Fifteen Eighty Four

Today’s world is dominated by the rapid advancement of digital technologies, constantly changing the way we live, learn, communicate and interact, and impacting the way we use objects and services to help us achieve our personal outcomes. Digitisation is also changing the way we buy and use products and services, accelerating the convergence between exchange (when we pay) and experience (when we use) products, with markets now forming closer to when we need these offerings.

Take music as an example. Previously, we believed that the only way to enjoy music was to ‘own’ or buy the record or CD. This is a transaction, an exchange, and it became equated with value – what we got for what we gave. What we actually valued, however, was being able to enjoy the outcomes or benefits of what we had bought – the music – through the context of its use and experience.

Today, digitisation allows us to enjoy music without owning a record or CD. Music can now sit at ‘virtual’ locations such as the cloud, which we can access by streaming through an Internet-connected device. Hence music is made available for us to listen to wherever and whenever we want it, i.e. in context, which is when the need is most salient, and on demand. Crucially, we can also pay for the music when we want or need it, rather than buying before or after the need arises. This opens up opportunities for a convergence of buy and use, and this is where future markets could be formed. These new exchanges could potentially evolve into new economic models – sources of wealth creation for the future.

Such impacts of digitisation are enabling fresh approaches to the manufacturing, design and delivery of almost everything. Products can now be ‘incomplete’, as they could embed digital interfaces for personalisation and connectivity. The old boundaries between a product or service and the way it is customised for the market, and subsequently personalised for use, are shifting, bring new insights into what customers may regard as valuable and how/when we choose to buy. And a market willing to pay for deep personalisation and a greater fit of products to lived lives will greatly assist the emergence of new business models.

With greater digital connectivity, connecting objects through the ‘Internet of Things’ will result in new ways to capture value, generating new business models and creating disruptions. Every product or service is a member of a ‘value constellation’—they are socially connected, through the individual, with other products at the point of use. Use and experiential contexts are where industry verticals converge e.g. watching TV is a constellation of media, electronics, food & beverage industries.

What will emerge however, are horizontal or systemic business models, as companies move to appropriate economic benefits from other industry verticals by innovating their offering to serve contexts better. Already, large digital companies such as Amazon, Google and Apple now span horizontal boundaries, encroaching into other’s industries.

For firms, the new way of thinking is how to negotiate digital and material boundaries to allow for deep personalisation for all individuals while benefiting from increasing returns to scale. These ways will not come from existing mindsets, but rather, from liberating the mind and considering how the good use of digital connectivity, overhauling the business model and re-designing a hybrid product and service offering could empower, rather than passively serve, customers. In the rapidly advancing world of digital technology, staying with the status quo is not an option. Disruption is never far off and no firm is too big to fail.

This blog post is an edited version of an article originally published on the University of Warwick Knowledge Centre on 15 March 2013. Warwick Knowledge content is available to use under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.