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Back to the future – digitizing traditional businesses

Written for FutureEnterprise by Maria Logotheti.

The story of economic progress has constantly been the story of disruption.

Old ways and methods of production have been giving way to newer ones, ever since man’s prehistoric transition from hunter-gathering to agriculture.

The pattern is always the same too. The new methods are first met with some reluctance (think John Ludd), then they see a slow increase in adoption, until finally, after their expansion has crossed a certain threshold, it accelerates and encompasses all aspects of business.

The digital disruption

The intention of the digital computer, and even more so, the advent of the internet age, only accelerated this process. While the steam engine took several centuries to spread worldwide, and electricity many decades, we already cannot imagine our life without the web — and it’s been only since 1995 or so that we’ve had it.

For all its rapid progress through, the process is far from over, as many aspects of doing business have not yet been disrupted by the internet age. Some, because they belong to old industries or are tied to special interests that are resistant to change.

Others because we can’t yet imagine a way to digitize them, even though the opportunities are often right in front of us. It took until 2008, for example, for somebody to notice that those old magazine and newspaper coupons still have some (digital) life left on them, and create Groupon.

Other’s still, because the perfect combination of technology is not there yet. Digitizing taxi service and shared rides for example was an obvious application for an internet company. But it was only made viable for companies like Uber and Lyft to appear and thrive when enough people (a) had smartphones with (b) constant wireless access to the internet.

Thus, there are three major factors that will contribute to increased digitalization in the following years:

1) Public demand

The success of ventures such as Uber, Netflix and Groupon show that the public not only is not conservative, but is actually ready to adopt digital versions of traditional services at the drop of a hat provided they offer more convenience, a lower cost, or both compared to the old models.

This demand for digital services also increases as demographics change. Soon enough, a whole global generation of people will have grown up having never experienced a pre-web and pre-smartphone world (this is already the case for kids younger than 12-15 years old). When these kids finally enter the workforce, and become the dominant consumer group, they’ll view any pre-digital business model as an archaism.

2) Technological maturity

As web and mobile technologies mature, broadband speeds increase, and devices become ever smaller and more capable, business models that were previously unfeasible to digitize, suddenly become feasible.

We already gave the example of Uber and Lyft above, but also consider how it became possible for Netflix to replace the traditional VHS rental model. Late nineties internet access wasn’t there yet, as video files are relatively large. While people have already been downloading pirated movies (over many hours or even days), and have also been streaming short, low resolution, videos for several years, it was only after broadband access had become widespread enough, and better video compression were developed to make streaming easy on the network (and on the CPU), that a service like Netflix became viable and profitable.

As high-speed network backbones improve and reach billions of consumers worldwide, including people in the developing world without access to broadband internet yet, and as connected devices appear in low enough costs and small enough sizes (e.g. to be used in the “internet of things” type scenarios), whole new categories of digital business will become possible.

It won’t be a “winner takes all” scenario either, were a big player like Uber completely controls a particular market — the multiplicity of national and local needs, and the numerous available business opportunities, ensure business opportunities for thousands of inventive entrepreneurs (including established business who want to re-invent and digitize themselves).

3) Business sense

Digitization of old business models is inevitable not just because it offers convenience or cost savings, but most importantly because it makes total economic sense.

There are real, and very tangible, benefits for early players and pioneering entrepreneurs who first move to digitize a certain domain.

It’s also a great way to bypass the gatekeepers in traditional markets — instead of competing with them on their terms, you provide a digitized version of their service that (due to economies of scale and technological factors) has higher margins, lower cost, and is more convenient for the “always online” generation.

Teaching an old dog new digital tricks

Far from being over, digitization of the economy will only accelerate in the coming decades.  The successful entrepreneurs of tomorrow won’t be those that attempt to repeat the old success stories (e.g. building yet another social platform), but those that will swiftly and accurately identify opportunities for disrupting pre-digital businesses and processes.

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