As I was growing up in India in the 70s and the 80s, one advertisement that always caught my attention was the “Kodak Moment”. Kodak was world’s largest photography and print media company, capturing over two thirds of the share of global market. They said that the job of a sales person in Kodak was a comfortable job, because the KODAK products sold themselves, there was very little sales marketing effort required to sell them. Around the turn of the century, Kodak developed the digital Camera. It was a great invention that did away with the need for films in camera; instead recording the image on a backup memory. However, the senior management at Kodak refused to let the new invention hit the market, for the fear of losing the film business, which constituted 60% of their top line and 90% of the film business in the US. At a time when digital technology was reshaping the whole world, the leadership at Kodak was in a denial mode. Sony and Canon saw their opportunity and adopted the digital imaging technology in a big way. Digital imaging swept through all segments of photography. Kodak shares started to decline. Even then kodak thought that their marketing effort will be able to reverse the trend. Nothing of that sort happened and Kodak went bankrupt within a decade of refusing to accept the advent of Digital photography.
Similar story repeated itself in Nokia. Nokia was the world’s biggest and leading mobile phone manufacturer. Within a span of 4 years from 1995-1999, it had quadrupled its turnover from $1billion to $4 billion. By 2003 it was the world’s leading mobile manufacturer. In 2007 Apple launched the iPhone. It changed the perception of a mobile phone from just a communication device to a device for multiple functions like music, photography, entertainment, information and communication. iPhone introduced another very interesting feature of iTunes. Anyone with ideas could add an App to the iTunes and hope to make money by its sale. Thousands of young minds thronged the iTunes platform with bright new ideas. While they uploaded the Apps to the iTunes store, millions could use these apps for a very small nominal sum of money. Invariably less than $10/-. Apple had created the first platform for producers and consumers of value to come together on the platform, exchange value, enrich themselves and in the process and also enrich the Apple company. It was win-win for all the stakeholders. Nokia failed to notice this new business model that worked on creating the network effect around the platform for value exchange. Nokia started fading away and by 2013 had become a spent force in the mobile market. Finally, it got acquired by Microsoft and Nokia brand name vanished from the mobile phone market.
The above two cases show a very important trend. Digital technology shall touch all businesses the way it had never touched in the past. Amazon, riding on their internet platform has captured the retail market and is giving tough competition to the established players like Walmart. Uber, riding on their ride sharing platform is already valued higher than GM motors; an auto company established nearly a century ago. Airbnb, without owning a single room is valued higher than Marriot, that runs a hotel chain of thousands of hotels across the world and a company like Netflix has sent the giants like the “Blockbuster” to the annals of history in USA. So, what is common between Amazon, Uber, Airbnb and Netflix. All these companies have heavily adopted the digital technology and taken quick advantage of giant leaps taken by the digital industry in faster communication (In excess of 100Mbps), huge data storage and retrieval and advanced techniques in data analytics and Artificial intelligence.
The time for adopting digital technology for just an advantage in the market place is gone. Now it is the question of survival. Either adopt the digital technology or some tech entrepreneur with a new platform business shall gobble up your business even before you realize what is happening around. Digital technology in general and Digital platforms in particular are re-writing the rules of the business strategy.
In the industrial era businesses, value was created by people, processes and technology. Such a value in the form of goods or services was taken to the market where it got sold for a premium over the cost of manufacturing or service delivery. Since the technology and processes created the value, all the companies kept these secrets very close to their heart.
But this model of value creation changed with the advent of the Digital platform business model. Such a digital technology platforms brought four players together on a single platform. These are as shown in the diagram below:
In the above diagram the platform owner (Amazon, Uber, Netflix, Airbnb etc) is neither the producer of core value that gets consumed nor the consumer of that value. Instead it just facilitates bringing the producer and the consumer together on a platform. It provides several facilities, driven by modern digital technology of data analytics and AI. This facilitates an easy value exchange between the producer and the consumer there by creating a network effect. This network effect gets hundreds of thousands of producers to throng the platform market because it promises quick sale and higher volumes. It also attracts millions of consumers and clients, since it is now so easy for them to look for the exact producer available at the right price for them to buy and consume that value. They can now compare and contrast hundreds of producers of a good or service, compare their prices, see what others are saying about them and finally decide on the exact purchase. This network effect multiplies as the time goes by and consumers become more and more comfortable with the platform and begin to choose the platform instead of brick and mortar businesses. Over a period of time the brick and mortar businesses either adopt the digital way of doing business or face the prospect of complete extinction.
In whatever business you may be in, it is time for you to apply the digital lens to your business. Look at the speedily changing landscape in your industry. Look at what new technology trends and advances are happening in the digital world and how these are getting applied to products and services in your industry. Sit with your strategy team and create the “Digital Business Strategy” rather than just the “Business strategy” for your company. Unless you adopt the digital technology for your business, you may be the next Kodak in the making (or may be dying).
About the Author
Wg. Cdr. Pradeep Valsangkar is a postgraduate engineer from the IAF. He completed his M.tech in Computer Science from IIT Powai and MBA from FMS Delhi. He is also a graduate of the Defence Services Staff College of India. After leaving service, he has worked in various capacities across different IT services companies. He has been working as a senior consultant of the world bank for the last 15 years, a visiting faculty at the Institute of Management Technology and runs his consulting firm Global Consulting Solutions.
