Organizations Move Beyond The Post-Digital Era
I am consciously scaring you into existence. The disruption ahead is not a fantasy. When I founded Constellation Research and then wrote the best-selling book, Disrupting Digital Business, we stood at the dawn of a major shift in business models and disruptive technologies that powered what we coined digital transformation in 2008. This powerful business force not only toppled companies who failed to adapt, but also provided opportunities for market changing innovations. As board rooms stood in fear of well-funded startups intent to disrupt their business models, check books opened up to stem the digital threat.
What transpired for a few early pioneers was a sustained wave of top down investments in innovation around digital transformation. These new yet rarified digital businesses created not only a digital divide, but also sowed the seeds of an accelerated winner takes all market.
Unfortunately most organizations invested too little, too late, and too infrequently.
Extreme EBITDA and Short-Termism Slowly Killing Every Company
How could this happen despite the rhetoric and dire warnings? At precisely the wrong time, when they should have stepped up to invest to defend against this threat, most leaders pulled back to harvest. Even worse, most organization’s shareholders bet against them by stripping away their ability to invest and innovate for the long run with stock buy backs, share dividends, and a plethora of mergers and acquisitions.
In fact, this starvation of capital and focus on short-term profits resulted in disruption by non-traditional competitors and a wave of shitty short term financially focused decisions over a series of business cycles. Once high flying companies and major brands rapidly fell into the circular cesspit of financial engineering as they lost their ability to innovate along the life cycle of organizations.
Meanwhile greedy management teams fell into cahoots with short term minded shareholders and activist investors pilfering away precious investment capital to meet extreme EBITDA and achieve their bonuses for delivering “shareholder” value. This focus on extreme EBITDA and short-termism at the expense of long term organizational success enabled non-traditional competitors to disrupt traditional businesses. More incredulous, the disruptive startups were funded by shareholders from the profits stripped away from legacy businesses who were not trusted with innovation.
Data-driven Digital Networks (DDNs) Power Digital Duopolies
Fast forward to the present and more than a decade after the concept of digital transformation, Disrupting Digital represents just the beginning of this movement. As the network effects of these models surpasses 100’s of millions of users into the billions, data driven digital networks or DDNs emerge to discover, capture, harness, and deploy insights from data. These super valued, highly coveted, and curated data powers next best actions and crafts precision decisions.
Building a DDN is not easy. The investment to create these DDNs require massive compute power, large networks of engaged users, artificial intelligence, value exchange market places, and billions in capital investment. Due to the high complexity and barriers of entry, only a few players can form these data-driven digital networks.
In fact, we can expect 100 players in 50 distinct network of networks representing more than 70% of global GDP to emerge. These players will be constrained by industries, value chains, geographies, and market size over the next two decades. We see at least two players in each market with the first proactive player benefiting from a first mover advantage taking more than 50% of the total addressable market (TAM) and a reactionary second player taking 20 to 25% of the TAM. These new digital duopolies will dominate these networks.
Digital Duopolies Create The Ultimate Networks of Networks
While very few organizations can see the rise of digital duopolies today, these models will be powered by those who have access to patient capital pools. Accelerated by exponential technologies and a long term focus, they prey on the inability by most organizations and brands to invest and accelerate their innovation and transformation efforts.
Digital duopolies will build vertically integrated data aggregation models that use AI to uncover new insights that improve customer experience, streamline operations, forecast success of a new product launch, and identify a competitor’s weakness. Systematically, each sub component of a value chain will build on each component’s network effect by driving down the cost to increase active users, revenue per user, and time spent.
The DNA of these Digital Duopolies will require mastery of leadership and orchestration through a growth agenda, profit motive, smart financing, innovation bent, and benevolent dictatorship governance. Winners must aggregate capital, talent, and curated data. Digital duopolies will proliferate to efficiently aggregate precious investment dollars at scale.
Every Organization Has Three Choices - Build, Partner, Or Join
With that in mind, brands and organizations must muster the resources, will power, and ingenuity to create, participate, and partner in these data driven digital networks. These networks of networks will exponentially gain influence as they aggregate the data required to power AI driven smart services. Digital duopolies will also craft an emotional appeal that transcends the brand and reflects a bigger movement. We will move from delivering on brand promises to activating movements.
Thus, organizations around the world will have to determine how they will participate in a world of data driven digital networks. Most will move to partner and jointly invest, some will attempt to create their own digital duopolies, and a few will orchestrate the digital duopolies. Investors must identify which players to bet on across the value chain.
Extreme Capitalism Emerges As Massive Efficiencies Reduce Competition
While the massive rise of digital duopolies will foster the next wave of disruption, they will also leave a path of destruction. Why? Digital duopolies will usher a wave of super efficient yet extreme capitalism. The maximization of operational efficiencies and frictionless transactions will eliminate most non-value added individuals, processes, and regulations. What lies ahead will mean the exponential reduction of jobs, decreased market competition, and a failure of the free market as we know it.
In order to enable sustainable capitalism, we must advocate that private enterprise, public sector and philanthropic institutions properly secure and fund the critical infrastructure required to ensure a democratized, fair and free market. This may require the establishment of open technology standards, access rights, and rules on personal data ownership.
Non-profits and industry coalitions must play a key role in serving as the equalizer in enabling competition against digital duopolies. Sovereign wealth funds and non-profit foundations may play a role in ensuring both policy and practice enables a fair playing field.
The race is on to see who leads in this winner takes all future for 50 distinct markets and what society will do to ensure a free, open, and fair market.
Ready for extreme capitalism? Will you build, partner, or participate in your digital duopoly. Have you put in your steps towards building a data-driven digital network
I'm collecting case studies over the summer and examples to show the dawn of these digital duopolies, drop me a line if you've got an example i can showcase in the book.
Please let us know if you need help with your Digital Business transformation efforts. Here’s how we can assist:
- Developing your digital business strategy
- Connecting with other pioneers
- Sharing best practices
- Vendor selection
- Implementation partner selection
- Providing contract negotiations and software licensing support
- Demystifying software licensing
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