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Digitalization – the fastest revolution of all time

Glimpses into the digital world

Innovative platforms and business models, data exchange in seconds, revolutionary foundations – the digital transition is all-encompassing, ubiquitous, and has changed the market, people, environment and society. The digital revolution brings with it diverse chances for you and your business, but at the same time it compels you to examine your business model and further develop it.

Digitalization – the fastest revolution of all time: check your business model! (Author: Frank Hälsing, Illustrator: 613033814 Peshkova)

Why can we speak, without a doubt, of the fastest revolution of all time?

The foundation of revolution lies in the performance assets of computers and IT. Computers, laptops, etc can always do more and more, and are always becoming smaller and faster. According to Moore’s law, the performance of new computer chips doubles roughly every twenty months. Even the data transfer rate has increased dramatically over the past few years. Many business models would have easily failed a few years ago due to the speed of the computer and the data transfer.

The dynamic of this development also shows in the acceptance of new devices and service offers. Whilst the radio and the television needed only thirty-eight or thirteen years respectively to gain 50 million users, the internet achieved this in four years. Facebook had already gained a user community of 50 million users after about a year, and with WhatsApp, it only took two months.

The strongest weapon of the revolution: the smartphone

Just ten years ago, the first iPhone was brought onto the market. Since then, lots has changed. The smartphone plays a role in our daily lives that cannot be ignored. 96% of people under thirty cannot separate themselves from their smartphone when they are on holidays and 43% of all German smartphone users would rather go without beer than without their smartphone.

Apart from all the private usage options, the smartphone is being used more and more for business needs. Customers use it to transmit their doctor’s bill or prescription directly to their insurance with an app or consult with tradespeople or their bank via a video call – and are therefore constantly accessible for businesses.

New players and opponents

Alongside the speed of development, new competitors and cooperation partners are also sometimes surprising different, long-established branches. Who would have expected a new business like PayPal to enter the business of banking and credit card business? The same goes for Tesla, Google (Alphabet) or soon even Apple for the automotive industry. The four big players Google, Apple, Facebook and Amazon, or “GAFA,” put pressure on diverse branches like trade, smart home, mobile payment, health or mobility or autonomous travel. Surely you could perceive these businesses as a threat. In the end, their market capitalization exceeds that of all 30 DAX businesses put together. On the other hand, you can also learn from them. In this way, Amazon’s “Dash Button” succeeds in integrating the customer in the order process early on and therefore connecting more strongly to them.

Earn money with the 5 Cs

Many businesses concentrate a lot on technical perspectives with digitalization. The question of the revenue model, on the other hand, is often ignored. This has to be partially reworked or completely newly developed so that the benefits of digitalization are not only caught by the customers but also by you and your business. The answer to the question “How should revenue be gained in the digital work?” can be answered with an analysis of electronic business models. In the digital economy, five typical business concepts have been identified amongst which the following variants can be allocated, to a large extent.

  • Content
    This business concept aims at simple, comfortable, visually-appealing and online-accessible presentation and management of informative, entertaining or demonstrative content, for example, on your own homepage or platform. The revenue will be either directly reached by this concept type (e.g. by selling premium content) or indirectly (advertisements with the content). Combinations are also possible. Many newspapers have implemented a so-called “metered paywall”. A certain amount of free articles can be read per month. If the user would like to read more than that, then they need a digital subscription.
  • Commerce
    The business concept includes complete phases of a transaction from the initiation to the negotiation to the settlement. The traditional transaction phase for example of banking, insurance, travel agents or distributors are then electronically supported, supplemented or replaced. The goal is simple, comfortable and fast settlement of the sales process. With this concept type, the revenue is reached either directly (for example, by selling products and services) or indirectly (for example, through advertising).
  • Context
    The model is demonstrated through the classification, systematization and summarization of available information and services from the digital world. These include search machine providers like Google or web catalogs and bookmarking. The goal here is to achieve an improvement in market transparency and information for the user. Revenue is generated directly, for example, through fees for inclusion or placement of content or through indirect advertising.
  • Communication
    Here, the interaction between actors in networks is enabled or supported. Here we can name e-communities like Facebook.com or Quora.com. Revenue is generated with connection fees or advertising.
  • Connection
    Platform operators enable and organize interactions between customers and providers. They connect them with each other. The business model is based on the rule of a bilateral market. So revenue is either generated only by the providers, only by the customers, or both (for example, on eBay, with direct seller’s fees) or through an indirect approach (for example, advertising, statistics, cross-selling).

The “connection” business model is currently very fashionable. More and more platform operators are bringing manufacturers and consumers together. Their most valuable assets are familiarity, data and interactions. These elements form the competitive advantage of these businesses. They slid between the provider and consumer. Providers have to be active on the platforms where customers are looking for services. Restaurants with an in-house delivery service have to be listed on Takeaway.com, Delivery Hero and so on. Platform businesses like Uber or Airbnb are constantly gaining market shares and turning their respective branches upside-down. Traditional businesses can also use this development for themselves and should try to offer platforms and learn the new strategy rules that apply to it. It’s all about organizing resources, not controlling them, interacting externally and not just optimizing internally and not only having sights on the value of the customer but on the value of the entire economic system.

At the beginning of digitalization, the business concepts of content, commerce, context, communication and connection were normally still in a “pure form”, but today, predominantly mixed concepts are used (so-called hybrid concepts). The goals there are above all synergy, multiple customer connections, price bundles or expansion into new business fields.

Summary

Digitalization is a large challenge but also a chance. It brings wide-ranging, in part creeping changes with it and poignantly changes our ways of working and living.

It is then all the more important for you and your business to deal with digitalization and the changes that it brings with it, to pay attention to developments in the market and to revise and further develop your own revenue models. Alongside the strategic level, there are further questions to answer: Which digital channels do you use to communicate with your customers? Facebook, Xing, Instagram, or maybe live chat support? How do you integrate the customers into your processes (keyword: customer integration)? How do you conceptualize your products and services? Mass customization or curated shopping? Do you use a freemium approach? Do you use dynamic pricing? If so, what are your price drivers?

Above all, it is important to remember that digitalization concerns an entire business and it is of crucial significance to bring along and guide both your own employees as well as the customers.

Prof. Dr. Frank Hälsig is a professor in general business administration at the University for Applied Sciences Saarbrücken. He is a lecturer, management consultant and author. His main focuses are in the areas of e-business and digitalization, omni-channel retailing and CRM as well as pricing and sales. He was previously the director at Simon-Kuchner & Partners, the world-leading pricing consultants.

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