Digital cage fight: Surviving in the no holds barred future

Industry incumbents are in a battle royal with outsiders that don’t fight by the same rules—but don’t have all the answers, either.

by Lance Ealey

The future is up for grabs in most industries, and the hands reaching for it extend far beyond traditional sector boundaries. It’s a time of fundamental change for incumbent players as they watch digitally savvy attackers rush in to capture market share and value from their industry revenue and profit pools.

While some characterize this topsy-turvy dynamic as the “new normal” of global commerce, in many ways it feels more like a blip in time during which traditional business models “unfreeze” and assume efficient new dimensions. That realization effectively stamps a sell-by date on the strategies enterprises use to formulate in response to current disruptions. In other words, acting now makes a lot more sense than waiting until later.

A high-tech, high-risk contest

In this fight, every enterprise faces challenges. Incumbents must deal with a high-tech contingent that brings new moves and ways of competing to the arena. At the same time, after the disruptive smoke clears, the digital elite need to master the often prosaic but critical realities of competing in new industries, which could be more difficult than some players realize.

For example, a bleeding-edge innovator like Tesla clearly dazzles with its ability to flash software updates to all its cars on the road via over-the-air capabilities—the epitome of digital automotive wherewithal—and to introduce its Autopilot semi-autonomous driving capabilities on production cars so quickly. But the company stumbled badly when ramping up its Model 3 electric vehicle.[1] The culprit? According to one source, the problem seems to involve steel body welding processes.[2] Welding steel, even the high-strength varieties used today, usually ranks as a car-making 101 prerequisite in the industry, so why is Tesla struggling? For one thing, its prior models featured aluminum bodies, so it has little or no experience with steel bodies at scale. For another, the company’s highly automated approach to vehicle production and assembly carries major risk.[3] 

Nonetheless, it would be foolish for traditional automakers to discount Tesla’s real achievements. The company has already successfully launched new premium vehicles featuring new, largely untried powertrains in a new (i.e., de-mothballed) plant with a new workforce and new high-tech manufacturing technologies. Attempting any two of these simultaneously would give even the gutsiest automaking veteran a bad case of heartburn. Tesla successfully did them all, in the process breaking a lot of industry taboos, including doing away with franchised dealerships where possible. It will be interesting to see how rapidly the company overcomes this challenge. 

Learning to walk the industry walk

Tesla’s not alone in making missteps. For example, some insurance industry players believe Google recently abandoned its Google Compare online car insurance initiative because the company didn’t understand the business.[4] Apple has reportedly scaled back its ambitions to develop and build its own brand of autonomous cars, opting instead to market its autonomous driving technologies to other car makers.[5] And Microsoft’s purchase of Nokia’s smartphone business ended in a $7.6 billion write off—almost the entire cost of the acquisition.[6]  

In each case, digital players apparently failed to understand the operational realities of competing in these industries. Likewise, Amazon decided to withdraw quietly from the US ticketing business because it underestimated the difficultly it would have competing with Ticketmaster, which reportedly locks in exclusivity agreements with major venues by paying large upfront fees.[7]

While every company makes mistakes, one critical difference that favors digital players is their willingness to abandon ship quickly when projects take on water, instead of continuously attempting to bail them out. The penchant for recognizing failure and quickly moving on from it in some ways mimics the digital development cycle itself, with its emphasis on the freedom to fail and minimum viable products. This “fail-fast, learn and move on” cycle enables companies to extract insights from failures and apply them to other projects without overinvestment. For example, while Amazon withdrew quickly from the ticketing business in the US and UK, some reports indicate it could be considering ways to relaunch the business in the UK. The new platform would reportedly employ new technologies, including Alexa, its artificial intelligence-enabled personal assistant, sometime in 2019.[8] If that doesn’t work, the company could abandon it, too—and the industry—or develop another minimum viable product offering and try yet again.

Understanding the challenges

Few players on either side of the digital divide have had pain-free experiences. Today, many incumbents are pursuing acquisitions to obtain the digital skills and talent they need in this new environment. Companies are investing in digital startups or purchasing them outright for the talent they hold. But talent isn’t a fungible commodity. Instead, it’s comprised of individuals with different needs and desires who might think working for a startup or unicorn is cool. Laboring as a cog in a huge corporate enterprise that isn’t fluent in “digital” might in comparison seem decidedly less so. In response, numerous incumbents have located their new digital hubs in places like Silicon Valley and San Francisco to attract the best and the brightest talent. Unfortunately, some of that talent is now reportedly fleeing to other locales due to stratospheric housing costs.[9]    

For digital players, beyond the many operational tar pits they need to negotiate, a few challenges fall into the “unknown unknowns” category. For example, artificial intelligence is generating an outsized buzz that appears to consist of equal parts optimism and abject fear. Add robots and automation into the mix and the concern seems to rise exponentially, with digital necromancers no less accomplished than Tesla’s own Elon Musk warning against sailing too far into those dragon-infested waters.[10] 

With all the uncertainty in the air, expecting the unexpected appears to be the name of the game these days. Heck, Amazon might even open a bricks and mortar book store someday…oh, wait—it already has![11]

Copyright © 2018 Ealey. All rights reserved.