Show the digital alternative to physical goods and services

Have you ever wondered how exponential organisations – such as Airbnb, Uber, Dropbox, Spotify, and Deliveroo – have been able to grow so quickly and overcome so many of their established traditional competitors? One of their secrets is that they used the power of IE to digitise one or multiple elements of their products, services, customer interfaces, internal processes, distribution channels, marketing systems, and sales processes, etc.

Because they transformed those once physical products or systems into a digital equivalent, they were able to scale their businesses very quickly at a much lower unit cost. That’s because when a product or service is digitised, its marginal cost drops to almost zero. Once a system like a customer interface is digitised, it can be sold as a product, used to gather additional data to improve services – or even to create new services.

To demonstrate the impact of IE, let’s look at the classic case study of Waze versus Nokia.

Back in 2007, Steve Jobs changed everything when he launched the iPhone. Nokia (which was valued at approximately $150 billion at the time) looked at what was happening and took a strategic decision around the opportunity for mobile mapping. Mapping was set to play a big role in local marketing, and they realised that Apple and Google were going to be very active in this sector, so they wondered what they could do to remain competitive. Therefore, like any traditional linear-thinking global conglomerate, they decided to acquire a business that had a dominant market share in this space.

That company was Navteq. Navteq was able to monitor traffic in real-time via its state-of-the-art, road-sensor technology network covering 250,000 miles of roads across thirty-five major cities and thirteen countries. Nokia paid $8.1 billion for Navteq because they thought that having a company that dominated the road-sensor market with a large percentage of the key road network would protect them against the new internet players. However, what they didn’t spot around the time of their purchase was a small Israeli start-up called Waze.

Instead of the traditional capital purchase or product manufacture of physical road sensors, Waze crowdsourced location information by leveraging the GPS sensors on smartphones. Within two short years, Waze was gathering traffic information from as many sources as Navteq had sensors, and within four it had ten times as many. Not only that, the cost of adding new location sources was essentially zero because the number of smartphone users began to climb exponentially, whereas the cost of adding new sensors for Navteq was high. When it came to comparing the upgrade costs for Navteq versus Waze, there was a no contest.

By 2012, Nokia’s valuation had tumbled from $150 billion to $8.2 billion – roughly what they had paid for Navteq. One year later, Google acquired Waze for $1.1 billion – a company that, at the time, had no infrastructure, no hardware, and only about 100 employees. But Google paid because what it did have was 50 million users and therefore 50 million human traffic sensors – a number which had virtually doubled from the previous year.

Nokia represents the traditional linear mindset of thinking about growth by owning physical assets, whereas Waze jumped on the information growth strategy by using data from smartphone users to grow faster and for far less cost.

Other examples include Deliveroo, who collect the requirements for food (information) of customers and match those customer needs with restaurant retailers (physical assets) with spare production capacity.

Peloton provide a virtual spin class (information) in combination with custom spin bikes (physical) to service a global marketplace and are therefore far less constrained by the number of people they can accommodate in a physical space. Of course, all of the big matching internet giants (bringing people and businesses together) of Facebook, Airbnb, Uber, and Google are the most obvious examples of information-enabled businesses.

You might be wondering what these big technology giants have got to do with you, the owner of a small or medium-sized business.

The harsh reality of business today is that this is your competition. Amazon have torn up the rules of retailing and supply chain, and most traditional retailers are struggling to respond. Some have decided to fall into line and, rather than compete with the Amazons of the world, have used a piggyback strategy to sell their goods using the fulfilment systems they have created. Some are trying to soldier on by price matching the online giants, while others are combining a traditional bricks-and-mortar strategy with online. This reality is in evidence across virtually every marketplace in the world.

You’re up against exponential organisations that have IE in their DNA, in their business structure, and are fully information-enabled, which gives them enormous growth and cost reduction advantages.

You’re also up against big businesses that realise they have fallen behind these exponentials and have the resources to be able to invest in making significant changes to their business models to be able to compete with the Silicon Valley giants.

The other group of competition are the new global start-ups who are constantly modelling the exponentials in structure, tactics, and financial backing. They are moving very quickly to catch up and are not constrained by legacy systems, culture, or market strategy.

This is the new reality that small and medium-sized businesses have to operate within today, and there is no going back!

See my book Transformation From Chaos for the steps that can be taken to information enable your own business

Phil Akilade