Digitally Transforming Industries
Industries such as advertising, media and entertainment, finance, communications, transportation, and others have been radically transformed by the advent of digital technologies and processes. Incumbents that adopted “wait and see” attitudes were quickly displaced, while bold innovators grabbed market share at astonishing rates, as the following few examples demonstrate.
Digital Advertising
In 1995, Craig Newmark posed an email distribution list to friends, featuring local events in the San Francisco Bay Area. This list became a web-based service, called Craigslist, the following year and has since expanded to over 570 cities in 70 countries worldwide. As Craigslist steadily gained popularity, eventually becoming a top-100 website, it virtually single-handedly put the newspaper classified-advertising industry out of business in every city it entered, while earning itself nearly $700 million in annual revenues—all with only 50 employees!
Similarly, digital advertising for local businesses by applications like Angie’s List, Yelp, and others have displaced paper-based “Yellow Pages” telephone directories, which held the monopoly for local business advertising for over 40 years.
Companies that have been slow to adapt to the shift from print advertising to digital have suffered similar fates. In sharp contrast, companies like Google, Facebook, and Baidu have embraced digital advertising and transformed themselves into industry leaders in this $187B2 market, earning themselves $19B, $18B, and $10B (respectively) in 2016, and collectively garnishing 25 percent of the global market.
Digital Media and Entertainment
Apple complemented the release of the iPod in 2001 with its digital music iTunes Store in 2003. Within five years iTunes became the world’s largest music vendor, earning over $6B per year in revenue. Concurrently, music retail stores like Virgin Megastores, HMV, Tower Records, and others closed up shop en masse.
In the video entertainment industry, scarcely a decade ago Blockbuster ruled as king, boasting 60,000 employees in over 9000 stores and nearly $6B in annual revenue. In one of the greatest instances of modern business irony, Blockbuster turned down an offer to purchase newcomer Netflix for $50M in 2000. Undaunted, Netflix transformed the video entertainment industry several times over: The first transformation digitalized the movie-selection process, enabling users to browse for movies online, rather than at a store (and the movies selected would be mailed to them on DVDs). The second, and more impactful transformation, was Netflix’s digitalizing the delivery process as well, enabling movies to be streamed to customers directly, anytime, anywhere, and on virtually any device. Yet another transformation saw Netflix become an original content producer, as well as distributor. The result of these digital transformations has made Netflix the world’s leading Internet television network with over 125 million members in over 190 countries, earning over $11B in annual revenue. In 2018, Netflix, which was esteemed by Blockbuster as not being worth $50M, reached a market capitalization in excess of $144B.
Digital Finance
To facilitate the exploding demand of online purchases and transactions, PayPal digitalized the payment process. Sending checks and money orders through the mail seems like an artifact of the distant past now, in contrast to the flexibility, convenience, and speed of funds transferred via PayPal. Such customer benefits translate to significant bottom-line results for PayPal, who in 2017 processed over 5 billion transactions for 237 million users and earned $13B in revenue.
Digital Communications
With the advent of Voice over Internet Protocol (VoIP) technologies in the early 2000s, incumbent telecommunications providers were put under pressure to compete—which for many proved to be a new experience, having had the luxury of being geographic monopolies for decades. In the process they lost hundreds of billions of dollars. And the hemorrhaging continues. For example, a recent study estimates that the telecommunications industry will lose a further $386B between 2012 and 2018 to over-the-top (OTT) VoIP applications.3
In fact, a single application, WhatsApp, is threatening the short message service (SMS) market as a whole, as shown in Figure 1-2. WhatsApp provides users more flexibility and cost savings as compared to SMS, allowing users to send not only text messages, but also photos, videos, documents, and other media. And when users are connected to Wi-Fi networks, they can send and receive their messages and media for free, avoiding SMS data charges. The value of WhatsApp is recognized by many, including Facebook, which acquired it in 2014 for $19.3B. In 2016, WhatsApp surpassed 1 billion users.
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Figure 1-2 WhatsApp Versus the SMS Industry4
Additionally, as the mobile messaging industry is becoming increasingly commoditized, regulatory changes (such as prohibiting roaming charges in certain markets) are putting even more pressure on classical business models utilized by telecom incumbents, further exacerbating their disadvantage to digital transformers, like WhatsApp.
Digital Transportation Services
In San Francisco, New York, Chicago, and over 600 additional cities worldwide, hailing a cab is becoming a quaint memory, thanks to Uber, launched in 2011. In just a few short years, Uber completely transformed the taxi industry by leveraging digital technology. The Uber app, shown in Figure 1-3, allows customers with smartphones to submit a trip request, which is automatically sent to the nearest Uber driver, alerting the driver to the location of the customer, and vice versa. Customers know exactly how long they have to wait and can watch on a map as their driver is approaching their location. Drivers know exactly where their customers are and where they wish to go, and can receive Global Positioning System (GPS) directions to their destination. Transactions are cashless and paperless, with receipts being emailed to the customers (facilitating easier expense reporting for business travelers). Additionally, the Uber app also serves to prevent language barriers, as can often be the case when communicating with taxi drivers in foreign cities. Uber also benefits drivers, who for the most part are freelance and use their personal vehicles, saving them significant franchising fees and operating overhead commonly incurred by taxi operators. In 2017, Uber—still a private company—was valuated at nearly $70B.
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Figure 1-3 Uber Ride-Sharing Service
Zipcar has had a similar impact on the traditional rental-car industry. Founded in 2000 in Boston, the car-sharing service operates 10,000 vehicles in over 500 cities in 9 countries serving over a million users. As such, Zipcar is one of the world’s leading car rental networks in its own right. Members can reserve cars with Zipcar’s mobile app, online, or by phone at any time—immediately or up to a year in advance. Members have automated access to Zipcars using an access card which works with the car’s technology to unlock the door, where the keys are already located inside. The Zipcar mobile app also enables members to remotely honk the horn to locate their reserved Zipcar and unlock the doors (see Figure 1-4). As such, many urban residents find Zipcar to be a convenient and cost-effective alternative to buying, maintaining, and parking their own cars.
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Figure 1-4 Zipcar Car-Sharing Service
Similarly, thanks to advances in digital technologies, bicycle-sharing services have exploded globally since the mid-2000s. As of June 2014, public bicycle-sharing systems were available in 712 cities, spanning 50 countries on five continents, operating approximately 806,200 bicycles at 37,500 stations. While implementations differ, bicycle-sharing companies often include wireless bike station terminals running on solar energy, radio-frequency identification (RFID) bike dock technology, and smartphone apps that locate and show the status of bike stations close to the users (see Figure 1-5). Bicycle-sharing systems aptly demonstrate the significant positive impact that digital technology can have on the environment as well as on the overall health of urban populations, by facilitating a greener and healthier transportation alternative.
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Figure 1-5 Public Bike Sharing