Post on 30-Mar-2018
Digital disruption: Have you been disrupted yet?
Sitecore UK Ltd. 2 | page
Table of contents
Introduction .................................................................................... 3
What is digital disruption? ............................................................... 5
Death by digital disruption .............................................................. 6
Why is digital disruption happening? ............................................... 8
Digital disruption success .............................................................. 10
The five drivers of digital disruption ............................................... 12
Why digital disruptors have the edge on customer experience ...... 13
Uber delivers on customer experience ........................................... 14
How collaborative business models are disrupting the economy ... 15
Conclusion .................................................................................... 17
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Digital disruptors are encroaching on the
territory of traditional organisations with new
business models that pose a very real threat to
their very existence. No organisation, industry
or region will avoid digital disruption.
Philippe Lemoine, Chairman of Next Gener-
ation Internet Foundation sums up this era of
digital disruption nicely when he says: “What’s
new about this phase, characterised by the
word ‘digital’, is that the technology race is no
longer driven by large organisations, but by
people”. Digital disruptors are serving custom-
ers with better experiences and in order to com-
pete established organisations must focus on
the customer and optimise each experience, at
every touchpoint across the customer journey.
As Peter Drucker, the legendary management
consultant once said: “The purpose of a business
is to create and keep a customer”. This serves
as a guiding principle for both established busi-
nesses trying to maintain market share and for
new start-ups that are trying to break through.
In this paper, we look at the reality that is digital disruption and why it is happening. We’ll explore
who the digital disruptors are and why they’re achieving success. We’ll also look at why digital
disruptors have the edge on customer experience and what traditional organisations must do to
minimise the threat.
“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” .
- Ray Wang, Principal Analyst, Constellation Research
Introduction
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“Every single step that you put between the customer and the actual function is friction. And today people don’t live with friction. People see friction for what it is”
– Konstantin Peric, Bill & Melinda Gates Foundations
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
It can be seen as both a threat and an
opportunity. Indeed digital disruption is
a threat to traditional organisations that
currently hold market share in an industry ripe
for transformation.
On the other hand it presents many
opportunities for ambitious entrepreneurs and
start-ups that are leveraging technology and
building business models that challenge the
status quo and present opportunities to acquire
customers, market share and revenue at rates
never seen before.
Ultimately, however, it is the customer that
will benefit most from digital disruption as
both traditional organisations and new market
entrants vie to engage, attract and retain
more customers over the long term by offering
products, services and customer experiences
that meet and exceed their expectations.
1 What is digital disruption? The Big Opportunity, June, 2013
What is digital disruption?
Digital disruption: Have you been disrupted yet?
Sitecore UK Ltd. 6 | page
A poster child for ‘death by digital disruption’
is Blockbuster, the video rental giant that
fell from grace when it failed to evolve
its business model and was essentially
overthrown by Netflix - a brand that did just
that and evolved with the times.
Blockbuster opened its first store in the US
in 1985 and was a huge success. Media giant
Viacom bought Blockbuster for $8.4 billion
in 1994 and store numbers in the US grew to
10,000 at its peak, but by 2010 Blockbuster’s
value had shrunk to just $24million. 1
While Blockbuster grew, its ‘late fees’ policy,
which had generated $800m by 2000 sparked
the creation of Netflix which was started by
Reed Hastings in 1997 after he was appalled
by a $40 Blockbuster late fee charge. Netflix
was different, offering DVD rentals sent to
customers via post.
While the service wasn’t quite as convenient
as a local store, it was cheaper and didn’t
charge the late fees that were a common bug-
bear among Blockbuster customers. In 2000
Blockbuster had the opportunity to buy Netflix
for $50m but turned it down. Netflix was seen
as a small competitor to start with, reaching
4.2m members by 2005, but with the launch of
its video streaming service in 2007, it disrupted
the market again and became a veritable
threat to Blockbuster. Its new distribution
model offered unlimited streaming of movies
to subscribers on a range of devices for a
monthly fee – with no need to visit a store.
1 Blockbuster bankruptcy: a decade of decline, FASTCOMPANY, 2010
Netflix posted its first profit earning of $6.5
million on revenues of $272 million in 2003 but
Blockbuster was slow to identify Netflix as a
threat and failed to see the changes taking
place in the market in terms of consumer
behaviour and media consumption via new
channels. When questioned about Netflix in
2008, Blockbuster’s CEO was quoted as saying:
“I’ve been frankly confused by this fascination
that everybody has with Netflix… Netflix
doesn’t really have or do anything that we
can’t or don’t already do ourselves.”
