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

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  • Digital Disruption:have you been disrupted yet?

  • 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: Whats

    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. Well explore

    who the digital disruptors are and why theyre achieving success. Well 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

  • Digital disruption: Have you been disrupted yet?

    Sitecore UK Ltd. 4 | page

  • www.sitecore.net | +44 (0) 203 3270637 5 | page

    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

    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?

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    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 Blockbusters

    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 wasnt quite as convenient

    as a local store, it was cheaper and didnt

    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, Blockbusters CEO was quoted as saying:

    Ive been frankly confused by this fascination

    that everybody has with Netflix Netflix

    doesnt really have or do anything that we

    cant or dont 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.

    Ive been frankly confused by thisfascination that everybody has withNetflixNetflix doesnt really have or do anything that we cant or dont already do ourselves.

    John AntiocoBlockbuster CEO, 2008

    Death by digital disruptionBlockbuster fails to move with the times

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  • 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 customers 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 brands 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 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.

    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.

    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.

    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.

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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 wouldnt 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 off...

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