how little steps he takes (number of clicks) and the

  (4) quality of the information around the content (so he doesn’t have to look elsewhere, and for SEO)

Once the maxim was to fill a webpage to the brim, today it is as little as possible.  Minimalism is not a style, it’s in response to (1), (2) and (3).  Notice the bland look of Google Search, AirBnB, Trulia and Flipboard.  No clutter, no distraction, only the relevant are shown.  Move everything that’s not relevant elsewhere.  Corporate information is a good example.  The link to it can be at the bottom of the page or the next level.

Personalisation is at the centre of user experience.  When applied to website design, it is the ability to capture a user’s browsing habits in order to use that information to improve his experience by reducing his site navigation effort.  An example - if she usually navigates 4 levels down to a specific brand of lipstick, let her do it in 2 clicks the next time.  It can even be as simple as returning to the same spot after she clicked on a product in a multi-page product list.  But surprisingly, most sites do it the lazy way, to the top of the page, not where he left off.  It may sound simple but personalisation is complex.  It is about Big Data, using algorithms and analytics. However for a firm like Acme (case study, see 2^nd post), a simplified version can be had by coding it into the website.

Minimising the number of clicks is something tech firms obsess over.  I call it the 2-click principle. Two is not possible most of the time but this is a way of saying - minimise the number of clicks when designing processes and if it can be done within 2, that’s great.  Personalisation is one way to achieve this.  For small firms, being thorough and having the 2-click principle in mind when designing the website wireframe (page schematics representing the skeletal framework of a website) is probably the best way.  I have tried this.  It is surprising how being rigorous can reduce the number of clicks and in my attempt, by more than 50% from an old site.

User experience is a huge topic, what’s presented here is a snapshot.  And improving it is not a one-off task.

Finally, if you are considering revamping a website, bear in mind these modern techniques: agile, interactive snippets, lean startup, responsive web design, responsive app, landing page, material design, A/B testing.  And note that Google’s SEO (search engine optimisation) algorithm rewards good user experience and content.

Conclusion

Although they must scream sales, using the web only to sell is akin to using roads for sales and not for other aspects of a business.  As a firm goes through its day-to-day business, there are times when it carries out business development or to seek assistance for a noncore design or for talent acquisition.  These now can be carried out online to reach the sources, directly or indirectly though consumer activities of crowdsourcing.  In fact with the economy digitising, this is another way to achieve many business objectives, possibly at lower cost and with more impact.  Or use it to complement conventional methods.

Corporate website 1.0 was essentially closed, assessable to its customers and partners while version 2.0 opens it to the public with the object to develop the wider market and to engage this resource for its routine operations. It is a facsimile of a business.

@tommichen7

©Thet Ngian Chen, internetbusinessmodelasia.blogspot.com (2012, 2013, 2014, 2015).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Thet Ngian Chen and internetbusinessmodelasia.blogspot.com with appropriate and specific direction to the original content.

Corporate Websites 2.0; it’s all about business 2/3

Part 1 suggested that business websites are underused.  Two factors were raised.  We continue with the 3^rd here followed by suggestions to make it business oriented.

Click here for Part 1

3. Misguided use of websites, misguided understanding of business internet

       “Social media is only the tip of the iceberg”

Executives then (first phase of the web, pre-2000) misunderstood the internet as a tool for commerce.  They couldn’t grasp the differing culture or the changed rules of business. The result is that many firms today, through their websites, are not realising their full potential in a digitising economy.

To overhaul the website to do so will require the firm to meld business objectives it wants to achieve, say, long term engagement of their customers, online and applying the right digital mechanisms.  That is to say, apply the relevant internet ‘rules’ to the business processes.  This is more than using responsive web design, agile or another term the tech industry spews out. A grasps of the fundamentals of the machinery of the internet economy will help.  This is a huge topic so I’ll just leave references.

Most will agree that operating or even using online services feels a bit different from what we are used to.  Since culture eats strategy (Peter Drucker), some understanding helps. 

  The culture that lead to lean startup   Key is to be able to live the open culture.

