MKTG 1420 - DIGITAL BUSINESS DEVELOPMENT (S1-2021)

Week 1 – Digital Business Introduction

Untangling the Digital World

Last updated: February 19th, 2021

1
Learning Objectives

• Digital Business
• Digital Transformation
• [Digital] Business Model
• Fundamentals of digital business
transformation: platform, ecosystem, network
effects; economics of complements

2
DIGITAL BUSINESS

3
 In-class Activity 1: Define digital business

• Form teams of 5-7 members

• Discuss:
- What is Digital Business?
- What are the key elements of
Digital Business?
- Who are the important
players?
• Present your thoughts to the class

4
4
 Digital Business
• Digital business uses technology to create new value in business
models, customer experiences and the internal capabilities that support
its core operations
• Include digital-only brands and traditional players that are transforming
their business with digital technologies

• Different definitions from industry:

‒ Accenture – “Digital businesses create competitive edges based on
unique combinations of digital and physical resources. They do thing
that others cannot and in ways that build comparative advantages.”

5
5
 Digital Business
• Different definitions from industry:
‒ Gartner – “Digital business is the creation of new value chains and
business opportunities that traditional businesses cannot offer.”
‒ McKinsey – “Digital should be seen less as a thing and more a way
of doing things.”
 Most businesses fit one or both of these points: focus on creating
value at new frontiers for their core business, or use digital technology
to drive growth, revenue and performance in ways were impossible
with traditional models

6
6
 E-Business vs. Digital Business
• E-business leaves existing
business model intact, merely
using technology to gain
efficiency or eliminate
redundancies, e.g. fill out an
application form online
7
• Digital business focuses more
on how technology allows
companies to create new value
and experiences that
differentiate companies and give
them a competitive edge over
their peers
7
 Example of DB:
Video Renting Service
Video renting service vs. Netflix
• E-business version uses technology to
manage an inventory system and mail
people DVDs
• Digital business: online streaming video
anytime anywhere, Video-on-Demand;
transform the way people view content

8
8
 Example of DB: Theme Park

MagicBand, a
wristband that use RFID
and radio to connect
with sensors in the park,
used to improve the key
elements of every
experience  seamless
experience between
digital and physical

9
9
 Example of DB: Taxi
Business

Traditional taxi vs. Uber/ Grab

• E-business version allows
customers to schedule a taxi
online
• Uber, a digital business, offers
a platform that connects people
and drivers at a massive scale
and create a new ride service
experience for the drivers

10
10
 Differentiators of Digital Business
• Use existing technologies to cut costs, gather data and provide a better
customer experience  focus on the competitive advantages that
technology gains them, e.g., provide new value to their customers
• Embrace ‘digital transformation’ and the required ‘cultural shifts’ –
willing to restructure the organization with new roles and greater input
from IT
• Explore new business models that put customer experience at the
center of digital strategy – customer-centric digital marketing. People
are willing to spend more for an exceptional customer experience 
key differentiator in the digital economy

12
12
 Growth of Digital Economy

• As people spend more money However, digital business is

online, business emphasis is more than just selling online
shifted to digital sources of
revenue and digital channels
• People are more familiar with
digital products and services,
thus companies must seek new
competitive advantages in the
digital space

13
13
DIGITAL TRANSFORMATION

14
 Digital Business vs Digital Transformation
• Many characteristics of digital business overlap with the concept of
digital transformation, which uses a customer-centric focus to guide
the implementation of digital technologies in the operational systems
and business models
• Digital business is the end goal, digital transformation is the process
that companies undergo in order to get there

15
15
 Technology Evolution

• Digital technology is
evolving quickly; not
linear development
• Opportunities arise
when there is a gap
between how
companies evolve and
the technology
potentials

