Editor's note: The digital age, also sometimes referred to as the information age, is generally considered to be that time in the 21st century, starting with the widespread use of the Internet, when we shifted from traditional industry to an economy based on information and communication technologies.
By Allan Thomas Chiulli
Having selected my replacement as CEO of my fintech startup, I was looking forward to starting the next phase in my career. At 60 years old, I had no desire to retire, and besides, my wife wanted me out of the house during the day. So, living in Austin, Texas -- a great startup town -- I thought I would connect with Austin's startup community by attending startup and technology meetups.
Using the Meetup and Eventbrite smartphone apps, it was easy to set up alerts for these types of events. Most were free and the locations were easy to find. I'll never forget my first meetup -- how to start a new business in the digital age. With three startups under my belt, I walked in and sat down like a normal person. But, in my mind, I strolled in, my head held high, a Master of the Universe -- and placed myself on my throne, ready to rule.
The room filled, the door closed and the meeting began. After a few minutes, someone used a term that I didn't understand. Then, another term that I didn't recognize soon followed and then another.
Everyone was nodding in agreement and the discussion continued. After 30 minutes, I realized that I had no idea what everyone was talking about. After an hour, the meeting concluded and I trudged out, my head hanging. Instead of being a major contributor to the discussion, I could barely keep up.
I continued to attend startup and technology meetups and found this knowledge gap persisted. Finally, the conclusion was inescapable: There is something going on that I didn't grasp -- and I had better get a grip on it.
What followed was a journey of learning where I came to realize that there is a profoundly different perspective on business and value creation between those who understand the digital age and those who do not.
Further, those trapped in a pre-digital age perspective, despite their impressive accomplishments and credentials, are facing significant career challenges. Some may sidestep the issue and retire, but those remaining in the workforce will not be able to avoid these challenges. Some may have already suffered the consequences through layoffs, corporate restructures, or job eliminations.
The Five Factors of the Industrial Age
Before I began my learning journey, I looked at business and value creation through a perspective that I call the five factors of the industrial age. These five factors, which create a perspective that was quite useful in the 60-year period leading up to 2010, include:
- Manufacturing prowess
- Economies of scale
- Standardized products
- Privatized data
- Institutionalized trust
Companies created value by excelling at making things (manufacturing prowess), reducing unit costs (economies of scale), limiting choice for their customers (a standardized product menu was used to enhance economies of scale), privatizing data (companies held data behind their firewall and sold data to customers) and institutionalizing trust (we trusted large organizations and brands, such as major banks and brokerage firms).
When one examines the period from 1950 to 2010, this formula worked amazingly well. The gross national product of the U.S. was $280 billion in 1950, surpassed $1 trillion in 1969 and totaled $15 trillion in 2010. It is hard to fault today's business executives for wanting to cling to this wildly successful model of business and value creation.
The thread that runs through these five factors is an emphasis on structure to create efficiencies that lower costs. Mainframe computers, then personal computers, and then enormous networks of computers, were incorporated into most business activity. The goal was to make each process as efficient as possible. The result was an obsession with lowering costs. As a result, business executives in this era focused on how things could best be done.
Times changed with the dawn of the digital age when Apple (AAPL) - Get Report launched the iPhone in 2007. The Apple app store and Airbnb lodging platform followed in 2008. The Uber (UBER) - Get Report ride-sharing platform launched in 2009.
What changed is that Apple doesn't own the apps, Airbnb doesn't own hotels, and Uber doesn't own cars. Instead, they created platforms that enable information, creating a community where any quality providers and consumers of these services can collaborate with other members of their community. By 2010, digital transformation began to accelerate as these dramatic changes began to occur in technology, business models, and value creation.
The Impact of Digital Transformation
The transformation initiated by these changes continues to accelerate. The launch of the iPhone resulted in Nokia and Research In Motion (Blackberry) losing 95% of their market value. Meanwhile, auto rental agency Hertz's HTZ market cap sits at more than $700 million. Airbnb's value was estimated at $35 billion a year ago, to $40 billion, far above Hilton Worldwide's (HLT) - Get Report $19.4 billion.
None of the down-on-their-luck brands suffered from horrible scandals or were in the press for the wrong reasons. None had serious product recalls. They simply soldiered on trying to create value in their business. None seemed willing to accept that the rules of business and value creation had changed.
