This document discusses digital disruption and its causes. It identifies six global forces shaping digital disruption: 1) increasing connectivity through mobile phones and other devices, 2) the growing number of connected devices and emergence of the internet of things, 3) exponential growth in data creation and need for data storage, 4) lower barriers to market participation. These forces are accelerating changes in business models and challenging traditional companies through new entrants like Uber and Airbnb.

1. 1
Masters of Strategy
Digital Disruption

2. Contents
1. Don't thumb your nose at Digital Disruption.
2. So what do we mean by Digital Disruption?
3. The Six Global Forces Shaping Digital Disruption.
4. How Google and Facebook disrupted the Yahoo business model.
5. Digital Disruption and the Industries of the Future.
6. Digital Disruption : Which jobs will be at risk in the years ahead?
7. Digital Disruption and the "Empires of the Cloud”.
8. Digital Disruption and the Challenge to the UK Banking System.
9. Digital Disruption and the smart city challenge.
10. Reading and Book references.
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3. Don't thumb your
nose at Digital Disruption ...
In 2000, Kodak had 170,000 employees and sold
almost 90% of photo paper world wide. Together
with Fuji, the two companies dominated the photo
film business. Not for long, in 2012, Kodak filed for
bankruptcy. The business model had been
unravelled by the development of the digital
camera. A classic example of digital disruption,
perhaps.
The Kodak “moment” as we term it, lasted over a
period of decades. Kodak had developed a digital
camera in 1975, the first of its kind, the camera was
dropped for fear it would threaten Kodak's
photographic film business … so much for “First
Mover Advantage”.
Today, businesses do not have the luxury of
decades to adjust to the challenge of digital
disruption. Digital disruption is now easier, faster
and cheaper than ever. The speed of process is
accelerating. The rate of change is exponential.
It is the era of the “virtual company”. SaaS,
Software as a Service is the new fast growth
business model. Uber is the great disruptor in the
taxi business, yet owns no vehicles. Airbnb is the
great disruptor in the hotel business, yet owns no
hotels.
The digital masters, Apple, Google, Amazon and
Facebook are setting the standards by which all
service companies must be benchmarked.
Predictive analytics, pattern behaviour, machine
learning, neural networks lead us all in search of
the great algorithms which will accelerate
consumer access and unlock spending in the
future.
Understanding the customer, has never been
easier but is ever more complex and demanding,
such is the growth in the data load. Businesses
must adapt to the challenge of digital disruption by
first challenging their own organisations and
business models.
It is said that when the Chinese developed their
stealth bomber, the CIA didn’t see it coming. Don’t
be caught out. This is the era of digital disruption -
No time to thumb your nose at the clear and
present danger. Don't miss out on our series of
articles on Digital Disruption.
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4. So what do we mean by Digital
Disruption...?
So what do we mean by digital disruption …
Our series begins with an introduction : So what do
we mean by digital disruption. We sum it up as “A
threat to business goals and or financial objectives
which can be attributed to a digital product or
platform online.
Access to market has never been easier and
inexpensive …
The world population is 7.5 billion. Over 3.5 billion
have internet access and 1.5 billion have a smart
phone. The number of mobile phone users in the
world is expected to increase to over 5 billion by
2019. Of which 2.5 billion will be smart phones.
It is the age of the internet of things. By 2020 it is
suggested that over 50 billion “things” will be
connected to the internet. Computers, laptops,
iPads, game consoles and of course phones but
also intelligent home devices, talking fridges,
networked climate controls and more.
People will be connected to the internet via internal
and external devices. The pacemaker hooked up to
the mainframe offering real time analytics. The
digital dispenser offering feedback on medicine
consumption and dosage levels. The nano bots
coursing through the veins relaying important data
on cell counts, sugar levels and genomic disorders.
Access to market has never been easier and cost
of acquisition has never been lower. It is an exciting
time for those with the right attitude and the right
App!
Software as a Service …
Software Specifically Software as a Service SAAS,
is the great disruptor.
We think of current examples like Uber and AirBnB,
impacting on the taxi or hotel industry or Netflix
impacting on CBS and NBC. The examples of the
Kodak moment are cause for concern for any
business. Now internet access to the wisdom of
crowds is collapsing the time frame of product and
corporate life cycles.
Businesses must confront the digital challenge and
be prepared to confront and cannibalise their
existing business models before someone else
does. The businesses surviving in the digital world
will those that have created a learning organisation,
constantly challenging using a clear strategic
framework. Let the cannibals loose in the corporate
silos, the new mantra.
Data is increasing at an Exponential Growth …
Data is increasing at a phenomenal rate. The cost
of data processing and storage is collapsing, the
speed of access is accelerating. Access to
information is universal, ubiquitous and fast, There
are few hiding places for corporate intrigue or
mystique. Consumers have access to lots of
information via a pocket device, any time,
anywhere. It is the end of the HIPPO. The highest
paid person’s opinion must yield and give voice to
the wisdom of the crowd.
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Over the next few weeks we will be looking at a whole series of articles on Digital Disruption.
Our series will include:-
•The Six Global Trends Shaping Digital Disruption
• The Five key Players in the Internet Space
• The Five Dynamics Shaping Digital Disruption
We will also be looking at “The robots will see you now : The future of healthcare” and “No time for time
sheets : The Future of the professions”. Plus, “The Six Industries of the future and how they will impact
your business”.

5. Six years ago, Google’s Eric Schmidt claimed we
create as much information every two days as has
been created since the dawn of civilisation and the
year 2003.
In 2015, we probably produced more every day
since the birth of the printing press in the first 555
years. The rate of increase is exponential. Videos,
photos, audio messages, blog posts are streaming
onto the internet in ever increasing proportion.
That’s lots and lots of information.
Big data Analysis …
But how to analyse the data. IBM’s Watson or
organisations like Palantir will be available to assist
the process. Standards set by Google and Amazon
in predictive analytics, behavioural analysis and
product recommendations will set the standards by
which all must be judged.
