The document discusses the impact of digital disruption on various industries, highlighting how digital business models leverage technology to transform value chains and enhance user experiences. It emphasizes the importance of zero variable costs, user experience, and data-driven strategies in achieving competitive advantage. The analysis extends to specific industries such as transportation and hospitality, illustrating how companies like Uber and Airbnb have successfully disrupted traditional models through innovative digital approaches.

1. Digital Disruption and
Digital Business Models
October 14, 2017
Greger Ottosson, PhD. Product Management, IBM

2. 22
Why are billions $$$ being invested
in messaging apps …
… just to offer them free of charge?

3. 33
Why do 50% of US consumers
bypass comparison shopping and
go straight to Amazon?

4. 44
Why are there calls for regulating
Facebook and Google?

5. 55
Greger Ottosson, PhD.
Product Leader, Design Thinker, Consultant
Enterprise
Software
20
YEARS 15
YEARS
Product
Management
linkedin.com/in/gregerottosson
greger_ottosson@yahoo.com
Business Leader
10
YEARS
Design Thinking
5 YEARS

6. 66
1. Digital
2. Digital Value Chains
3. Data Science & Open Source
4. UX for Digital Entrepreneurs

7. 7
Digital

8. 8
Digital Technologies
Internet, mobile, cloud, social, devices, sensors …
Digital Disruption
Use of Digital Technologies to transform a value chain and
displace incumbents
Digital Business Model
Use of Digital Technologies to enable new products, new
ways of go-to-market or unique monetization

9. 99
Many industries have experienced
significant turmoil in the last 10-15
years
MEDIA RETAIL TELCO ENTERTAINMENT

10. 1010
Even “protected” industries are
starting to see digital approaches….
BANKING REAL ESTATE HEALTH CARE INSURANCE

11. 1111
Are some companies just better at
executing digital than others?

12. 1212
Maybe…but the winners aren’t just
winning… they show sustained
growth towards monopoly status

13. 1313
The bigger they get,
the stronger they become
Why is that?

14. 14
Digital Value Chains

15. 1515
Traditional Value Chain
COST OF GOODS SOLD (COGS)
Delivery to
Customers
TRANSACTION COSTSDISTRIBUTION COSTS
Purchase InstallParts Product
SUPPLY DEMAND
VARIABLE COST VARIABLE COST VARIABLE COST
“Before digital, variable costs played a
significant role in virtually all steps of a
value chain.”
“To produce, sell and deliver
another unit of the product, you
would incur a significant, additional
cost.”
“Even with strong economies of scale, variable
costs is a natural inhibitor to market domination.”
SPEAKER NOTES

16. 1616
Digital Value Chain
COST OF GOODS SOLD (COGS)
Delivery to
Customers
TRANSACTION COSTSDISTRIBUTION COSTS
Purchase InstallParts Product
SUPPLY DEMAND
FIXED COST ZERO COST FIXED / VARIABLE COST
“Digital products and services can require
large investment in software development
and infrastructure...
…but developing and
delivering unit n+1 carries no
significant overhead.”
“For consumer products without customization, the
transaction cost is mostly fixed. Enterprise software can
however come with a significant integration effort.”
SPEAKER NOTES

17. 1717
Many digital disrupters are targeting
industries where incumbents own or
operate physical assets
A couple of examples…

18. 1818
Cars Dispatch
INTEGRATED
Hailing Payment
“In most western countries and cities, the taxi company
operates a ’dispatch’ that manages a fleet of cars. These two
elements of the value chain are ’integrated’….
…but the way you reserve or (more likely) hail a cab is independent.
Payment – whether through cash, credit card or mobile payment – is
also a separate step with distinct service providers.”
Taxis
SPEAKER NOTES
Source: https://stratechery.com/2015/netflix-and-the-conservation-of-attractive-profits/

19. 1919
Cars Dispatch
COMMODITIZED
Hailing Payment
INTEGRATED & AUTOMATED
Cars Dispatch
INTEGRATED
Hailing PaymentTaxis
“Uber disrupted the taxi
industry by
commoditizing cars –
the main physical asset
& variable cost – and by
integrating the hailing-
to-payment steps in
order to provide a
superior, digital user
experience”
SPEAKER NOTES
Source: https://stratechery.com/2015/netflix-and-the-conservation-of-attractive-profits/

20. 2020
Property Brand
INTEGRATED
Booking Check-In
INTEGRATED
“As another example, in the hospitality industry, hotels own
and operate their properties (or pays someone to do it) in
accordance with their brand promise. The brand carries the
trust of travelers, because it sets the expectation of the type
of stay you will have.”
“However, you can reserve your hotel through a large number of
channels, e.g. travel agents, Expedia or other online sites, or
directly with the hotel. That step is modularized with an in-
consistent user experience.”
SPEAKER NOTES
Hotels