Blockbuster eventually launched its own digital
download service but by that stage it was too
late. Its retail stores had become expensive
liabilities and a massive drain on the company.
Profits continued to decline and in September
2010 Blockbuster finally filed for bankruptcy in
the US. By January 2013 Blockbuster had also
gone into administration in the UK.
“I’ve been frankly confused by thisfascination that everybody has withNetflix…Netflix doesn’t really have or do anything that we can’t or don’t already do ourselves.”
John AntiocoBlockbuster CEO, 2008
Death by digital disruptionBlockbuster fails to move with the times
Digital disruption: Have you been disrupted yet?
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The InternetDigital disruption is happening due to the
growth of the Internet. Globally, there are
three billion people connected to the Internet
via smartphones and other devices, which
is forecast to increase to nearly six billion
within the next five years.1 The Internet
has changed everything - the way we
communicate, consume, shop, date, share,
source information, and do business. The first
wave of Internet disruption affected traditional
offline content producers. As consumers
became adept at using the Internet and
consuming online, new digital players grabbed
the opportunity to distribute news, music and
movies via digital channels.
Google began to aggregate and deliver
news. Newspaper ad revenues tumbled when
sites like Gumtree and Craigslist presented
traditional print and classified ads online
and often for free. Amazon created a new
distribution model for books, with ebooks and
Kindle. For music, Apple launched iTunes with
songs synced directly to the iPod, while Netflix
offered online video and TV streaming services.
While publishers and traditional content
providers such as McGraw Hill, Blockbuster,
HMV and EMI Records could see what was
happening, they failed to act fast enough
and experienced significant revenue losses
as a result. Of these four digital disruption
casualties, only two continue to do business
today. 2
1 Digital Transformation Review, Strategies for the Age of Disruption, Capgemini, 2015
2 The Decoupling Effect of Digital Disruptors, Harvard Business School, 2014
Customer BehaviourWhile the Internet and technology are indeed
the enablers, digital disruption is ultimately
driven by people. Customer behaviour
has evolved as a result of the Internet and
technology, and it is the continued desire
for businesses to attract, acquire and retain
customers by meeting and exceeding their
expectations that has spurred digital disruption
and transformation, as brands battle it out for
market share.
The digital age that millennials are growing
up in has reshaped traditional consumption
behaviour. 79% of people aged 18-44 have
their smartphones with them 22 hours a
day and of those, 80% say checking their
smartphone is the first thing they do in the
morning.3 Millennials are more willing to
share and interact with strangers as a result
of technology and the world of social media
in which they are now immersed. While
previous generations were more concerned
with ownership of ‘things’, millennials are
more inclined towards shared ownership as
an economic way of accessing services they
desire. The car sharing service Zipcar is an
example of this.
3 79% Of People 18-44 Have Their Smartphones With Them 22 Hours A Day, SocialTimes, 2013
“The rhythm of digital transformation is determined by a customer. As a result, everything must be designed and developed based on the customer’s needs and priorities.”
Philippe Lemoine Chairman of the Fing
Why is digital disruption happening?
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New business models and technology
Digital disruption generally occurs when an
entrepreneur or start-up identifies a new or
better way of delivering a product or service
that people desire with the help of new
business models and technology.
A digital disruptor may look at where customer
pain points currently exist within a particular
industry and provide a more efficient,
preferable offering.
Digital disruptors may also look at clunky
systems, structures and business processes of
traditional organisations and develop ways to
streamline, reduce resources and offer services
at a fraction of the cost using new business
models and technology.
Digital disruption: Have you been disrupted yet?
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While Netflix skyrocketed to success and
Blockbuster plunged to bankruptcy, it was not
all plain sailing for Netflix as it made its own
mistakes along the way.
When Netflix looked to expand its online movie
streaming service in 2011, its execution of this
actually infuriated customers. The company
raised its prices by 60% and announced plans
to divide into two services — one sending DVDs
through the mail, and the other streaming
movies online – an increasingly popular choice
among its 24 million subscribers.1
Customers became frustrated when they were
required to maintain two separate accounts
across separate websites for Netflix services.
In trying to force the transition on customers
Netflix made a major strategic error and paid
the price with nearly 1 million customers
cancelling their service and shrivelling its
market capitalisation from $16bn to $4bn in
just three months.2
While Netflix made some poor decisions along
the way, by listening to its customers it was
quick to recognise and address its mistakes,
something that Blockbuster failed to do.
1 Disrupters bring destruction and opportunity, ft.com, 20142 IBID
Netflix’ digital transformation did not stop with
the introduction of online movie streaming. It
continues to innovate and evolve its business
model in line with the latest industry trends,
market predictions and consumer behaviour.