Big data analysis may yield big nuggets of
information to assist business. We must expect
more from the data crop, than learning to place
disposable nappies next to the beer, or Hershey
Bars next to marshmallows in store to accelerate
sales.
The great world challenge to end poverty, feed the
masses and provide access to water is on hold for
now. An analysis of consumer behaviour at
Walmart revealed flashlights were in great demand
in response to a hurricane warning but sales of Pop
Tarts also soared as a companion sale.
How to cope with the digital challenge …
Our concept of CBS News is an omnipresent in the
strategic framework analysis. CBS Competitors,
Buyers, Suppliers and News, New Products,
Players, Platforms and Products are subject to
constant mapping, benchmarking and analysis.
The challenge to collate the data, command the
data and deliver the analysis in a format which
business peers are able to comprehend and share.
Sectors at risk …
Which sectors are most at risk? What steps can be
taken to alleviate the risk of disruption? All this and
more we will discover in our forthcoming series.
Businesses must do more to enrich the product or
service with information social content and
connectivity. Do more of the customers work for
them, with recommendations and price
comparisons a partial guide
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6. The Six Global Forces Shaping
Digital Disruption…
1 Population …
Is population growth an influencing factor in digital
disruption? Not really! According to the UN World
Population data, in 2015 there were 7.3 billion
people on the planet. Up from 2.5 billion in 1950
and 5.4 billion in 2000, the world will experience
further population growth to 9.7 billion by 2050.
Numbers are continuing to rise but the growth rate
is slowing.
The average rate of world population growth
(CAGR) over the last sixty years has been 1.7%.
The projected rate of growth of population is set to
slow to just under 1% over the next forty years.
Greater longevity is offset by lower fertility rates.
The world is in a steady state of growth. No
evidence in the basic population data to support the
digital disruption and exponential disruption
phenomena.
2 Connectivity
Greater connectivity around the world is one of the
factors facilitating disruption. Mobile phones have
been key in this regard. The number of mobile
phones in use has increased rapidly over the last
fifteen years.
By 2016, total volume (mobile phones) increased to
8.5 billion compared to a population of just 7.3
billion. There are more phones in use than people
on the planet. No wonder, some claim there are
more phones than toothbrushes. The phenomenon
will not persist forever. We forecast the trend will
reverse around the turn of the century. The day of
the toothbrush, will return but not for some time yet.
By then toothbrushes may be connected to the
internet, with feed back on flossing performance
and dental decay. But wait we move too fast ...
The number of smart phones has increased from
less than one billion units in 2010, to approximately
3.2 billion last year and 4.1 billion this year.
Conventional mobile (non smart) stocks peaked
last year at around 5.5 billion. They are set to
decline to 3.3 billion in our model by 2020.
We expect the number of phones in use to peak at
9.0 billion in 2020 as the total stock of smart
phones increases to just under six billion units.
Product life cycles dominate the analysis, in this
and in all things.
3 Connected Devices …
Of course there are many ways to connect to the
internet. We expand our research into “Digitally
connected devices”. We include in our analysis -
desktops, laptops, tablets, phablets and phones.
According to our dataset, the number of “digitally
connected devices” has increased from less than 1
billion in 2009 to around 5.0 billion in 2014.
We claim 2016 as the year of singularity when the
number of digitally connected devices, equalled the
number of people on the planet. From a level of
around 7.4 billion this year, we forecast the number
of digitally connected devices will increase to
around 11 billion by 2020, peaking around 15 billion
by 2030.
4 The internet of things …
And what of the internet of things? It is estimated
the number of “things connected to the internet”
could be over 50 billion by 2020. This may well be
true. It could even by higher. According to Gartner,
there will be nearly 21 billion devices on the
internet of things by 2020. ABI Research estimates
that more than 30 billion devices will be wirelessly
connected to the internet by 2020. 50 billion
appears to be a reasonable assumption assuming
our 11 billion digital connected devices is correct.
To the list of digital devices we add home
appliances, connected clothing, medical devices,
transportation, buildings and cities. Smart bodies,
smart homes, smart cars, smart grids, smart farms,
smart roads, smart cities … “Get Smart” will take
on a whole new meaning to digital urgency.
"Things" as an "inextricable mixture of hardware,
software, data and service is the legal definition.
People will be connected to the internet via internal
and external devices. The pacemaker hooked up to
the mainframe offering real time analytics. The
digital dispenser offering feedback on medicine
consumption and dosage levels. The nano bots
coursing through the veins relaying important data
on cell counts, sugar levels and genomic disorders.
As the cost of chips fall, along with the cost and
time of processing the data, the “nerd nirvana
nears”. Data storage is made available and the
data challenge becomes enormous. What secrets
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7. to predictive modelling will be extracted from the
huge data flow?
Access to market has never been easier and cost
of acquisition has never been lower. It is an exciting
time for those with the right attitude and the right
software to process the data and provide the
service.
5 The challenge of data …
And what data there will be! Six years ago,
Google’s Eric Schmidt claimed we create as much
information every two days as has been created
since the dawn of civilisation and the year 2003.
In 2015, we probably produced more every day
since the birth of the printing press in the first 555
years. The rate of increase is exponential. Videos,
photos, audio messages, blog posts are streaming
onto the internet in ever increasing proportion.
That’s lots and lots of information and lots of need
to store.
According to the Cisco Cloud Global Index 2015,
annual global data centre traffic will reach 10.4
zettabytes by the end of 2019, up from just over 3.4
zettabytes in 2014. Global cloud traffic will reach
8.6 Zettabytes up from 2.1 ZB over the same
period. Data created by the internet of everything
will exceed 500 ZettaBytes by 2020 up from 150
ZettaBytes in 2015. That’s over half a Yottabyte
each year with more to come.
That’s a lot of data. How big is a Zettabyte - think
Kilobyte (1) Megabyte (2) - Gigabyte (3) - Terabyte
(4) - Petabyte (5) - Exabyte (6) - Zetabyte (7) and
still to come yottabyte (8). Figures in brackets are
the power factors from the humble Kilobyte.
