Despite a massive wave of capital investment now underway to “digitize” most aspects of business, it is a fair question to ask how long it will take before tangible financial benefits are reaped, beyond a shift of market share from some suppliers to others. That will be quite tangible, and will show up in gross revenue changes.
There are several problems. First, there is almost always a long lag between major waves of technology investment and tangible changes in productivity. Also, digital transformation can cannibalize a firm’s revenue.
“In a recent survey we conducted, companies with digital transformations under way said that 17 percent of their market share from core products or services was cannibalized by their own digital products or services,” according to researchers at McKinsey.
The point is that heavy information technology spending to “digitalize the enterprise” might not show especially tangible benefits in productivity, incremental new revenues and new products for quite some time.
What will happen is that firms will slow the rate of market share shift from attackers, while some attackers will gain market share. While that might not alter long-term productivity or growth rates in an economy as a whole or within an industry, it will tangibly affect gross revenue, profit margins and market share within an industry, amongst competitors.
The telecom analogy is the business impact of switching to fiber-to-the-home or other access network platforms. At least in competitive markets, where telcos were facing competition from cable TV operators in every core service, the decision to invest in FTTH was actually not driven so much by an expectation of overall increased revenue or market share, but fundamentally by the effort to retain overall revenues in the face of share loss.
Basically, and colloquially, the advantage of FTTH was strategic: “you get to keep your business.” The logic was that new video subscription revenues would offset loss voice market share, while FTTH would allow telcos to keep pace with cable TV operators in internet access speeds.
That might seem like an awful expensive proposition. Investing heavily to “stay where one is” is not a traditionally sound investment principle. But lost market share really does matter as well, and many new “digital enterprise” investments arguably are of that nature: invest to limit attacker market share gains.
That is not to say there will be no non-quantifiable gains for legacy or established providers. Better customer satisfaction, lower operating costs, better marketing platforms and other effects hard to capture on financial reports are possible. But the impact visible on financial reports might, in the near and medium term (several years to 10 years), mostly only be captured in a negative sense (market share not lost; market share not lost as fast), rather than in a positive sense (market share gained).
The impact for attackers might arguably be different: market share taken from existing competitors. That noted, eventually, we are going to see value in the traditional metrics of productivity growth.
Non-traditional measures, though, likely are needed to capture the benefits of innovations and value with a zero price, or reflecting quality improvements impossible to capture with price metrics.
Traditional metrics do not capture increases in well-being and consumer welfare provided by zero-price quality improvements or zero-price products that often as substitutes for positive price products.
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