Digital Disruption - The. disruption success ... 3 Blockbuster becomes a casualty of big bang disruption, HBR.org, 2013 Digital disruption success Netflix continues to innovate

Download Digital Disruption - The.  disruption success ... 3 Blockbuster becomes a casualty of big bang disruption, HBR.org, 2013 Digital disruption success Netflix continues to innovate

Post on 30-Mar-2018

212 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

<ul><li><p>Digital Disruption:have you been disrupted yet?</p></li><li><p>Digital disruption: Have you been disrupted yet?</p><p>Sitecore UK Ltd. 2 | page</p><p>Table of contents</p><p>Introduction .................................................................................... 3</p><p>What is digital disruption? ............................................................... 5</p><p>Death by digital disruption .............................................................. 6</p><p>Why is digital disruption happening? ............................................... 8</p><p>Digital disruption success .............................................................. 10</p><p>The five drivers of digital disruption ............................................... 12</p><p>Why digital disruptors have the edge on customer experience ...... 13</p><p>Uber delivers on customer experience ........................................... 14</p><p>How collaborative business models are disrupting the economy ... 15</p><p>Conclusion .................................................................................... 17</p></li><li><p>www.sitecore.net | +44 (0) 203 3270637 3 | page</p><p>Digital disruptors are encroaching on the </p><p>territory of traditional organisations with new </p><p>business models that pose a very real threat to </p><p>their very existence. No organisation, industry </p><p>or region will avoid digital disruption. </p><p>Philippe Lemoine, Chairman of Next Gener-</p><p>ation Internet Foundation sums up this era of </p><p>digital disruption nicely when he says: Whats </p><p>new about this phase, characterised by the </p><p>word digital, is that the technology race is no </p><p>longer driven by large organisations, but by </p><p>people. Digital disruptors are serving custom-</p><p>ers with better experiences and in order to com-</p><p>pete established organisations must focus on </p><p>the customer and optimise each experience, at </p><p>every touchpoint across the customer journey.</p><p>As Peter Drucker, the legendary management </p><p>consultant once said: The purpose of a business </p><p>is to create and keep a customer. This serves </p><p>as a guiding principle for both established busi-</p><p>nesses trying to maintain market share and for </p><p>new start-ups that are trying to break through. </p><p>In this paper, we look at the reality that is digital disruption and why it is happening. Well explore </p><p>who the digital disruptors are and why theyre achieving success. Well also look at why digital </p><p>disruptors have the edge on customer experience and what traditional organisations must do to </p><p>minimise the threat.</p><p>Since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired, ceased to exist, or dropped out of the Fortune 500 .</p><p>- Ray Wang, Principal Analyst, Constellation Research</p><p>Introduction</p></li><li><p>Digital disruption: Have you been disrupted yet?</p><p>Sitecore UK Ltd. 4 | page</p></li><li><p>www.sitecore.net | +44 (0) 203 3270637 5 | page</p><p>Every single step that you put between the customer and the actual function is friction. And today people dont live with friction. People see friction for what it is</p><p> Konstantin Peric, Bill &amp; Melinda Gates Foundations</p><p>Digital disruption refers to changes enabled by digital technologies that occur at a pace and magnitude that interrupt established ways of value creation, social interactions, doing business and, more generally, our thinking. 1</p><p>It can be seen as both a threat and an </p><p>opportunity. Indeed digital disruption is </p><p>a threat to traditional organisations that </p><p>currently hold market share in an industry ripe </p><p>for transformation. </p><p>On the other hand it presents many </p><p>opportunities for ambitious entrepreneurs and </p><p>start-ups that are leveraging technology and </p><p>building business models that challenge the </p><p>status quo and present opportunities to acquire </p><p>customers, market share and revenue at rates </p><p>never seen before.