A defining example of digital disruption is the dramatic transformation the music industry has experienced in the last decade. In 2010, sales of recorded music in physical formats earned $431 million in retail sales in Australia. But fast-forward to 2015 and those sales have plummeted to just $205 million.
These figures, from the report Australian Entertainment & Media Outlook 2015-2019 by PricewaterhouseCoopers (PwC), illustrate a story very familiar to anyone in the media, entertainment and publishing industries. It is the story of digital disruption and few businesses – if any – will escape its impact.
The internet, smartphones, apps and other digital technologies have delivered access to a massive range of new services and entertainment options, and seen the creation of entirely new business models.
True, it’s been a wonderful time for consumers, but it’s not been so great for the traditional service providers. One recent example is the fight between Australia’s taxi industry and the rapidly rising ride-sharing service, Uber. Taxis have existed for centuries – Uber is only six years old, and has now raised more than US$8.2 billion from investors.
For business leaders, the key question is not ‘if’ they will experience digital disruption, but ‘when’ and how to respond.
WHY ARE DIGITAL DISRUPTERS DIFFERENT?
United States-based digital media consultant Robert Tercek believes the reason why digital companies can grow so quickly is their ability to write software that automates the processes of running a business and providing a service.
“That digital domain – that automated part of the economy – is growing twice as fast as the regular economy,” says Tercek. “A company that figures it out is going to grow at twice the pace, and five to 10 years out that company is going to be dominant.”
Digital disruption has been fuelled by the alignment of several planets. First, the internet and smartphones have put brands and services into the palms of our hands – literally. It used to be that business success meant getting in front of a customer. Now, it means being on the screen they’re looking at, preferably through an interactive app.
Second, cloud computing means anyone who wants to launch a digital start-up can do so cheaply and quickly test their idea.
The internet has also trained users to expect instant access to any service at any time, raising customer service expectations. This means any business whose customer service is poor, or where there is little barrier to customers leaving, is ripe for disruption.
Allan Burdekin, director of industry development at Optus, says a big part of why disrupters disrupt is their ability to extract value from the massive amounts of data generated online every day, and use it for a business advantage. “The true differentiator of digital disrupters is that they understand that data is like a natural resource and they are mining it all the time to get those insights,” he observes.
And the number of data sources available to businesses is set to explode as more and more sensors and devices are connected into what is now known as the Internet of Things.
INNOVATE OR PERISH
It’s tempting to think digital disruption will be confined to only those sectors that have already experienced it. But new players Uber (with taxis) and Airbnb (with travel and accommodation) show that any industry can be disrupted. Looking at the lessons learnt in those disrupted industries is useful.
The problems that beset the music, film and newspaper industries were in part due to their core products being easily copied and shared online. While manufacturers of other goods might feel more secure, the emergence of 3D printing already poses a challenge for makers of goods such as toys, and that threat will expand as 3D print quality improves and costs decrease.
For manufacturing, the value of an item will shift from its physical rendering to the actual design itself, which can be easily copied and shared.
The problem is, as businesses are reduced to a set of plans and processes in the digital age, any business can be copied in its entirety.
“Given the rate at which you can copy and the short time you have to exploit whatever competitive advantage you have, the implication is you have to build up your skills in innovation as a discipline within a business,” explains Megan Brownlow, the editor of PwC’s Australian Entertainment & Media Outlook. “That is now a must-have. It is a heavy line item that needs to be resourced and considered at the senior management level.”
When Tercek was asked how digital disruption might impact an American company that makes products for dentistry, he identified 3D imaging replacing the making of dental moulds, and for 3D printing to be used to create fillings or replacement teeth.
Both outcomes might be preferred by patients and dentists, but could be disastrous disruptions for the makers of moulding compounds and dentures.
Tercek’s advice was for the company to invest in developing software to support different processes in digital dentistry, or to invest in miniature electronic technology that can be fitted inside teeth to monitor mouth health or other variables – especially as this technology is already in development through a set of projects in Taiwan.
“All the value is going to be in the imaging and in the software,” Tercek explains. “There is a tonne of information in the mouth, we just don’t see it that way. It’s got to be a data-rich environment. But I would argue that just about every industry is data rich.”
A big factor in digital disruption is how software automates many jobs that were previously done by people.
IBM’s Watson Analytics technology, for example, simulates human thinking using a technology known as cognitive computing. It can analyse endless amounts of unstructured data, such as legal documents or medical reports, to make accurate recommendations. It’s now being used as a decision support tool for cancer treatments, as it can access information on more programs and clinical trials than a human could ever remember.
This same technology is also being used in the wealth management division of the ANZ bank, and at Victoria’s Deakin University as a tool to answer student queries. While this frees up humans from performing these low-level tasks, it also effectively extinguishes jobs.
And the consequences could be dire. In its Australia’s Future Workforce? report, the Committee for Economic Development of Australia (CEDA) predicts that more than five million jobs, or 40 per cent of the Australian jobs that exist today, have a moderate to high likelihood of disappearing in the next 10 to 15 years due to technological advancements such as automation. As well as the manufacturing sector, these changes will impact traditional white collar sector jobs such as accounting and healthcare.
Tercek, however, is confident that humans will remain adept at making themselves useful, regardless of how smart we let the machines become.
“This is not the first time in history that technological unemployment has come up,” Tercek says. “It comes up every time there is a new technological breakthrough. Robots and automation come in and destroy jobs, which sounds bad for those workers, but it is great for everything else because automation makes products cheaper and more widely available.”