“’Free and open’ was what made the internet work then, and it’s a critical principle now. I didn’t have to ask permission to build my first websites.  I had unfettered access to material that helped me teach myself how to code. As I learned more, I quickly came to understand that the internet was so much more than a network of cables and wires that connected computers around the world. It was a platform for the purest expression of freedom, openness and possibility that I had experienced in my life”

                                                                                 – Chad Dickerson, founder of Etsy

One big trend is the consumer economy - whence once the consumer only consumes, they now also produce.  This made billionaires of the founders of Facebook, Uber et cetera.  Consumers can indirectly play a role for a business if they are ‘asked’ 

   Crowdsourcing; a tool for business

‘Free’, once a niche in business is now taking centre stage in the internet economy.  Would Facebook be free to use if a traditional telco invented it?  Rules have changed, new business models have emerged.  Tech firms use ‘free’ strategically, so can traditional firms.  They understand that free now has value.

Another is active vs passive websites.  Website 2.0 is active by definition because it engages the public, using an open (digital) platform to do that.

Finally, this is self explanatory.

  Internet business model

Towards a 2.0 company website

 “Digital capabilities increasingly will determine which companies create or lose value” - McKinsey, May 2014

Business websites today tend towards sales but business is more than about selling.  2.0 version adds three things to improve business; capability to engage consumers (market development), put online specific business processes (to execute goals like market surveys) and improving the overall user experience.  It does more than that but three suffices here.  And by being inclusive, business should improve just as costs are brought down. 

Engaging consumers

Website 2.0 is about selling but it also engages consumers, some of whom would in the process contribute to the business.  Instead of traditional marketing, which is really one-way, online it is two-ways using crowdsourcing.  AT&T had an initiative in a crowd-driven video to market its phones.  The first episode was posted online, inviting anyone to suggest how the story continues.  The only condition was that AT&T phones are featured as crowd cartoonists build their ideas into the story.  Downloads were high.

Crowdsourcing can do more by engaging consumers.

The peer-to-peer model

Open source business model

          These are about applying the relevant ‘rules’ to increase digital impact.  ‘Rules’ refer to
          methods, business models and mechanisms of the internet economy.

Obviously the use of such a platform is not limited to marketing but to business development and other aspects of a business.  This leads to the second capability.

Business processes 

Essentially this is about weberising business processes.  Businesses from time-to-time necessitate specific actions; carrying out a market study, developing a new product, recruitment, etc.  In this new social-economy, the crowd can assist rather than doing everything internally.  Why?  Because you can and it improves the deliverables while lowering costs.  It also brands.

 “China’s Xiaomi crowdsources features of its new mobile phones rather than investing heavily in R&D, and Telstra crowdsources customer service, so that users support each other to resolve problems without charge” - McKinsey, ‘Strategic principles for competing in the digital age’
  
Why they can is because Free now has value.

Let’s see how Acme does it.  Acme is in retail, hawking a variety of bicycles and accessories.  To better stock the shop, it wants to know what his customers really want.  Talking to them is one way but they know that idle chatter, say while a group of enthusiasts is on a country trial provides the most authentic data,.  Let’s see how this can be realised online.

Acme set up a forum off its main website, titled ‘off roading’ suggesting that enthusiast use the forum to discuss their experiences.  Accessories they like, specific performances of their bicycles and issues would be in the chatter.  Acme simply reads the forum for data.  They also set up another, a Q&A forum for its customers and opened to others. If the shopkeepers respond diligently and add a dose of enthusiasm, some of them will become customers.  When they want to ascertain something specific, say, whether to stock an accessory, he posts it as a question on the forum.  [Twitter and Facebook can also be used.]  This way, he is researching his market.  They can do more.

This is a simplistic example. Execution is never easy unless you are a global brand with an established fan base.  To get the forum going is like a branding exercise, it needs creative effort and there’s no guarantee.  A combination of traditional marketing (PR, giving talks, article placements in trade magazines, etc), traditional internet marketing (email, website, etc) and social media (Instagram, Pinterest, Facebook, etc) can draw in the initial participants.  In all cases, ask for email addresses.

User experience is probably the most important for a business website.  This is discussed in the next concluding post.

@tommichen7

©Thet Ngian Chen, internetbusinessmodelasia.blogspot.com (2012, 2013, 2014, 2015).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Thet Ngian Chen and internetbusinessmodelasia.blogspot.com with appropriate and specific direction to the original content.