</p><p>Ultimately, however, it is the customer that </p><p>will benefit most from digital disruption as </p><p>both traditional organisations and new market </p><p>entrants vie to engage, attract and retain </p><p>more customers over the long term by offering </p><p>products, services and customer experiences </p><p>that meet and exceed their expectations. </p><p>1 What is digital disruption? The Big Opportunity, June, 2013</p><p>What is digital disruption?</p></li><li><p>Digital disruption: Have you been disrupted yet?</p><p>Sitecore UK Ltd. 6 | page</p><p>A poster child for death by digital disruption </p><p>is Blockbuster, the video rental giant that </p><p>fell from grace when it failed to evolve </p><p>its business model and was essentially </p><p>overthrown by Netflix - a brand that did just </p><p>that and evolved with the times.</p><p>Blockbuster opened its first store in the US </p><p>in 1985 and was a huge success. Media giant </p><p>Viacom bought Blockbuster for $8.4 billion </p><p>in 1994 and store numbers in the US grew to </p><p>10,000 at its peak, but by 2010 Blockbusters </p><p>value had shrunk to just $24million. 1</p><p>While Blockbuster grew, its late fees policy, </p><p>which had generated $800m by 2000 sparked </p><p>the creation of Netflix which was started by </p><p>Reed Hastings in 1997 after he was appalled </p><p>by a $40 Blockbuster late fee charge. Netflix </p><p>was different, offering DVD rentals sent to </p><p>customers via post. </p><p>While the service wasnt quite as convenient </p><p>as a local store, it was cheaper and didnt </p><p>charge the late fees that were a common bug-</p><p>bear among Blockbuster customers. In 2000 </p><p>Blockbuster had the opportunity to buy Netflix </p><p>for $50m but turned it down. Netflix was seen </p><p>as a small competitor to start with, reaching </p><p>4.2m members by 2005, but with the launch of </p><p>its video streaming service in 2007, it disrupted </p><p>the market again and became a veritable </p><p>threat to Blockbuster. Its new distribution </p><p>model offered unlimited streaming of movies </p><p>to subscribers on a range of devices for a </p><p>monthly fee with no need to visit a store.</p><p>1 Blockbuster bankruptcy: a decade of decline, FASTCOMPANY, 2010</p><p>Netflix posted its first profit earning of $6.5 </p><p>million on revenues of $272 million in 2003 but </p><p>Blockbuster was slow to identify Netflix as a </p><p>threat and failed to see the changes taking </p><p>place in the market in terms of consumer </p><p>behaviour and media consumption via new </p><p>channels. When questioned about Netflix in </p><p>2008, Blockbusters CEO was quoted as saying: </p><p>Ive been frankly confused by this fascination </p><p>that everybody has with Netflix Netflix </p><p>doesnt really have or do anything that we </p><p>cant or dont already do ourselves. </p><p>Blockbuster eventually launched its own digital </p><p>download service but by that stage it was too </p><p>late. Its retail stores had become expensive </p><p>liabilities and a massive drain on the company. </p><p>Profits continued to decline and in September </p><p>2010 Blockbuster finally filed for bankruptcy in </p><p>the US. By January 2013 Blockbuster had also </p><p>gone into administration in the UK. </p><p>Ive been frankly confused by thisfascination that everybody has withNetflixNetflix doesnt really have or do anything that we cant or dont already do ourselves.</p><p>John AntiocoBlockbuster CEO, 2008</p><p>Death by digital disruptionBlockbuster fails to move with the times</p></li><li><p>www.sitecore.net | +44 (0) 203 3270637 7 | page</p></li><li><p>Digital disruption: Have you been disrupted yet?