Source: Wikipedia Creative Common 16

16
 Impact on the Companies
• Productivity Paradox/ Solow Computer Paradox: As more
investment is made in information technology, worker productivity may
go down instead of up. Because:
o Impact is non-productivity related
o Delayed in time
o Neutralized due to the increased complexities in companies
• Digital technology creates value for companies:
o A positive relationship between IT investments and gross margins
o Digital leaders outperform in customer loyalty and revenue growth

17
17
 Impact on the Value Chain
• Business architecture: how players - competitors, suppliers and players
from adjacent industries - are organized to deliver a certain value add to
the end users; how do they interact together; who do they interact with.
• Traditional model of business architecture  vertically integrated value
chain - an industry can be seen as a succession of many suppliers,
producers, and distributors. As a whole, they transform raw input to
market-ready material, all that one step at a time.
• Deconstruction of the Value Chain  stack-based structure - players
can compete on different key success factors in different layers; scale
at the bottom, innovation of the top. New players can disrupt
incumbents by attacking a specific portion of the whole value chain.
18
18
 Digital Transformation
• Rethink one’s business model or business process in light of the
availability and affordability of digital technology
• Apply new technologies to fundamentally change the way business is
done, which requires coordination across the entire organization
• Accelerated by AI, machine learning, Big Data, robotics

 Disrupt current businesses, and create opportunities for new business,

markets and innovation

19
 Digital Trends
• Big data: 3Vs – volume, variety, velocity
• Shift to the cloud: 4 layers of services – infrastructure as a service
(IAAS), platform as a service (PAAS), software as a service (SAAS) and
business process as a service
• Internet of Things (IOT): network of connected objects that can build an
aware, autonomous and actionable system
• Additive manufacturing: process of joining materials to make objects
• Cyber security; artificial intelligence; blockchain: distributed, digital
ledger… or a combination of trends

20
20
IBM Think Academy – Internet of Things

21
21
IBM Think Academy – Cybersecurity

22
22
 In-class Activity 2: Explore digital trends
You have watched 2 video from IBM Think Academy.
It’s your turn...
• Form teams of 5-7 members
• Explore:
- Artificial Intelligence
- Machine Learning
- Software as a Service (SAAS)
• Explain the concept to the class

23
23
 Elementsofof
9 Elements Digi.
Digi. Transformation
Transformation
Requires coordination across entire organization,
involves business culture changes

Transform customer experience Transform operational processes

• Customer understanding
• Top-line growth
• Customer touch points
Transform business models
• Digitally modified businesses
• New digital businesses
• Digital globalization
24
• Process digitization
• Worker enablement
• Performance management
Apply digital
technologies to
business models to form
new differentiating
business capabilities
24
 Digital strategy
BUSINESS MODEL

25
Video: Forces that Shape Strategy

26
Porter’s five forces model

Threat of
substitutes Then, what
happened to Nokia?

Power of Competitor Power over

suppliers rivalry buyers

Barriers
to entry
27
 Business Model

Business model is
the architecture with
which an organization
creates value for
customers, how it
delivers that value
and how it captures
that value.
(Business Model Canvas)

28
Source: Lund University, VisionMobile
Examples

29
Source: Lund University, VisionMobile
 In-class Activity 3: Explore Oral-B’s model
• Form teams of 5-7 members
• Read the article:
- Vakulenko, M 2016,
‘What can a toothbrush teach us about IoT business models?’,
TechCrunch, viewed 1 June 2019.
• Discuss the content with other friends on your table
• Answer the questions:
- What is Oral-B’s innovation regarding its business model?
- How does this business model deliver value in a new way?
- How does this model defend the business in a new way?

30
Example: Oral-B Traditional vs. Digital

31
Source: Lund University, VisionMobile
Examples: DB Models Create New Value

32
Source: Lund University, VisionMobile
FUNDAMENTALS OF DIGITAL
BUSINESS TRANSFORMATION

33
 Ecosystems

• Ecosystem is a network of organizations and individual exchanging

information and goods to create a certain value
• Companies compete against full ecosystems
• With failing transaction costs, ecosystems are more integrated and link
different layers of the value chain
 companies leverage this diversity to create more value (horizontal
partnering, vertical partnering, cross-industry partnering)

34
 Network Effects

• An additional user of a good or

service has on the value of that
product to others.
• When a network effect is present,
Network effect in
the value of a product or service
phone networks
increases according to the

number of others using it.
• There are different types of
network effects.