Consider the Encyclopaedia Brittanica is
approximately 24 GB in total!
6 Data Storage …
Digital connectivity is facilitating the process of
digital disruption by reducing access to market
barriers and reducing the cost of client or customer
acquisition. Word of mouth becomes word of byte.
The R(0) increases to spread the information flow.
There is of course a downside. Product life cycles
become more truncated as the life time values fall
in periodicity and value.
Storage on the other hand is becoming more
accessible to new and fast growing businesses.
The failed whale syndrome, identified in our Twitter
case study is largely a thing of the past for new
businesses. Constant crashes as the MAUs
increase should be an anachronism in the digital
era. Rapid elasticity is the new mantra for cloud
service providers. Start ups and unicorns are able
to benefit from the rivalry between Amazon Web
Services, Google, HP and IBM cloud.
Personal cloud usage has increased from zero in
2010 to over one billion users this year and will
increased to 2.5 billion by 2020. The volume of data
stored has increased from zero 2010 to 17
exabytes by 2015 and will increase to 45 exabytes
by 2020.
New industries have emerged to accommodate the
growth of the digital era and personal / small
business cloud storage. Box.com with a market
share of over 50% in the USA, lays claim to a 30%
share world wide. The company still lays claim to a
market cap of $1.3 billion US. Revenues of $325
million have yet to deliver a profit but that is no
longer a critical KSF in the digital age.
Conclusions …
Population growth, mobile connectivity, digital
devices, the internet of things, data generation,
processing costs, data storage have lowered the
barriers to market entry and participation. Cost of
acquisition, MAUsS, life time values have emerged
as the new metrics for the digital age.
It is the world of Minimum Value Proposition, get it
up and get it right. Marissa Mayer’s LEO - launch
early and often and Googles SOAR - send out and
revise are the new guidelines for product success.
But in many ways, the old corporate strategy
guidelines remain dominant. Product life cycles are
so important. Exponential growth rates are merely
a phenomenon of the width of the x axis and the
size of the R(0).
Understanding the challenges of digital disruption
to an existing business player, require the
traditional framework identified in our CBS NEWs
analysis. Benchmark and market map, all things at
all times. Profile Competitors, Buyers, suppliers
and new products, new players, new technologies
and new platforms.
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8. How Google and Facebook
disrupted the Yahoo business
model
Yahoo and Google …
In the summer of 2002, Terry Semel CEO of Yahoo,
approached Google with an offer to buy the
company. Google founder Larry Page’s initial
asking price was $1 billion quickly rising to $3
billion then $6 billion. It was obvious Page did not
want to sell to Yahoo. The founders Larry Page and
Sergey Brin wanted to keep the company
independent. An IPO of their own was an easy and
obvious option to cash up, in part exchange for
equity.
Semel was rebuffed. The back up plan was to
create a rival to Google. Yahoo had already
acquired Inktomi for $235 million. Overture had
acquired Alta Vista for $140 million. Yahoo acquired
Overture in July 2003 for $1.6 billion. The battle
lines were drawn between Yahoo and Google.
Initially the strategy proved successful. In 2004, the
two brands were tied. According to ComScore,
Yahoo held 32% of the search market and Google
35%. Yahoo had been the leader in search and
online ads for years but now Yahoo had to contend
with the Number two slot in a fast growing market.
Within two years, Yahoo share of search had fallen
below 30%. Google had pushed forward to achieve
a 45% share, rising to over 65% by 2009. By 2014,
Yahoo was struggling to hold a 10% share of
search. Google was the clear market leader with a
70% share. The Google disruption in search was
evident.
Yahoo and Facebook …
In 2006, Yahoo was still the big player on the
internet block. Yahoo would see most, if not all
deals, on the street. Terry Semel CEO had the
chance to buy Facebook established just two years
earlier for $1 billion. The Yahoo camp had mixed
views about the deal. Some believed that if the
campus based web site could be opened up to a
wider audience, Facebook could become one of
the most valuable social media platforms on the
internet. Others had their doubts.
The Yahoo protagonists believed the deal could
value Facebook at up to $1.6 billion. In principle a
deal had been agreed at the magic $1 billion level.
A great deal for Zuckerberg after just two years. A
great deal for Yahoo too. Semel’s tough love
negotiations forced Zuckerberg to walk away from
a meagre $850 million offer, never to return.
Had Yahoo missed out? Undoubtedly. Within one
year, Facebook had taken an investment from
Microsoft valuing the company at $15 billion.
By 2016, Facebook was valued at $340 billion.
Google is valued at nearly $500 billion. Yahoo is
valued at just over $35 billion largely due to the
investment stakes in Yahoo Japan and Alibaba.
Facebook’s share of display advertising surpassed
Yahoo, just as Google has achieved in search.
Yahoo and First Mover advantage …
Yahoo had secured First Mover Advantage as the
large internet portal. But first movers are often
worst movers if the competitive market advantage
is not pressed home. The scale of activity meant
the giant could be out manoeuvred by focused start
ups in selected areas. Yahoo was in danger of
trying to do too much across the internet, without
adequate focus in key sectors.
The competitive framework was extensive. Google
in search and PPC, Facebook in social networking
and display ads. PayPal was dominating payment.
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9. eBay was emerging as the key name in auctions.
Microsoft in email, MySpace in social AOL in
messaging and CNN in news and sports.
Yahoo had missed out on Google, Facebook,
YouTube, LinkedIn and Twitter. Competitor
platforms were established in Search, Advertising
and Social. Yahoo acquisitions of Overture ($1.6bn)
Flickr and Tumblr ($1.1bn) could not reverse the
decline.
The Yahoo case study is a classic example of
Digital Disruption and many other of the key
elements of our Masters Of Strategy Guidelines.
Download the Case Study.
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10. Digital Disruption and the
Industries of the Future ...
Impact of the Internet
The Internet has had a world-changing impact on
businesses over the last twenty years. Cloud
technology has emerged. Access speeds have
increased as the costs of data processing and
storage have fallen.