</p><p>Sitecore UK Ltd. 8 | page</p><p>The InternetDigital disruption is happening due to the </p><p>growth of the Internet. Globally, there are </p><p>three billion people connected to the Internet </p><p>via smartphones and other devices, which </p><p>is forecast to increase to nearly six billion </p><p>within the next five years.1 The Internet </p><p>has changed everything - the way we </p><p>communicate, consume, shop, date, share, </p><p>source information, and do business. The first </p><p>wave of Internet disruption affected traditional </p><p>offline content producers. As consumers </p><p>became adept at using the Internet and </p><p>consuming online, new digital players grabbed </p><p>the opportunity to distribute news, music and </p><p>movies via digital channels. </p><p>Google began to aggregate and deliver </p><p>news. Newspaper ad revenues tumbled when </p><p>sites like Gumtree and Craigslist presented </p><p>traditional print and classified ads online </p><p>and often for free. Amazon created a new </p><p>distribution model for books, with ebooks and </p><p>Kindle. For music, Apple launched iTunes with </p><p>songs synced directly to the iPod, while Netflix </p><p>offered online video and TV streaming services. </p><p>While publishers and traditional content </p><p>providers such as McGraw Hill, Blockbuster, </p><p>HMV and EMI Records could see what was </p><p>happening, they failed to act fast enough </p><p>and experienced significant revenue losses </p><p>as a result. Of these four digital disruption </p><p>casualties, only two continue to do business </p><p>today. 2</p><p>1 Digital Transformation Review, Strategies for the Age of Disruption, Capgemini, 2015</p><p>2 The Decoupling Effect of Digital Disruptors, Harvard Business School, 2014</p><p>Customer BehaviourWhile the Internet and technology are indeed </p><p>the enablers, digital disruption is ultimately </p><p>driven by people. Customer behaviour </p><p>has evolved as a result of the Internet and </p><p>technology, and it is the continued desire </p><p>for businesses to attract, acquire and retain </p><p>customers by meeting and exceeding their </p><p>expectations that has spurred digital disruption </p><p>and transformation, as brands battle it out for </p><p>market share.</p><p>The digital age that millennials are growing </p><p>up in has reshaped traditional consumption </p><p>behaviour. 79% of people aged 18-44 have </p><p>their smartphones with them 22 hours a </p><p>day and of those, 80% say checking their </p><p>smartphone is the first thing they do in the </p><p>morning.3 Millennials are more willing to </p><p>share and interact with strangers as a result </p><p>of technology and the world of social media </p><p>in which they are now immersed. While </p><p>previous generations were more concerned </p><p>with ownership of things, millennials are </p><p>more inclined towards shared ownership as </p><p>an economic way of accessing services they </p><p>desire. The car sharing service Zipcar is an </p><p>example of this.</p><p>3 79% Of People 18-44 Have Their Smartphones With Them 22 Hours A Day, SocialTimes, 2013</p><p>The rhythm of digital transformation is determined by a customer. As a result, everything must be designed and developed based on the customers needs and priorities.</p><p>Philippe Lemoine Chairman of the Fing </p><p>Why is digital disruption happening?</p></li><li><p>www.sitecore.net | +44 (0) 203 3270637 9 | page</p><p>New business models and technology</p><p>Digital disruption generally occurs when an </p><p>entrepreneur or start-up identifies a new or </p><p>better way of delivering a product or service </p><p>that people desire with the help of new </p><p>business models and technology. </p><p>A digital disruptor may look at where customer </p><p>pain points currently exist within a particular </p><p>industry and provide a more efficient, </p><p>preferable offering.</p><p>Digital disruptors may also look at clunky </p><p>systems, structures and business processes of </p><p>traditional organisations and develop ways to </p><p>streamline, reduce resources and offer services </p><p>at a fraction of the cost using new business </p><p>models and technology.</p></li><li><p>Digital disruption: Have you been disrupted yet?