Wednesday, January 18, 2017

The digital future...and how it happened

“We blew it with television”, said Jeffrey Cole of USC Annenberg’s Center for the Digital Future

It was an arresting way to open a keynote at a digital media conference held earlier this week in Toronto. What Cole meant was that television, the mid 20th century revolution that not only brought together sound and pictures in a domestic technology but also ushered in new genres of entertainment and information programming, was a missed opportunity in getting to know its users/viewers on any sort of 1-to-1 basis. It wouldn’t have necessarily been easy as it was a non-digital technology for several decades, and as such tracking would have been costly and difficult. Doable, but not easily achieved, as is the case in the world of personal computing devices and the web, where technologies such as cookies and mobile fingerprinting serve as unique identifiers.

Not wanting to repeat this particular mistake of television’s Cole started the World Internet Project in 2000, with the aim of tracking trends and changes in online consumption behaviour. Over the years Cole and his team have been able to tease out a number of themes in this regard, one of which is that legacy means more to industry than it does to people. While studying early usage of Amazon, for example, his team found that even though could purchase the same products -- primarily books at the time -- for the same product and/or shipping price from a known retailer such as Barnes & Noble, they somehow felt that ordering from Amazon was ‘cooler’, and a taste of a future that hadn’t yet arrived but almost certainly would in the years to come.

Cole sees a similar situation with banking today. “People delight when they can tell their bank to @#$% off”. And increasingly they can do just that, as other, more consumer-friendly and less expensive banking and financing options  are starting to proliferate thanks to innovations such as fintech and blockchain.

A recurring theme Cole has encountered is that legacy organizations cling to existing business models with great tenacity. This makes sense at first. Why abanadon the cash cow. But then, over time, this attitude can make a heck of a lot less sense, as a competitor arises, seemingly out of nowhere, with a better, cheaper, or just more fun product or service.

Uber and AirBnB are among the first examples that spring to mind but Cole points to Kodak, a company that he worked with on what the future of photography might look like. “When you looked at the attributes of film”, he explained, “you had to find it, then buy it, then take multiple pictures, not sure which would turn out, they you had to get the film processed, and wait, then pay again, and then find something to do with those pictures, which usually was put them in a box.” Compare analog photography with digital photography – let alone apps that pair a high quality mobile phone camera with instant upload to social platforms – and it’s obvious that the old way of doing things was not long for this world. But Kodak was reluctant to change. Why? Because they were making too much money selling film, film processing services and products, and hardware.

And of course there’s the music industry, discussed many times over the years on this blog. One could characterize its business model as ‘hostile bundles’, as people were forced to pay somewhere between about $10 and $18 for an album of which they often only really liked 1 or 2 songs. Shifting from that model of the form factor of the album and the supply chain of studios, labels, warehouses, trucks, and retailers, was not an attractive option, and so, what happened was that the album got unbundled on its own, first on the black market, via peer to peer file-sharing and later via Apple’s iTunes, which brought with it the iPod, then the iPhone, and in turn a whole new set of norms for the music business.

But why did Apple get this win? A company that had a 3% market share until the introduction of the iPod? The answer is in the question. The music industry was willing to enter into this dance with Apple precisely because they only had 3% market share. In the early 2000s Apple was a niche hardware company, and the last firm to be considered a threat to an industry worth tens of billions. Some in the industry even thought Apple could do the experimental grunt work for the industry and the legacy players could then swoop in and cash in. But that’s not what happened.

Instead, companies such as Sony, with a huge music catalogue and what should have been formidable leverage of having pioneered mobile music consumption with the Walkman ended up losing not once, but twice. The first loss was the music revenue going to the iTunes store; the second loss was the Walkman becoming a footnote. Sure they tried for years with efforts like the Walkman phone, but by that time, 2006, it was too late. The iPhone, not the iPod, was about to change everything.

Sony Ericsson Walkman Phone, c. 2006

But let’s move away from the historical and look at today, a world dominated by just a handful of companies; some call them GAFA, an acronym for Google, Amazon, Facebook, Apple, sometimes it’s FANG, for Facebook, Amazon, Netflix, and Google. Whichever the combination of companies they are the undeniable dominant forces not only in their original fields, but in adjacent areas of endeavour. Facebook with its forays into messaging, bots, virtual reality, and photography (Instagram), Amazon with its evolution from book store to everything store, as well as physical stores, enterprise cloud services, and original content, Google with a product range encompassing search, web browser, mobile operating system, email, maps, video (YouTube), driverless cars, and dozens of other applications.

In Cole’s words what these companies have in common is that don’t care about boundaries. The idea that a company should do one thing and do it well is a conventional wisdom challenged by these digital goliath.

And speaking of the digital economy, the report on which I have been working for about the past 8 months, will be released in the coming weeks. It is the third in a series of studies on the economic impact of the Internet on the U.S. economy. (Hint: it’s pretty big). 

Details from my actual project notebooks and scraps of paper

The results of months of scribbling, spreadsheeting, forehead slapping, and tea spilling to be revealed shortly.

Watch this space.