Online connectivity is huge. We claim 2016 as the
year of singularity when the number of digitally
connected devices, equalled the number of people
on the planet. From a level of around 7.4 billion this
year, we forecast the number of digitally connected
devices will increase to around 11 billion by 2020,
peaking around 15 billion by 2030. It is estimated
the internet of things could lead to over 50 billion
devices connected to the internet by 2020.
Over the next ten years, change could happen
even faster. The rate of change is increasing. Not
exponentially, that’s just a function of how you
squeeze the x axis. It is increasing at a faster and
faster rate.
Industries of the future …
So which will be the industries of the future? That’s
a tough assessment. Using the Donald Rumsfeld
formula, there are known knowns, the things we
know we know; There are known unknowns, the
things we know, we don’t know; But there are also
the unknown unknowns, things we don’t yet know,
we don’t know.
This is the great suspicion about forecasting and
determining the industries of the future with so little
hard information other than history to guide us.
Things will happen of which, as yet, we know
nothing. In 1943 Thomas J Watson Chairman of
IBM claimed “There is a world market for about five
computers”. In 1950 Popular Mechanics reckoned
“Computers in the future may weigh no more than
1.5 tonnes”. Now in the digital age, the ambition for
advanced economies at least should be a computer
(or digital device) in every home and high speed
broadband access for all.
So which will be the industries of the future?
Where better to start than with Alec Ross and "The
Industries of the Future". As Hillary Clinton's Senior
Advisor for Innovation, Alec Ross travelled nearly a
million miles to over forty countries.
“From refugee camps in the Congo and Syrian war
zones, to visiting the world's most powerful people
in business and government, Ross's travels
amounted to a four-year masterclass in the
changing nature of innovation”.
In "The Industries of the Future", Ross distils his
observations on the forces that are changing the
world. He highlights the best opportunities for
progress and explains how countries thrive or dive.
Ross examines the specific fields that will most
shape our economic future over the next ten years,
including robotics, artificial intelligence, the
commercialisation of genomics, cybercrime and the
impact of digital technology on so many areas
including “precision agriculture”
Ross gives readers a vivid and informed
perspective on how sweeping global trends are
affecting the ways we live, now and in the future.
In this chapter , we are going to focus on robotics,
artificial intelligence, data mining and predictive
analytics. Sectors in which the future is already
encroaching on the present. Global spending on
robots was an estimated $15 billion in 2010. By
2025 it is estimated to rise to $67 billion.
Robotics …
We have heard many scare stories of the invasion
of robotics into the work place. Hundreds of
thousands of jobs lost to the next generation of
mechanoids. Droids equipped with a better AI
software load soon with an emotional quotient. A
robot that can laugh at, and cry with, the workers to
be displaced.
From the professions to care homes, the
installation of robots will disturb the current
perception of the work place.
We accept the installation of robotics on the
production line. Confronting “Cognitive Agents” at
Enfield Council and other local authorities may yet
be a step too far too soon for many rate payers.
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11. Andy Haldane Chief Economist at the Bank of
England delivered a speech in November 2015
suggesting 15m UK jobs could be taken by robots
as automation spreads through the workforce, thats
half the workforce! No need to worry about
immigration in the years ahead. Robots will pick the
farm fields of Boston, look after the elderly and deal
with aspects of healthcare. Yes the “robot will see
you now” will be the call through the surgery. Droids
dishing out pills for depression as the displaced
seek medication, the likely out turn.
Occupations most at risk include administrative,
clerical and production tasks. For an accountant,
the probability of vocational extinction is 95%. For a
hairdresser, it is 33%. For economists the potential
extinction quotient is much lower at 15%.
Should we be worried?
Concerns about job substitution are hardly new. As
Haldane explained, the technology debate was re-
stirred in the 1930s, at the time of mass
unemployment during the Great Depression. In
“Economic Possibilities for our Grandchildren”,
Keynes predicted on-going technological advance
and workers being replaced by machines (Keynes
(1930)).
Yet far from being a threat, Keynes viewed this as a
huge opportunity. He predicted that, by 2030, the
average working week would have shrunk to 15
hours. Technology would give birth to a new
“leisure class”. Overnight droid deliveries from a
commercial fleet of vehicles on smart motorways
may well be the norm. By 2030, just the economists
and hairdressers would be fulfilling a working week.
AI and Robotics offer great opportunity to fulfil the
shortage of doctors, nurses and teachers in the
developed world. Great advances in equality,
welfare and deprivation can achieved be better
access to education and first line medical care in
developing countries.
Data the raw material …
Lots of excitement too about deep data mining and
predictive analytics. As we explained earlier in this
series on Digital Disruption, the volume of data to
be analysed will explode. Data created by the
internet of everything will exceed 500 ZettaBytes by
2020 up from 150 ZettaBytes in 2015. That’s over
half a Yottabyte each year with more to come. By
2050 there will be a lot of Yottabytes to be stored
and analysed every year.
The Google Acquisitions of Boston Dynamics and
Deep Mind are witness to the significance of this
trend to the internet majors.
IBM’s Watson is already placing highly complicated
algorithms and neural networks into the hands of
many. Deep Mind is currently working with the NHS
with a trial of triage assessment in A & E. Data
management, simultaneous translation, predictive
behaviours will be delivered into the hands of
businesses of every shape and size.
But what to do with the data ?
Predictive technologies developed by Google and
Amazon are setting the standards for consumer
service, user journeys and experience by which by
which all businesses, both B2B and B2C, will be
judged.
Tesco’s acquisition of Dunnhumby in 2004 helped
propel the supermarket to national dominance
using the data provided by the Tesco loyalty card.
Palantir is building data fusion platforms for
integrating, managing, and securing any kind of
data, at massive scale. “On top of these platforms,
we layer applications for fully interactive, human-
driven, machine-assisted analysis” as Alex Camp
CEO explains.
Great successes have been claimed by Palantir.