As companies suffer from failing to respond to the digital age, is there any doubt that people who fail to respond to the digital age will also suffer? One aspect of companies successfully responding to the challenges of the digital age is their shedding their non-digital employees. This process often includes many of their older workers.
Five Factors of the Digital Age
What are the new rules of the digital age? These rules were not set down anywhere that I could find, but through my digital learning experience, I was able to develop a digital perspective that I call the five factors of the digital age:
- Reduce friction
- Enhance the user experience
- Create collaboration
- Build community
- Generate a two-sided network effect
Products and services should be easy to sign up for, easy to learn, easy to use, and easy to drop if unsatisfied (reduce friction). The products should offer a superior alternative at a lower price (enhance the user experience, also known as UX). For example, Uber offered an alternative to the mobile jail cells that comprised taxis in San Francisco by offering a clean and new car to ride in, a friendly driver, and lower prices than the taxis. The result was that riders preferred the friendly Uber experience to the dredges of the existing taxi world and increasingly voted with their dollars to use Uber in place of taxis.
Users and providers work together in determining product development and new features to enhance value for the provider and consumer (create collaboration). Collaboration often results in the ability of the user to customize a product or service to their liking -- a key to enhancing the user experience.
Users begin to rely on one another for advice. As we look at the star rating for a Lyft driver or an Airbnb host (create community). The creation of community replaces the institutionalized trust and major brands of the Industrial Age. Diners do not look at Zagat for restaurant ratings as much as they read guest reviews on Yelp (YELP) - Get Report that are written by ordinary people that the reader does not know.
Then, as the first four factors begin to play out, an unexpected benefit occurs -- the two-sided network effect. When Uber was launched, the market for taxi services in San Francisco was estimated at $130 million per year. However, Uber improved the taxi experience such that more people were willing to rely on taxis (as long as it was Uber). More demand for Uber services brought on more Uber drivers. More Uber drivers shortened the wait time for rides, which increased demand. This increased demand brought on still more Uber drivers. Then, Uber cut prices, which created more demand for rides that brought on still more Uber drivers. In a few years, the market for taxi services in San Francisco (including Uber) tripled to $390 million. This flywheel effect of an improved user experience creating more demand, leading to more supply and more supply facilitating more demand is called a two-sided network effect -- a staple of the digital age.
The Aspiration of the User Experience
There is a thread that runs through the five factors of the digital age: The factors are aspirational. They reflect a hope and ambition to achieve some good. The emphasis is on the what and why, not the how. The what and why are incorporated into the user experience, and the digital technologies that are employed to achieve these goals comprise the how. Thus, success in the digital age centers on prioritizing and elevating people and their user experience. The latest technology is a means to this end.
The key to the digital age is to abandon the mindset and perspective of the industrial age (the structure and emphasis on the how -- the primacy of efficiency above all) and to realize that how a company engages with their customers and the user experience that a company provides is always at the core of creating value in the digital age.
A company's brand now transcends their logo, tag line, and colors; a company's brand is their promise to their customers -- how customers will enjoy and benefit from the user experience that the company provides. These customers then tell all their friends -- by word of mouth and through social media -- about the amazing experience and great value a company provided them. This customer advocacy is the nirvana of the digital age.
Efficiency Is Still Important
The elevation of the user experience above efficiency does not mean efficiency is not important. Rather, it means that the goal of increasing efficiency should not come at the expense of enhancing the user experience. Greater efficiency can lead to an enhanced user experience -- look at Amazon. (AMZN) - Get Report They use artificial intelligence, big data and robots to enhance their user experience while also becoming more efficient and lowering costs. Amazon's cost savings are then passed on to the consumer.
Altogether, the five factors of the digital age provide a perspective through which we can better understand the motivations and actions of companies as they seek to create value in the digital age. The next time you scratch your head wondering how to avoid a layoff, or launch your encore career, evaluate your contributions and actions through the lens of these five factors. Perhaps, then, you'll find the transition to your new opportunity has you feeling a lot more like the Master of the Universe.
About the author: Allan Thomas Chiulli is the author of Winning in the Digital Tornado which provides an easy path for everyone to prosper in the digital age. He is also the co-founder of DigElearn, an online digital learning membership experience at www.DigElearn.com. Both resources empower people wanting to protect and strengthen their career amidst changing technology.