21. 2121
Property Brand Booking
INTEGRATED & AUTOMATED
Property Brand
INTEGRATED
Booking
COMMODITIZED
Check-In
Check-In
INTEGRATED “Through a great
booking experience,
Airbnb managed to
build enough trust with
travelers to make them
comfortable staying in
individuals’ rental
properties, thereby
leveraging untapped
supply, disrupting the
control point hotel
brands had through
their properties.”
SPEAKER NOTES
“In 2017, Airbnb
extended the digital
experience into
Check-in, moving
towards a
standardized
experience.”
Hotels

22. 2222
INTEGRATED & AUTOMATED
Cars Dispatch Hailing Payment
INTEGRATED & AUTOMATED
Property Brand Booking Check-In
In these, and other examples, the
integration is moving from left to
right, towards the user

23. 2323
There are three lessons we can learn
about how this shift is done

24. 2424
Focus on owning
assets with zero
variable cost
(data, brand,
loyalty, …). Tap
into existing
physical assets.
Provide
outstanding
experiences to
drive adoption &
advocacy. This is
your main
differentiator.
Data drives UX
and network
effects drive scale
to succeed in
“winner takes all”
markets.
Scalable
Assets
User
Experience
Data & Network
Effects

25. 25
USEREXPERIENCE(UX)
DATA & NETWORK SIZE
Bigger network means
better value
Bigger data means
better experience
SPEAKER NOTES
“There’s a self-reinforcing mechanism at play as you grow…which
materializes as an increasingly superior user experience.”

26. 2626
Let’s see if we can apply the value
chain framework in another
industry…

27. 27
Data Science & Open Source

28. 28
Before
Open Source
Algorithms Tools
INTEGRATED
Community Services
“What’s now called ’Data Science’ has
existed quite a while as a market, where
software vendors have provided algorithms
and integrated tools to analyze data and
perform descriptive- (‘is that a cat?’),
predictive- (‘is it likely to cross the road?’)
and prescriptive analytics (‘should I slow
down or speed up to avoid it?’)"
“Traditionally, these proprietary tools
supported only the proprietary algorithms
by each vendor. It was the ‘after market’
that was modularized, with services
companies doing relatively complex
implementation- and integration work.”
“While being digital products, there was
significant variable cost around
marketing, sales and support for clients.
The business models were those of
traditional on-premise enterprise
software, i.e. based on perpetual
licenses, maintenance fees and lock-in of
clients to the ’suite’ of products.”
SPEAKER NOTES

29. 29
Before
Open Source
Algorithms Tools
Algorithms Tools
INTEGRATED
Community Services
After
Open Source
“Then came Open Source (OS). Over the last
decade, hundreds of OS projects have appeared,
in particular around Python, Scala and R as
languages, and Hadoop and Spark as data- and
computational frameworks.
SPEAKER NOTES
Most tools – including the proprietary ones – now
support a multitude of languages and algorithms.
Open Source has effectively modularized this part
of the value chain.
Whether by strategy or by culture, Google,
Microsoft and other cloud platform vendors are top
contributors to these open source projects.”

30. 30
Algorithms Tools
Cloud
Platform
Community
Algorithms Tools
INTEGRATED
Community Services
Services
INTEGRATION IN PROGRESS
“With the modularization of
algorithms and tools, the value
potential has now shifted to
cloud platforms and
communities.
Early 2017, Google acquired
Kaggle, the largest data scientist
community.
However, we’re still far from a
delightful user experience (for
the average data scientist), so
expect further evolution in this
space.”
SPEAKER NOTES

31. 313131

32. 3232
Who will win in Data Science?
How strong are the network effects?
PRODUCT-MARKET
FIT
DATA & TRAINED
MODELS
USER &
COMMUNITY
“A single value chain doesn’t reveal the full
dynamics of this market. For example,
while strong coders are well served today,
the larger groups of ‘citizen’ developers
and business analysts are underserved by
current too-complex tools.”
“In addition, data management remains
a hurdle for many organizations, and
pre-trained models aren’t yet available
to any significant degree.”
“The winner will address the ease-of-use
problem, and organize the community to
address the problems around data and
model training. This is where the network
effect will come into play.”
SPEAKER NOTES

33. 33
UX for Digital Entrepreneurs

34. 3434
We’ve talked a lot about the
importance of User Experience in
digital disruption…

35. 3535
…and that user experience spans
all touch points with the user

36. 3636
Let’s look at a framework that
captures all aspects of the user
experience

37. 3737
Discover,
Try, and
Buy
Get
Started
Everyday
Use
Manage
and
Upgrade
Leverage
and
Extend
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1 2 3 4 5 6
Products and services are framed by
six universal experiences
Source: https://www.ibm.com/design/thinking