Using big data to find missing kids.“How Palantir
uses Big Data to Find Missing Kids Fortune March
14 2016. Of lesser great social acclaim is that
working with Hershey the U.S chocolate giant,
crawling through the data base, the Palantir data
crawlers discovered Hershey bars sell better when
merchandised next to Marshmallows in store. Ah
yes, there is hope for humanity.
So as with robotics, AI and data mining, businesses
must adapt to the challenge of digital disruption by
first challenging their own organisations and
business models. Join us in our journey as we
examine the challenge of digital disruption in our
masters of strategy series.
11

12. Digital Disruption : Which jobs
will be at risk in the years ahead?
“The Future of the Professions” predicts job
decline. In an Internet society, according to Richard
Susskind and Daniel Susskind, we will neither
need, nor want, doctors, teachers, accountants,
architects, consultants, lawyers, and many others,
to work as they did in the 20th century.
Not only will work practices change but the
numbers of people involved in the process will
decline significantly. Using the models provided by
the BBC, Deloitte and Oxford University, we
quantify the projected loss in the different sectors
over the next twenty years.
The Future of the Professions explains how
artificial intelligence will bring fundamental change
in the way the 'practical expertise' of specialists is
made available. In the digital age, our current
professions appear antiquated and opaque.
Traditional business models are vulnerable to
digital disruption given free access to the internet of
knowledge by things of choice.
Professions will be forced to confront the
challenges of automation, innovation, online access
and different ways of communication. Accessing
data and managing data has never been as easy or
as affordable. Businesses are adapting to the
virtual workforce with remote working, home
working and above all access to specialist
expertise on an ad hoc basis.
For businesses and individuals, this is the era of
information liberalisation. Access to online self help,
with crowd collaboration and experience sharing
means individuals can receive personalised advice
as never before.
In Sickness and in health …
Some of the great changes will occur in the medical
profession. Already, devices like Jawbone, Fitbit
and MyFitnessPal are able to generate large
volumes of data, for self health monitoring including
pulse rates, calorie burn, sleep patterns and
happiness levels in real time 24/7. This is the era of
the wearables.
Artificial Intelligence is helping too. In December
2014, the US Department of Veterans Affairs
signed a $6 million contract with IBM’s Watson to
advise on Post Traumatic Stress Disorder.
In March 2015, Novartis announced a deal with
Google to develop a contact lens that monitors
blood sugar levels.
Developments in “wearables” will be mirrored by
developments in ingestibles. A series of nano
products will enable internal monitoring and
adjustment. A sort of “swallow your surgeon” option
with nano devices wandering around the blood
stream annihilating problematic cell structures in
free time.
In Eric Topol’s The patient will see you now! Eric
argues the future of medicine will be in your own
hands. you could use your smartphone to get rapid
test results from one drop of blood, monitor your
vital signs both day and night, and use an artificially
intelligent algorithm to receive a diagnosis without
having to see a doctor. All at a small fraction of the
cost imposed by our modern healthcare system.
Computers will replace physicians for many
diagnostic tasks. “The robot will see you now!”
Massive, open, online medicine, where diagnostics
are done by Facebook-like comparisons of medical
profiles, will enable real-time, real-world research
on large population samples.
In Star Trek, a medical tricorder is used by doctors
to help diagnose diseases and collect body
information about a patient. A tricorder in every
home should be the aim of a future NHS. Buy one
get one free, would guarantee a second opinion.
Bulk buying options would cater for hypochondriacs
with a basic mistrust of the medical profession.
12

13. Education …
In Education, there are already huge changes
taking place as a result of digital disruption. It is
estimated the over one billion education apps are
installed on digital devices around the world.
In “Learning with Big Data, The Future of
Education: Viktor MayerSchönberger and Kenneth
Cuvier Courses” talk of courses tailored to fit
individual pupils and textbooks that talk back. This
is tomorrow’s education landscape, thanks to the
power of big data. These advances go beyond the
much-discussed rise of online courses.
The surge in MOOCs - Massive Open Online
Courses is surrendering to SPOCs (Small Private
Online Courses). Harvard, one of the world's most
influential universities, is evaluating a move to
Spocs. Consider that each month half a billion
people dip into 35 million articles on Wikipedia.
Every expert in the world on any subject is just one
click away using Google Search. The era of the
“Sage on the Stage” is ending. The concept of “The
Guide on the Side” will emerge. The digital age, is
an age of snap learning. Two minute video clips
and 280 characters on Twitter are conditioning
students to reject the lengthy tomb and learned
paper.
Legal and Accountancy …
In the legal profession, huge disruption is already
taking place with the emergence of paralegals,
automation, AI and the break down of the classic
legal partnership function.
In “Tomorrow’s lawyers” Richard Susskind
suggests, the legal profession will change more
rapidly over the next twenty years, than it has over
the last two hundred years. Susskind sees a legal
world of virtual courts, Internet-based global legal
businesses, online document production,
commoditised service, legal process outsourcing,
and web-based simulated practice. Legal markets
will be liberalized. Yet, far from reducing the
number of people employed in the legal sector,
there could be new jobs for lawyers and new
employers.
In accountancy it is estimated just 1% of tax jobs
will be free from the risk of automation.
Accountancy packages such as Xero, Cashflow
and QuickBooks are easy to use and cloud based.
New software is making inroads into the older
established hard to use packages which are more
specialist dependent.
So which sectors will be at risk …
In the last chapter we discussed the speech
delivered by Andy Haldane in which he suggested
that almost half the workforce, or 15 million jobs
could be at risk as a result of AI and robotics.
Oxford University academics Michael Osborne and
Carl Frey calculated how susceptible to automation
each job is based on nine key skills required to
perform it; The list includes social perceptiveness,
negotiation, persuasion, assisting and caring for
others, originality, fine arts, finger dexterity, manual
dexterity and the need to work in a cramped work
space.
The results in association with Deloitte were
published on the BBC website. Sectors most at risk
were banking, accountancy, tax and insurance.
