Digital Disruption – an order of magnitude problem

Disruption isn’t new. Industries and products have been disrupted throughout time. It’s is an ever-present force in the world as we innovate and design new ways of solving old problems. We’re just seeing more of it today because of the Internet.

As @jobsworth has often written about it’s about scarcities and abundance – here, here and, most weirdly, here. Every economic era is characterised by what’s scarce and what’s in abundance. The current era will be characterised by the digital abundance brought about by the many technological advances behind the Internet and Web. Digital disruption is really what I refer to as an ‘order of magnitude problem’.

How would you get to a billion dollars?

What do I mean by an order of magnitude problem? Well, it’s really summarised nicely in the chart below that we use in our VFQ Product Management course which originally came from this course on startup engineering by Balaji Srinivasan and Vijay Pande. These courses from VFQ and Coursera are an order of magnitude problem to education, training and learning generally. The number of people that can be served and at a completely different price point to more traditional courses such as MBAs costing tens of thousands of dollars.

The idea is to consider how you believe your business model might become a $1bn sized company. How many customers and how much per product? The order of magnitude problem really occurs when a competitor exists that can serve a customer with roughly the right solution at an order of magnitude less in terms of price. And, they could reach an order of magnitude more people. Even if they could achieve one of these, it would put your company at a disadvantage. But when both conditions are met through technological advancements and business model innovation, things can get dicey for incumbents.

You don’t need to look far to find lots of examples where the order of magnitude problem has appeared throughout time that has wiped out entire livelihoods – think the industrial revolution.

The changing landscape of retail

Consider this blog post from the summer of 2015 comparing Walmart and Amazon. What’s fascinating is the order of magnitude differences in almost every comparison.

Number of employees, number of products, reach, revenue, growth. Apart from revenue, it looks like Amazon are in the pole seat on all of the other measures.

The customer comparison is one which isn’t an order of magnitude difference, but the growth difference does show the potential for selling to a number of active customers versus which is over double the total number of weekly shoppers. Benedict Evans shows how graphically how the gap is closing in his Mobile is Eating the World video.

Amazon has built their entire business around the digital world rather than being constrained by bricks and mortar, and the physical limitations of the analogue world. The good thing for Walmart is that there is an order of magnitude difference between revenues in their favour. They have time to re-imagine how they serve a loyal customer base.

Are there any industries safe from digital disruption?

Coming back to today (or the recent past), there are clear examples of the digital revolution. This image captures many of the big ones that we are all aware of, but it’s worth looking at where these came from (it wasn’t IBM).

Digital disruption

Alex Muffet in his tweet as a response to a techcrunch article highlights a number of examples that quite simply shows that the phenomenon is not a new one. It also highlights how important the channel to the customer is in creating value. Every example shows innovation in dealing with scale to the customer.

It is predicted that by 2020 80% of adults will have a mobile, smartphone. That’s over 4bn people. So, the companies that best serve that scale will likely do very well. Owning the customer interface and providing that wow factor will be a crucial competitive advantage.

But the order of magnitude problem doesn’t only occur in the sense of channel. It can also be thought of in the sense of repeat use, and the cost of doing a job. As Clayton Christen talks about in his work on disruption and ‘jobs-to-be-done’, once an alternative solution appears in your market that can achieve roughly the same outcome at a cheaper price and still have a viable business model, it’s only a matter of time where the solution will improve to the point where people will look at the incumbent solution as irrelevant. The death might be slow, but it will likely die without some serious surgery!

Think about the printed word with the invention of the Gutenberg Press and how writing, printing and communication changed, the invention of the combustion engine and the decline in horse-drawn carriages and, more recently, the seismic shifts in photography and the disruption that has already happened.

Taking photos is simple today and has become so cheap, easy and limitless. Billions of people can do it, and whenever they like. The cost of producing a print is pence. It used to be pounds. That’s an order of magnitude. We used to store them in albums, we now store them in social media. By the billions! Can you imagine having a billion photos in albums. You’d need a few more houses. It is forecasted in 2015 that there will be 1 trillion photos taken. 1 trillion!

The physical world is changing too

But it’s not just those things that can now be digital. Even very physical things are now changing. Just recently Shell introduced an innovative new pay at the pump re-fueling solution that will likely reduce the need for people at service stations. You can just use your phone to scan a QR code before re-fueling. You refuel, get back in your car and drive off. It saves time. Saves money. Reduces friction.

It’s a long time since the days of a pump attendant. Does anyone remember the pump attendant?

So, instead of talking at a high-level of digital disruption and digital strategies, it would be better to really understand the market dynamics and how your products and services compare and compete in terms of the economic impact. A few questions to help you ponder:

  • Which company is most likely to steal your lunch with a solution that gives you an order of magnitude problem?
  • More importantly, how can you disrupt your own solutions to keep all of those potential competitors from causing the problem in the first place?
  • Can you change the way your customers interact with your physical products and services through digital means?
  • Do you have the speed, agility and technology skills to really compete at internet scale?

Answering these is the first step to re-imaging your products. Next step is to design your way to the future.

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