35
Network Effects

36
Facebook – Network Effects

37
Digital business models of
technology companies
Cases: Apple, Amazon

38
Amazon Ecosystem – Network Effects

39
Source: Lund University, VisionMobile
Amazon Traditional vs. Digital

40
Source: Lund University, VisionMobile
 In-class Activity 4: Explore Apple’s ecosystem
• Form teams of 5-7 members
• Read the article:
- Markman, J 2017, ‘Apple Grows Its Ecosystem, And Its Advantage’,
Forbes, viewed 1 June 2019,
https://www.forbes.com/sites/jonmarkman/2017/04/12/apple-grows-it
s-ecosystem-and-its-advantage/#48542bc55b4d

- Discuss the content with other friends on your table

• Answer the questions:
- What is Apple’s ecosystem? List out all the players

41
Apple iOS Ecosystem – Network Effects

Ecosystem

Interaction

Network effects
Source: Louis Prado, Moh Kamaru @ Noun Project
42
Lund University, VisionMobile
Apple Traditional vs. Digital

43
Source: Lund University, VisionMobile
 Economics of Complements
• A complement is a good that
is dependent on, or require
use of other product
• Economics of
Complements – when we
reduce the value of the
complement  the demand
of the product increases
• When the complement is
commoditized, the demand
for the product is increased

44
Source: Lund University, VisionMobile
Examples: Economics of Complements

45
Source: Lund University, VisionMobile
Driving Demand Through Network Effects
Apple and Amazon drive demand through network effects
• How to create network effects in your business?
o Identify complements to your product (e.g. apps)
o Combine complements with usage of product (e.g. bundle)
o Identify complementors (e.g. developers)
o Boost supply and demand for complements (e.g. app store)

46
 Asymmetric Business Models
Asymmetric business models are based on the economics of
complements
• A company identifies a complement in different industry
• Value is created by commoditizing that complement
• The complement is bundled with the core product of the company,
where profits are generated

47
Examples of Asymmetric Business Models
Force profit to cross industries

48
Source: Lund University, VisionMobile
Applying Asymmetric Business Models
• Create a complement in a new industry with lower Customer Acquisition
Cost (CAC)
• Combine complement with usage of your product
• Boost demand for complement by commoditizing
• Acquire users from new industry with lower CAC

49
Vietnam’ e-Conomy Overview

50
Source: Google, Temasek and Bain, e-Conomy SEA 2020
Vietnam’ e-Conomy Overview

Source: Google, Temasek and Bain, e-Conomy SEA 2020

51
Vietnam’ e-Conomy Overview

Source: Google, Temasek and Bain, e-Conomy SEA 2020

52
Vietnam’ e-Conomy Overview

Source: Google, Temasek and Bain, e-Conomy SEA 2020

53
Vietnam’ e-Conomy Overview

Source: Google, Temasek and Bain, e-Conomy SEA 2020

54
 Reference Books
• Chaffey, Dave, Author, and Ellis-Chadwick, Fiona. Digital Marketing. Seventh
ed. Harlow, England: Pearson, 2019.
• Charlesworth, Alan. Digital Marketing. 3rd ed. Vol. 1. Milton: Routledge, 2018.
• Duong, Véronique. SEO Management. 1st ed. Wiley-ISTE, 2020.
• Gupta, Sunil. Driving Digital Strategy : A Guide to Reimagining Your Business.
Boston, MA: Harvard Business Review, 2018.
• Clarke, Adam. SEO 2020: Learn search engine optimization with smart
internet marketing strategies. Simple Effectiveness Publishing, 2020.

55
Copyright © 2017 RMIT University Vietnam
56