Sectors least at risk were Digital, Creative, Higher
Education and (I am happy to say) economists.
Should we be too worried? The technology debate
was re-stirred in the 1930s, at the time of mass
unemployment during the Great Depression. In
“Economic Possibilities for our Grandchildren”,
Keynes predicted on-going technological advance
and workers being replaced by machines (Keynes
(1930)). Fewer working hours and more leisure
time the predicted outcome. We heard this later
almost fifty years ago with the forecast demise of
manufacturing and the huge job losses predicted
as a result.
Will it be so bad? Projections over the net twenty
years are difficult to accept and sustain. But every
business should check out vulnerability to Digital
Disruption. Stay with us on our journey as we
examine the challenge of Digital Disruption in our
Masters of Strategy series. In the next chapter we
will look at “Empires in the Cloud” ... the key
players creating the dominant digital platforms for
the years ahead.
13

14. Digital Disruption and the
"Empires of the Cloud" ...
Empires of the Cloud …
Empires of the Cloud are dominating internet
activity. Software as a Service is yielding to
Business as a Platform. We hear much about Uber
and Airbnb as the great disruptors. Uber is the
largest taxi firm in the world, yet has no vehicles,
Airbnb is the largest “room rental" business in the
world but owns no hotels. In reality, Uber and
Airbnb are minor niche players in the great game.
Five key “Empires of the Cloud” are emerging.
Apple, Google, Microsoft and Facebook are joined
by Verizon, making a late run. Together our top five
“Empires of the Cloud”, have a combined market
value of $4.0 trillion dollars.
The battlegrounds have formed on which the
empires will joust. The quest for dominance is
relevant and real. Google dominates search,
Facebook and Google dominate on line advertising.
Amazon dominates online commerce. Apple and
Google dominate mobile software and apps
marketing.
Personal Assistants rival amongst the big four.
Apple’s Siri, Google’s Now, Microsoft’s Cortana and
Amazon’s Alexa-Echo, each seek to have the last
word.
In Social media, Facebook is the dominate player
with 2.3 billion monthly users. It is a huge player,
intent on maintaining dominance. The acquisitions
of Instagram and WhatsApp, the latter for $16
billion, are evidence of Facebook’s commitment to
the cause. Attempts to acquire Snapchat for $3
billion have failed to date. The launch of Instagram
“Stories” is clearly targeted at the reluctant seller.
Facebook hosts “Messenger”, alongside Instagram
and WhatsApp to provide a comprehensive social
media offer.
Verizon acquires Yahoo …
Verizon’s acquisition of Yahoo brings Yahoo and
Tumblr into the Verizon stable to sit along side
AOL. Yahoo’s 700 million MAUs are a big addition
to the empire. Microsoft’s acquisition of LinkedIn for
$16 billion brings over 300 million MAUs into the
Microsoft camp.
In payment, Apple Pay, Google Pay and Amazon
Pay have strong payment platforms to support the
high level of platform transactions. PayPal is the
major independent with a strong history with eBay.
PayPal and eBay are currently valued at $35
billion. Twitter and Snapchat with market caps of
$24 billion and $10 billion sit as acquisition fodder
before the Empires of the Cloud.
New Empires of the Cloud are governed by the old
rules of competitive strategy. The race to critical
mass is important for market dominance. For new
business platforms, development is a function of
runway and burn rate. Serial losses may be
sustained in start up phase, as long as the model
fundamentals are correct. Cost of Acquisition
cannot exceed Life Time Values. Transactions with
revenues below cost, may be OK as a short term
loss leader for certain items but not in the overall
product mix.
Walmart’s acquisition of Jet is an interesting case in
point. According to the Wall Street Journal,
transactions sustained at a loss were a significant
part of the Jet retail model. In October 2015, Jet
had a monthly burn rate of $40 million, including a
$25 million advertising budget. With $63 million of
cash left at the end of October, the company
avoided a cash crunch when it raised $350 million
in November. It is suggested Walmart is paying $3
billion for an unproven retail model to boost online
performance and create a rival platform to Amazon.
Good luck with that!
Empires expand, laterally, horizontally and
vertically. Empires will seek to expand where the
perceived value is greatest. Sometimes, this will
involve co-opetition, working with the enemy.
14

15. Take note, Alibaba (not Baidu) owns search on
Alibaba. Facebook (not Google) owns search on
Facebook. Apple, dependent on Google for Maps
for the iPhone decided to drop Google. The
decision to develop an Apple “Map App” in house
was strategically important, albeit badly executed at
the out set. Yahoo made a great strategic mistake
in surrendering search to Google as we explain in
The Yahoo Case Study.
Facebook and WhatsApp…
The Facebook acquisition of WhatsApp for £19
billion was as much a defensive acquisition as it
was a strategic play. WhatsApp has more than
400m users around the world heading for one
billion within the next three years, or so it is hoped.
Facebook’s successful close in 2014 followed a
Google offer of $1 billion for the company in the
previous year. Facebook was prepared to overpay
to avoid a rival empire seizing control.
In China, the empires are well established with
Alibaba in commerce, Baidu in search, WeChat in
messaging and Xiaomi in mobile. For the firms of
the West China is a difficult market. Last month
Uber made a strategic withdrawal, swapping China
operations for a stake in homegrown rival, Didi
Chuxing partially owned by Baidu.
Empires of the Cloud operate within the old rules of
the game. We define the battlegrounds amongst
search, advertising, payment and many more.
Empires monitor the battleground using our formula
of CBS News. Competitors, Buyers, Suppliers, New
Products, New Players, New Platforms and New
technologies. Product life Cycles are significant as
always in monitoring corporate performance.
Snapchat will face a greater challenge from
Google’s Instagram. Etsy will face the challenge of
Amazon Homemade.
The development of cloud has seen the emergence
of Apple, Google and Microsoft Cloud Products.
Nothing compares to the dominance of Amazon
Web Services in the provision of cloud storage for
many online platforms. AWS provides a great
ability, along with Amazon Platform, to monitor
performance of the new arrivals, ready to move
when the time is right!