</p><p>Sitecore UK Ltd. 10 | page</p><p>While Netflix skyrocketed to success and </p><p>Blockbuster plunged to bankruptcy, it was not </p><p>all plain sailing for Netflix as it made its own </p><p>mistakes along the way. </p><p>When Netflix looked to expand its online movie </p><p>streaming service in 2011, its execution of this </p><p>actually infuriated customers. The company </p><p>raised its prices by 60% and announced plans </p><p>to divide into two services one sending DVDs </p><p>through the mail, and the other streaming </p><p>movies online an increasingly popular choice </p><p>among its 24 million subscribers.1 </p><p>Customers became frustrated when they were </p><p>required to maintain two separate accounts </p><p>across separate websites for Netflix services. </p><p>In trying to force the transition on customers </p><p>Netflix made a major strategic error and paid </p><p>the price with nearly 1 million customers </p><p>cancelling their service and shrivelling its </p><p>market capitalisation from $16bn to $4bn in </p><p>just three months.2 </p><p>While Netflix made some poor decisions along </p><p>the way, by listening to its customers it was </p><p>quick to recognise and address its mistakes, </p><p>something that Blockbuster failed to do.</p><p>1 Disrupters bring destruction and opportunity, ft.com, 20142 IBID</p><p>Netflix digital transformation did not stop with </p><p>the introduction of online movie streaming. It </p><p>continues to innovate and evolve its business </p><p>model in line with the latest industry trends, </p><p>market predictions and consumer behaviour. </p><p>A recent innovation was the brands decision </p><p>to produce its own online only web TV shows </p><p>including House of Cards and Orange is the </p><p>New Black, and in September 2014, Netflix </p><p>became the first video distribution company to </p><p>win a major Emmy award.3 </p><p>In 2014 Netflix had more than 50 million </p><p>subscribers in 50 countries with revenues </p><p>in excess of $4billion and net income of </p><p>$183million.</p><p>3 Blockbuster becomes a casualty of big bang disruption, HBR.org, 2013</p><p>Digital disruption successNetflix continues to innovate and learn from its mistakes</p></li><li><p>www.sitecore.net | +44 (0) 203 3270637 11 | page</p><p>Four things we can learn from Blockbuster and Netflix</p><p>FOCUS ON WHATS AHEAD AND HOW CUSTOMER BEHAVIOUR IS CHANGING WITH THE TIMES. No matter what happens with technology, brands must always focus on delivering a superior customer experience and this means really understanding customer behaviour.</p><p>BE PREPARED TO INNOVATE AND SHAKE UP YOUR BUSINESS MODEL. Blockbuster was wedded to its old bricks and mortar model for too long as customers abandoned it. Even as late as 2011, Blockbuster continued to buy more stores. Netflix has innovated its business model several times since it started out and continues to do so with much success.</p><p>DONT FORCE TRANSITION ON CUSTOMERS. Netflix attempted to force the digital side of its business on current customers prematurely and infuriated them as a result. </p><p>DIGITAL DISRUPTION DOESNT HAPPEN OVERNIGHT. The warning signs were there for Blockbuster, it even had the opportunity to react, but failed to do anything until it was too late. Its important to pay attention to the market and be ready to act.</p></li><li><p>Digital disruption: Have you been disrupted yet?</p><p>Sitecore UK Ltd. 12 | page</p><p>Wastage of resourcesEntrepreneurs identify an </p><p>unused asset and find new </p><p>ways to generate value </p><p>from it. Airbnb recognised </p><p>a way to enable people </p><p>to monetise unused </p><p>properties or rooms and </p><p>meet the needs of cost </p><p>conscious travellers.</p><p>RedundancyEntrepreneurs identify ways </p><p>to bypass redundant people </p><p>and inefficient processes using </p><p>technology. Transferwise and </p><p>CurrencyFair allow customers </p><p>to save as much as 95% on </p><p>transfer fees by bypassing the </p><p>middle man and enabling peer-</p><p>to-peer currency transfers.</p><p>ComplexityEntrepreneurs identify </p><p>ways to simplify complex </p><p>and frustrating customer </p><p>experiences. Uber and </p><p>Lyft have successfully </p><p>simplified a complex, </p><p>costly and unreliable </p><p>service for customers.</p><p>Limited accessStart-ups are identifying ways to enable people to access expensive </p><p>or luxury services that they wouldnt otherwise be able to. BMW-on-</p><p>demand is a new offering from the luxury car brand that gives customers </p><p>shared access to a car. They are charged per minute of usage rather than </p><p>having to pay for the full cost of ownership.</p><p>Broken trustWhere customer trust in </p><p>large institutions is broken, </p><p>start-ups that off...</p></li></ul>