A recent innovation was the brand’s decision
to produce its own online only web TV shows
including “House of Cards” and “Orange is the
New Black”, and in September 2014, Netflix
became the first video distribution company to
win a major Emmy award.3
In 2014 Netflix had more than 50 million
subscribers in 50 countries with revenues
in excess of $4billion and net income of
$183million.
3 Blockbuster becomes a casualty of big bang disruption, HBR.org, 2013
Digital disruption successNetflix continues to innovate and learn from its mistakes
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Four things we can learn from Blockbuster and Netflix
FOCUS ON WHAT’S 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.
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.
DON’T FORCE TRANSITION ON CUSTOMERS. Netflix attempted to force the digital side of its business on current customers prematurely and infuriated them as a result.
DIGITAL DISRUPTION DOESN’T 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. It’s important to pay attention to the market and be ready to act.
Digital disruption: Have you been disrupted yet?
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Wastage of resourcesEntrepreneurs identify an
unused asset and find new
ways to generate value
from it. Airbnb recognised
a way to enable people
to monetise unused
properties or rooms and
meet the needs of cost
conscious travellers.
RedundancyEntrepreneurs identify ways
to bypass ‘redundant’ people
and inefficient processes using
technology. Transferwise and
CurrencyFair allow customers
to save as much as 95% on
transfer fees by bypassing the
middle man and enabling peer-
to-peer currency transfers.
ComplexityEntrepreneurs identify
ways to simplify complex
and frustrating customer
experiences. Uber and
Lyft have successfully
simplified a complex,
costly and unreliable
service for customers.
Limited accessStart-ups are identifying ways to enable people to access expensive
or luxury services that they wouldn’t otherwise be able to. BMW-on-
demand is a new offering from the luxury car brand that gives customers
shared access to a car. They are charged per minute of usage rather than
having to pay for the full cost of ownership.
Broken trustWhere customer trust in
large institutions is broken,
start-ups that offer peer-
to-peer platforms and
bypass the middle man
are emerging. Examples
include Funding Circle and
Zopa that both offer peer-
to-peer lending platforms.
5
4
2
1
3
The five drivers of digital disruptionGlobal thought leader, Rachel Botsman has identified five key drivers of disruption.1
1 Digital Transformation Review, Strategies for the Age of Disruption, Capgemini, 2015
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Today, most companies claim to be focusing on
customer-centricity. However, few traditional
organisations have been built around the customer’s
needs or with an ‘outside-in’ approach. Digital start-
ups, on the other hand, have customer-centricity at
their very core.
Through digital, customers have found new ways to
communicate, consume and share.
Customers now measure the performance of
organisations and the brand experience based on
the standards set by ‘digital natives’ such as Amazon
or Uber. They expect the same response times, the
same omni-channel experience, and the same level
of real-time information.1
1 Digital to the core - Are Britain’s mid-tier companies playing to win? KPMG, 2015
Ericsson Communications Technology outlines why digital disruptors have the edge on customer experience.
• Digital disruptors are mainly founded on the premise of improving or simplifying the lives of end users
• Their business is built from the user’s perspective rather than on an established business model
• The digital technologies on which they build their products and services enable a much higher degree of customer-centricity
• They lack the legacy infrastructures, bureaucracy and operating models that force many traditional companies to continue thinking from the ‘inside-out‘ rather than from the ‘outside-in’
Why digital disruptors have the edge on customer experience
Digital disruption: Have you been disrupted yet?
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Uber is the obvious example, but also a very
worthy mention. Recently valued at $41 billion
and predicted to go public very soon, Uber is
a brand with a new business model that has
challenged the status quo and leveraged the
latest technology to deliver a standardised
service but in a faster, easier and more
affordable way – in cities across the globe.
Customers are impressed with the ease of use,
speed and affordability of Uber’s service, and
it has left taxi companies – even in regulated
markets such as London, wondering what to
do next, as this is a business model that will
be very hard to emulate. Uber provides better
customer experience while generating new
sources of revenue, and all at lower costs,
without the need for Uber to actually own any
vehicles or employ any drivers.
“If you look at a company like Uber, the product is not that innovative. They’re a transportation company, but at the same time, they’re using social technology to generate driver reviews, mobile technology to deliver the app, cloud technology to power the whole thing, and big data analytics to track surges that alter their pricing. It’s a very innovative business, but it’s not about replacing taxis. It’s about removing an intermediary that gets in the way of efficient transportation, making the process simpler.” 1
Ray Wang, Analyst, Constellation Research
1 CRM Evolution 2014: Modern Marketers Must Focus on Context, Content, and Revenue, destinationCRM.com, 2014
Uber delivers on customer experience
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Collaborative business models are reflective of the changing customer behaviour guiding businesses
today. Consider Airbnb, Uber, Lyft, or YPlan. What do all of these digital disruptors have in common?