New entrants will come and go but the Empires of
the Cloud will be watching every move …
Happy (Digital) Strategies
15

16. 16

17. Digital Disruption and the
Challenge to the UK Banking
System
Digital Disruption and the Challenge to the
Banking System …
In 2016 the Competition Market Authority [CMA]
released the final report on the UK Banking
System. Despite fears about digital disruption and
the potential “uberization” of the bank network,
change is slow to take effect.
The report concludes the smaller, newer,
“challenger” banks find it difficult to grow. Older,
larger, legacy banks do not have to compete “hard
enough” for customers’ business.
Switching, the process by which customers change
bank accounts from one bank to another is still
extremely low. Switching accounts for between 3%
and 4% of total current account business.
The CMA would like to see the dominance of the
Big Four, HSBC, Barclays, Lloyds and RBS
diminished. In 2014 it is estimated the big four, plus
Santander, had a combined UK current accounts
market share of 85%. Add in TSB, Nationwide and
the Co-operative Bank and the total increases to
97%.
For the new challenger banks like OakNorth,
Aldermore, Mondo and Atom the challenge is
particularly difficult. Despite a strong Fintech mobile
platform, Mondo, Atom and Tandem will struggle to
recreate, in banking, the success of AirBnB and
Uber in hotels and transportation.
Scaleability is a difficult growth challenge when
confronted with customer inertia. In banking, far
more is at risk than calling a cab or booking a
room. The commitment Life Time Value [LTV] has
much more at stake as clients put their savings,
houses and transactions on the line.
Customer inertia, with a switching rate sub 4% will
inhibit the growth of challengers whether digital or
not. The marketing spend and capital requirements
to achieve critical mass, are significant
impediments to rapid growth.
So what can the CMA achieve …?
The CMA would like to develop an “Open Banking”
network. A world in which customers are able to
move accounts more easily and more regularly.
Price and performance comparisons should feature
as part of the banks’ marketing profiles.
APIs would be linked to all major banking systems.
Clients would receive reliable, personalised,
financial advice, precisely tailored to individual
circumstances delivers securely and confidentially.
Big data and predictive analytics would enable
cash forecasting to warn of impending
overspending. The standards set by the Empires of
the Cloud, Google, Apple, Facebook and Amazon
are becoming the norm for the banking network.
“People who bought this also bought this, but you
can’t afford it - so don’t look at that site again!”
With Open Banking, apps could use transaction
information to find the current account deals which
suit best. Running a small business, apps could
find the best options for business accounts and
loans. Apps could even help avoid overdraft
charges by moving cash into accounts when they
dip into the red.
17

18. Unfortunately the CMA fails to explain where the
cash would come from. It’s all based on the
wonderful world of fantasy banking. A world in
which businesses and individuals never get into
financial trouble. A world in which cash is always
available at a tap of a button. Maybe soon, there
will be an app for that. The “Money-App-tree” may
be on the digital horizon but not just yet.
More choice, more competition, greater market
fragmentation, greater product innovation,
disaggregation, right sizing the banks. It all sounds
so easy. Mondo is about giving customers the data
and insights into their spending and saving with
warnings of overspend and shortage. But is that
really a sufficient point of differentiation? Predictive
capacity may be a wake up call for the legacy
banks but not much more. Big progress is already
being made by the big four and others in the world
of relationship banking. Banks are adapting. Capital
One Bank acquired UX design agency “Adaptive
Path” and the App - Level Money to push ahead in
the digital space.
How the Big Banks will respond ... ?
The legacy banks have size and experience on
their side. They have big balance sheets and big
networks plus experience with the regulators,
retaining the confidence of investors and clients.
They have established relationships, data history,
data availability, a spread of products, services, risk
management analysis and the scale of operations
to sustain large market shares.
They do have legacy software systems and
architecture which are demanding huge investment
to make the move to digital and mobile. They are
responding by developing startup or VC
programmes with Fintech companies, partnering or
acquiring Fintechs or developing resource in
house.
Santander’s Innovation, Barclays Pingit App and
Accelerator schemes, Lloyds Digital Champions,
Citibank’s Digital Mobile Challenge and Digital
Acceleration teams are witness to the response to
the challenge.
Fintechs will struggle to gain critical mass. The
legacy banks will react by collaborating, competing
or acquiring either totally or by partial investment.
Doing nothing is not an option.
Empires of the Cloud …
The Empires of the Cloud, Google, Apple,
Facebook and Amazon are defining the standards
for digital UX user experience and UJ user journey.
Millennium clients are expecting the same
standards of service and response from banking
platforms as they are from Amazon and others.
Payment offers easy pickings as a challenge to the
banking network. It is the most vulnerable to digital
disruption. 2015 was the year of successful IPOs
from PayPal, Square and WorldPay. The success
of Paypal and Transferwise have determined the
standards for ease and speed of money transfers
both nationally and internationally. New players like
Transferwise may grab the headlines but Western
Union will remain the dominant player in the
international payment market.
Visa and MasterCard remain strong players in the
transaction market. “Contactless” is a great step
forward in the digital age. Google, Apple, Facebook
and Amazon all have payment options with “Wallet”
(differential card payment options) as an
enhancement. Facebook paid $19 billion for
WhatsApp as an addition to the social media
network. The pattern of payment via messaging
options have been set by WeChat in China.
Payment and messages are able to use the same
platform among Facebook’s 1.7 billion users
worldwide.
Empires of the Cloud will be the main threat to the
banking system rather than the newer, smaller
Fintechs. Apple, Google, Facebook, Amazon have
the relationships and the platforms to disrupt the
conventional banking network. Once the banks are
obliged to access with APIs then the disruption is
eased significantly.
Will we see the Bank of GAFA in the years ahead?
An interesting thought when one considers the
combined capitalisation of the Empires of the Cloud
is $4.0 trillion dollars. RBS, Barclays and Lloyds,
each would represent a modest premium to a
WhatsApp deal based on current valuations.
