How to Succeed in the Second Digital Era
Blockbuster. Borders. The U.S. Postal Service. These once-dominant entities, and many more, have all been victims of disruptive tech.
Although it’s too early to sound the death knell for taxis, it’s also too late to say that ridesharing companies like Uber and Lyft are a flash in the pan. The disruptive change they represent is becoming part of our psyches—how we think about the world around us is framed by digital data’s seemingly endless potential to upend. Businesses and industries that have so far avoided disruption’s cleaver might think that the worst is in the past. It isn’t.
We are entering a Second Digital Era with profound implications for the future of disruption. The first digital era began when analog devices were replaced by their superior digital equivalents—think portable tape players becoming CD players—but this next period will be significantly more dramatic. The second digital era will be driven by the broader digitization of our physical space. In the second digital era, we not only digitize more of the objects around us, but also systematically digitize the information the objects gather. It is this digitization of data that fully opens the floodgates of disruption.
Our second digital era isn’t only impacting the rate of disruption; it’s changing what disruption looks like. In other words, disruption in the digital era has a few common factors—factors that legacy businesses and industries can identify and use to improve their chances of surviving and thriving in the digital age. These factors include:
Scale: Scaling businesses has always been a key element of growth. But, with the introduction of the next digital era, the process of scaling businesses changes significantly by a number of measures—including cost. In an analog world, consumers face real costs when choosing to find and travel to a new store or engage a new service provider. But in a digital marketplace, both search costs and switching costs are lower, meaning consumers can more readily find and switch to new businesses without major disturbance. Lower switching costs enable businesses to scale (and fail) quickly.
Digital has also changed the magnitude of growth expected of a business when it scales up. In an analog setting, selling the first 50,000 units might be the threshold that suggests the marketplace is viable. The scaling of Internet businesses today is gauged on a completely different tier. Today, we might say that anyone can get their app downloaded one million times; it’s the next ten million that matter. There are 1.2 billion worldwide members of the nearly 2,000-year-old Roman Catholic Church. Today, there are over 1.5 billion monthly active users of 11-year-old Facebook. That is the scale of digital.
Network Effects: Network effects have always been a powerful force in technology, and they help explain how the value of devices like telephones or fax machines increases (and decreases) over time. For example, the value of the first fax machine was close to zero without … Next Page »