How Can You Win in the Digital Economy?

As more business becomes digital, customers are expecting the ability to interact with companies anywhere and anytime. A recent survey showed that 72% of customers would replace some traditional channels with mobile apps if given the opportunity.

This means that companies need to get serious about their digital business models if they are going to win in the digital economy. If they aren’t focused on providing a great digital experience, they need to get on the ball. Otherwise, they’ll either lose business to industry competitors or to companies like Amazon.

Netflix’s experience is a cautionary tale. Despite revenue growth of 52% in 2011, it seriously annoyed customers when it separated delivery via mail and streaming, and instituted a large price hike. Consequently, it suffered a 79% drop in share price and took two years to recover from that stumble. Its customer satisfaction scores still haven’t reached 2011 levels.

However, optimizing a digital business model is easier said than done. A great model actually challenges the traditional physical business model—and the associated existing power of the current executives—because it’s focused on making the customer experience seamless across all channels. Optimizing your digital business model requires first committing to your key source(s) of competitive advantage.

Content

The first source is content, which includes the digital information consumed by customers, like product information, price, and use details. It also includes digital products, which could be things like e-books, e-saver accounts, credit cards, car loans, movies, software, etc.  Many top digital companies are adjusting their content to appeal to more customers. LexisNexis, for example, has diversified its content to add more value for lawyers. Instead of solely providing public record and case law information, it’s creating unique content—such as opinions and commentary by experts—and forging relationships with legal bloggers.

Experience

The second source is customer experience. This includes aspects like customer-facing digitized business processes, community and customer input, expertise for informed decision making, recommendations, tools, and interfaces. Amazon.com is a leader in this area, offering everything from customer reviews, links to outside retailers, and easy automated payment options—all in an integrated and seamless experience. We found that companies in the top third in terms of digital customer experience have 8.5% higher net margins and 7.8% higher revenue growth than their industry competitors.

Platform

The third source is the platform. This is how a company delivers the customer experience. It may have internal and external components and can deliver digital content as well as manage physical product delivery. The platform includes a coherent set of digitized business processes, data, and infrastructure. For example, Amazon’s internal platform includes customer data and business processes such as customer analytics and human resources. Its external platforms include the phones, tablets, and other devices used by customers to interact with the company as well as Amazon’s partnerships with delivery companies.

How good is your organization in each of these areas? Which is your strongest source of competitive advantage?

This is the first post in a two-part blog series on optimizing digital business models by Peter Weill, a senior research scientist and chair of the MIT Center for Information Systems Research (CISR), and Stephanie L. Woerner, a research scientist at MIT CISR. A related article by Weill and Woerner was published in the Spring 2013 edition of MIT Sloan Management Review, “Optimizing Your Digital Business Model.” You can read a related research briefing, “Companies with Better Digital Business Models Have Higher Financial Performance,” with free registration on the MIT CISR website.