Imagine if the Empires strike back, what would the
CMA make of that!
18

19. Digital Disruption and the smart
city challenge ...
Just 65 km southwest of Seoul in South Korea, on
1,500 acres of reclaimed land, the new “smart city”
of Songdu is taking shape. The international
business district will feature, schools, hospitals and
offices plus leisure and cultural facilities. The 10
year project will cost in excess of $40 billion. It is
allegedly one of the most expensive development
projects ever undertaken. It is also one of the
“smartest” and the “greenest”.
80,000 apartments, 5 million square metres of
office space and one million square metres of retail
space, will deliver the lightest carbon footprint. All
major buildings would be on par with or beyond
LEED requirements. 40% of surface area would be
reserved for green space.
Bicycle lanes, electric car charge points and self
drive cars will limit inner city pollution. A hi-tech
waste collection system will improve the
performance of the carbon emissions challenge.
The Songdu rubbish collection system, based on
suction pipes, guarantees trash flows from
buildings to processing plants, without the need for
garbage trucks and rubbish bins.
Computers installed in all buildings will enhance the
connectivity of ICT, Information, Communications
Technology with IoT, the Internet of Things.
Residents can video conference with neighbours
and attend events, conferences or study lessons on
line.
Lighting, heating, air conditioning and more can be
controlled by digital devices. Real time data will be
made available of energy and utility usage.
In the age of the Internet of Things, the pot will call
the kettle back on wifi as the fridge replenishes key
items from auto order and home delivery by drone.
In Songdu, water filter systems will ensure prime
quality drinking water is not used to “flush the
toilet”. Vertical farms will provide fresh food from
urban “farm sky scrapers”. Delivery drones will
provide home delivery. Living street lights in the
form of trees and bushes will enhance urban
architecture.
In transport, intelligent digital communication
installations, will provide real time data on public
transport arrivals and departures and of course
delays. Auto parking facilities will ensure, car
owners are notified of available parking in and
around the city.
Co-ordinated transport networks, with universal
contactless of mobile payment systems will simplify
the process of commuter progress to, from and
within the city.
Not just in Korea are the changes being made.
Travel around Helsinki in 2016, the city's new
Mobility-as-a-Service initiative will allow commuters
to buy a "mobility" ticket via text message or app.
The service will plan the ideal route from starting
point to destination, combining public transport,
on-demand services and private vehicles.
In Zaragoza, Spain, a "citizen card" will provide
access to the free city-wide Wi-Fi network, unlock a
bike share, check a book out of the library and pay
for the bus ride home.
In Songdu, the smart city is starting from scratch. It
is a huge advantage. “From an infrastructure
perspective, we could lay the very latest
connectivity technology into the ground before
construction," says Tom Murcott of real estate
developer Gale International,.
Gale International is building the Songdo
International Business District, partnering with
Cisco. Gale will provide the internet-of-things
backbone for Songdo's buildings. "This will allow
the occupants to control their air conditioning, their
televisions, their music even their elevators"
Murcott says.
19

20. "Cisco has built an high definition tele presence
system installed in 14,000 residential units.
Residents are able to interact with city
administrators, shopkeepers, socialcare and
healthcare workers."
Interactive video networking with first line health
care can lead to better monitoring of first response
screening, patient monitoring, medical pill
dispensation and much more.
In transport, distribution, energy consumption,
health care and so much more, the yield from the
Smart City challenge will be tremendous. The
opportunities afforded by digital disruption can only
improve the yield.
By 2050 it is estimated that 75% of the world's
population will live in cities, putting pressure on
transport networks, emergency services and
utilities already stretched to capacity.
It may be easy for a clean start project to establish
the basic infrastructure as the first foundations of
the city are formed. Certain challenges of progress
remain nevertheless.
“Birds Korea” called for a halt to the Songdu
reclamation project due to the loss if important tidal
flats, supporting threatened waterbird species and
providing a staging ground for migratory waders.
Fears for data privacy will be overtaken by lifestyle
privacy. Smart cities need smart networks into
which everything and every one is hooked. What if
the smart city system is hacked and or falls into the
wrong hands? The FBI already advises computer
owners to cover the smart camera for fears of
hacking and home intrusion.
In Manchester, great things are expected from the
CityVerve challenge. In 2015 Manchester was
chosen as the winner of a £10m Government-led
technology competition to build and deliver a
smarter, more connected Manchester.
The plan - to create a city that uses technology to
meet the complex needs of our people. CityVerve
brings together the brightest minds and pioneering
use of Internet of Things (IoT) technologies to
redefine ‘smart’ in the context of a living, working
city.
“Imagine a Manchester of endless possibilities from
new business and jobs to better healthcare and
transport; safer streets; and more engaged and
empowered citizens. We’re teaming this incredible
expertise with cutting edge technology; engineered
and delivered by the greatest minds from across
the globe.”
And this isn’t just a reality for Manchester;
CityVerve aims to create a blueprint for smart cities
worldwide. The ambition is huge.
20

21. Reading and Book references …
1. The Future of the Professions: How Technology Will Transform the Work of Human Experts Jan 1, 2016
by Richard Susskind and Daniel Susskind
2. Learning with Big Data , The Future of Education: Viktor MayerSchönberger and Kenneth Cuvier
3. 3 The Future of Employment Carl Benedikt Frey and Michael Osborne.
Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford and Jeff Cummings
4. Tomorrow’s Lawyers, Richard Susskind OUP 2013
5. The patient will see you now! The Future of Medicine is in Your Hands Eric Topol Basic Books 2015
6. 'The Future of Employment: How susceptible are jobs to automation'. Data supplied by Michael Osborne
and Carl Frey, from Oxford University's Martin School.
7. Deloitte The Robots Are Coming 2015
8. Figures on UK job numbers and average wages from the Office for National Statistics and Deloitte UK.
9. The Future of Employment: How Susceptible are jobs to computerisation. Carl Benedikt Frey and Michael
A Osborne. September 2013.
21