Your Digital Source of Competitive Advantage: Where to Start?

When it comes to optimizing digital business models, there are three sources of competitive advantage: content, customer experience, and platform. However, very few businesses excel in all three areas.

Just think about Trip Advisor. Is it known for amazing customer experience or a stellar platform? Neither—it’s largely known for its content. What about USAA? It’s known for customer experience. The Commonwealth Bank of Australia is known for its platform. It’s not unusual for companies to excel in just one or possibly two areas. (Apple is known for combining a great platform with comparable customer experience.)

These are strategic decisions on the parts of those companies, as each source of competitive advantage has different effects on performance. It’s not yet necessary to be a leader in all three areas.

However, our research shows that it is important to excel in at least one source. In each of the industries we surveyed, we found that the top financial performers scored higher when it came to digital business model effectiveness. For example, in the financial services industry, the top third of financial performers had respectively 29%, 35%, and 26% better content, experience, and platform scores than those in the bottom third.

So how do you select an area of focus for your digital business model? The answer depends on your goals.

Content

We’ve found that companies that are strongest in content have faster growth. Digital is all about buzz and offering something new to customers, so content is critical. If your goal is to drive new digital revenue, we recommend focusing on digital content.

Customer Experience

If your goal is cross-selling and driving more revenue per customer, it’s better to focus on improving your customer experience.

Platform

Other companies may prioritize efficiency and flexibility. In this case, it’s best to focus on building and exploiting digital platforms. Interestingly, our study showed that the better platform companies also had lower costs.

Which source of competitive advantage is right for your company?

This is the second 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.