This article is the second in a series about Disruptive digital tsunami, after Digital barbarians: threat to the customer relationship.
Digital technology is quite different from most of the earlier technologies that contributed to the grand catalog. As such, it is taking by surprise many industrial players. Let’s examine the aspects of digital technology that are changing so dramatically the innovation process:
1. Very low entry cost
Compared to the earlier technologies that drove innovation a few decades ago, digital technology is very affordable. Beginning a development project based on digital technology costs little—with a few desktop computers and a reliable Internet connection, your development team is flying. The capital expenditure can be reduced to nearly nothing because most of the equipment can be rented and the cloud offers considerable computing and storage capacity.
2. Very low risk
The risk we are discussing here is the combination of the probability of failure and the cost of the project. Such innovation risk is much lower for the digital sphere than for previous technologies. The probability of success, however, is not necessarily higher for digital ventures than for other types of ventures. The success rate is similar to that for traditional innovation. The difference lies in the amount of money that must be invested in a digital venture up-front. This smaller investment, less money at risk, is what makes venture capital firms so fond of digital innovation.
3. Focus on service
Digital technology is about information, and information is brain food. Customers are very fond of this aspect of a product and they like the control and awareness provided by information. As we have already discussed, products are being transformed into bundles of functions and sometimes even into service packages. Digital technology has entered the grand catalog at the perfect time; it provides an efficient way to add a layer of service-related features to products. Most of the recent disruptive innovations of the digital wave are services. Instead of buying CDs, you now get a full music experience. Instead of renting a car, you now get a full transportation experience. And the list goes on. Digital barbarians focus on the human experience. They reach out to individuals to offer the best services. They disintermediate traditional players and capture the profit margins. Digital barbarians are reshuffling the “cards” of value chains at an incredible speed.
4. Easy market entry
Launching a digital product or service does not require building a sales network or educating of an army of salespeople and skilled workers. It can be done by simply using a laptop computer to create a website. Although creating the desired buzz is not easy, the cost of launching the product or service is very low. Furthermore, a digital offering can be launched as a working prototype when it is not yet finished. Most physical products would entail a high cost of a recall, but digital offers have no such barrier. Repairs and improvements can be made while the product is flying. In fact, an experienced digital expert can make such changes in real-time, benefitting from immediate market feedback.
5. Big Data as a secondary benefit
Nonphysical items like data and knowledge can be used without being destroyed. Most digital projects collect data while providing whatever service they are designed for. Such data is accumulated, and experience has shown that this massive amount of data (known as Big Data) contains valuable information. The data could include statistics on the reasons for a component breakage, the consumer habits of a segment of the population, you name it. Exploiting the value of Big Data is at the heart of most digital industries. The associated business models are not yet well defined, however.
6. Faster, faster, faster!
The digital economy is moving at an incredible speed. Development time and time to market are an order of magnitude shorter than the traditional industry was accustomed to. As digital becomes the driver of the pace in an increasing number of sectors, the sudden change of response time is taking by surprise many players who have not yet adapted their corporate cultures and organizations.
The stars of the economy are digital. In 2014, among the top five market capitalizations on Wall Street were Apple, Microsoft, and Google, elbowing their way to success alongside major oil companies and other industry giants. Google was incorporated in 1998 — it was a fast rise!
Again, we emphasize that, in the digital world, the success rate for innovation projects is the same as it was for historical innovation projects. Ironically, digital hype may be reducing the probability of success. Indeed, there is a growing crowd of candidates working on digital innovation projects; the combination of buzz generated by success stories and the goodwill of venture-capital firms is attractive. Yet, the digital industry is demonstrating, also very quickly, that the rule of the game is winner take all. With only one winner among so many contenders, maybe the odds are not so good in the digital industry. Not so long ago, around the year 2000, hasty speculators created the Internet bubble. We may be living in a softer and slower rebound of the same bubble. The future will tell us.
This article was initially published in the book Innovation Intelligence (2015). It is the third section of the fourth chapter.