None of these businesses actually have physical assets. Airbnb doesn’t own any accommodation but
facilitates access to spare rooms and unused properties. Neither Uber nor Lyft own any cars or em-
ploy any drivers, and YPlan doesn’t own any venues or operate events. Both groups simply facilitate
the provision of the service between the provider and the customer.
Customers aren’t as concerned with physical ownershipCustomers today aren’t as concerned with
physical ownership as they were in the
past. Businesses that have tapped into this
collaborative economy and evolving consumer
behaviour are some of the most well-known
disruptors today. Netflix and Spotify customers
pay to access the benefits of the service
without actually owning any of the media.
Likewise, Zipcar and bike-share schemes allow
customers to access all the benefits without
the cost of ownership.
Technology makes it easier for people to build trust with strangersTechnology makes it easier for people to build
trust with strangers and to interact and share
in ways that were never possible before.1
Customer and provider reviews and ratings are
a big part of the collaborative economy. Today,
people do not just share assets; they’re sharing
knowledge and experiences with their peers
using ratings and reviews. These socially-based
recommendations are often regarded as more
1 Digital Transformation Review, Strategies for the Age of Disruption, Capgemini, 2015
trustworthy than traditional marketing, the
press, or the advice of a broker. People connect
with strangers, who build value and trust using
the currency of their personal reputation, and
the trust cuts both ways. For example, the
Uber passenger is rated with the same process
as the drivers, and that rating may influence
whether drivers want to do business with a
specific passenger.
Customers demand transparency of service costsSavvy customers are eager to have full
transparency when it comes to the services
they use and pay for. They want to understand
how systems, fees and service providers
operate and will no longer tolerate unfounded
hidden fees. Many digital disruptors are
tapping into and facilitating this by cutting
out the broker or the middle man in service
transactions to offer customers the same
service but at a much lower cost. Customers
are quite happy to bypass the middle man and,
instead, do business peer-to-peer.
How collaborative business models are disrupting the economy
Digital disruption: Have you been disrupted yet?
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WeSwap cuts out the middle-man to become the world’s first P2P currency exchange for the traveller WeSwap is the world’s first person-to-person currency exchange for the traveller. It allows customers to swap their travel money for a fraction of the costs normally incurred using conventional financial institutions - or even for nothing, if among their friends. Users swap currency with each other at the interbank exchange rate and pay a transparent fee. As well as an online account which can hold multiple currencies, users receive the WeSwap Prepaid MasterCard® which enables them to access the funds in their account anywhere that accepts MasterCard. 1
1 Startup pitch: WeSwap aims to disrupt the currency exchange market with P2P platform, Tnooz.com, 2014
“Our USP – we offer travellers the best possible rate on their foreign currency by cutting out the middle man – it’s as simple as that!”
Jared Jesner, co-founder, WeSwap
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ConclusionThere is no doubt about it, the organisations that sit by idly hoping that digital disruption will not come knocking will be in for a rude awakening. It is important to understand that most digital disruptions don’t happen suddenly: they take place over time.
Many organisations get so caught up in everyday operations they forget to look at what’s happening outside the organisation and fail to think about what the future may hold. As previously highlighted, Blockbuster is a prime example of this.
Digital disruptors recognise problems in the current way services and products are offered and do it better with digital. Where traditional organisations are failing to meet the expectations of customers, digital disruptors may very well enter the market and bridge that gap providing customers with what they’re looking for.
While technology has certainly enabled digital disruption, disruption really comes down to meeting customer needs in the most effective way possible.
Whether you’re a digital disruptor or a traditional organisation the better you can meet and exceed customer expectations the more successful you will be.
As the world becomes increasingly digitalised, customer expectations will evolve accordingly so think about how your business can transform to align with this.
Understanding your customers and paying attention to what is happening in the market is fundamental to success and indeed survival.
Digital disruption: Have you been disrupted yet?
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About SitecoreSitecore is the global leader in customer experience management. The company delivers highly relevant content and personalized digital experiences that delight audiences, build loyalty, and drive revenue. With the Sitecore® Experience Platform™, marketers can own the experience of every customer who engages with their brand, across every channel. More than 4,400 of the world’s leading brands—including American Express, Carnival Cruise Lines, easyJet, and L’Oréal—trust Sitecore to help them deliver themeaningful interactions that win customers for life. For more information about Sitecore, visit sitecore.net
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