38. 3838
Discover,
Try, and
Buy
Get
Started
Everyday
Use
Manage
and
Upgrade
Leverage
and
Extend
Support
1 2 3 4 5 6
How do I get it?
Products and services are framed by
six universal experiences

39. 3939
Discover,
Try, and
Buy
Get
Started
Everyday
Use
Manage
and
Upgrade
Leverage
and
Extend
Support
1 2 3 4 5 6
How do I get value?
Products and services are framed by
six universal experiences

40. 4040
Discover,
Try, and
Buy
Get
Started
Everyday
Use
Manage
and
Upgrade
Leverage
and
Extend
Support
1 2 3 4 5 6
How do I get my job done?
Products and services are framed by
six universal experiences

41. 4141
Discover,
Try, and
Buy
Get
Started
Everyday
Use
Manage
and
Upgrade
Leverage
and
Extend
Support
1 2 3 4 5 6
How do I keep it running?
Products and services are framed by
six universal experiences

42. 4242
Discover,
Try, and
Buy
Get
Started
Everyday
Use
Manage
and
Upgrade
Leverage
and
Extend
Support
1 2 3 4 5 6
How do I build on it?
Products and services are framed by
six universal experiences

43. 4343
Discover,
Try, and
Buy
Get
Started
Everyday
Use
Manage
and
Upgrade
Leverage
and
Extend
Support
1 2 3 4 5 6
How do I get unstuck?
Products and services are framed by
six universal experiences

44. 44
Business
TechnologyDesign
Desirable Feasible
Viable
Everybody is a Designer
“There’s a confusion in the
industry today about Design as
a discipline (formally trained
designers) and Design & Design
Thinking as an activity
(everyone).
The result of this confusion is
that design is ’delegated’ to
designers, and often restricted
to the UI (in the case of a
software product).
This opens up an opportunity for
organizations who understand
that design is everybody’s role
and responsibility, and that
design is intrinsically linked to
Business Models and to
Technology. Design & Design
Thinking is a team sport.
SPEAKER NOTES

45. 4545
When we design experiences, one
great tool is scenario maps
“Design Thinking provides many important
methods and artifacts for understanding
users, user problems and for designing
better experiences. One of the core tools –
scenario maps – are indispensable
because the tell stories that connect
distinct user actions and pain points into an
holistic flow.
“As-is scenarios describe existing user
workflows and are best used as precursors
to exploring new ideas. They highlight
current pain points of users.
“To-be scenarios tell the story of a
desired future, in which the pain points
have been removed, and where the
overall experience is a delightful
sequence of steps through which the
user achieves his/her goals.”
SPEAKER NOTES

47. 4747Source: http://www.ameetadalvi.com/ORCA-Card-project.html

48. 48
How can the six experiences drive
your disruption?

49. 4949
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Product-Market Fit
“In the beginning of a new product or
service, you’re iterating to validate you’re
solving an important problem for a user,
and that you’re solving really well. You’re
not trying to scale yet.”
“So focus on deeply understanding
current user needs, and the current ‘As-
Is’ scenarios. From there, design, test
and iterate new ‘To-Be’ user
experiences.”
“You can assist this early batch of users
through ‘Discover, Try and Buy’, so focus
on providing and validating your ‘Getting
Started’ and ‘Everyday Use’ experiences.”
SPEAKER NOTES

50. 5050
Discover,
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Buy
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1 2 3 4 5 6
Growth
“Once you’re established Product-Market
fit, you want to grow you customer base, in
particular if you’re relying on data- and
network effects as a core value.”
“For software products, these
experiences are often outside the actual
product. They might start with discovery
through word-of-mouth or advertising,
continue through website or app store,
and then shift into the product.”
“Even for services offerings, a user will
likely move across multiple channels (F2F,
phone, web, mobile, etc) before stabilizing
into ‘Everyday Use’.”
SPEAKER NOTES

51. 5151
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Buy
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Retention
Everyday
Use
“If you’re managing a mature product,
you’re focus might be entirely different. If
primarily business goal is customer
retention, you’ll be investing most of your
time outside of product-market fit and
growth scenarios.”
“Your ‘Everyday Use’ experiences might
need incremental improvements and
changes – even established customers
have changing needs…
..but the bulk of your focus will be to make
sure customers are happy and loyal while
continuing to use the product.”
SPEAKER NOTES

52. 52
Remember:
These experiences are end-to-end
and they define your entire offering

53. 5353
Data
is customer
service at
scale
Digital
technology
is changing
the rules
User
Experience
is everybody’s
job

54. 54
https://www.linkedin.com/in/gregerottosson
greger_ottosson@yahoo.com
Stay in touch
Further learning
IBM Design Thinking https://www.ibm.com/design/thinking/
Stratechery https://stratechery.com/
Thanks to Kathryn McKinnon for visually communicating the information in this presentation
https://www.linkedin.com/in/kmckinnon/