Digital Transformation is Safer When it is "Smaller"

There is a good argument to be made that digital transformation is so prone to failure that a safer strategy is avoid "big" goals and instead concentrate on numerous "smaller" goals, even when the outcomes from many smaller projects do not necessarily transform firm earnings or profits in any directly-measurable way.

By definition, failure on a small project does not jeopardize firm survival.

By some estimates digital transformation spending will top $6.8 trillion by 2023. But those investments are “often made without seeing clear benefits or ROI,” says Tomas Chamorro-Premuzic, chief innovation officer at ManpowerGroup, a professor of business psychology at University College London and at Columbia University, 

Some argue digital transformation failure rates are 70 percent to perhaps 80 percent or more. To be sure, that failure rate includes projects that fail to reach their objectives, but might arguably have some benefits. Still, some argue 73 percent of such projects fail to provide any business value at all.  

While that might seem outlandish, it is well within the parameters of failure rates for less-complex projects such as information technology initiatives, which also fail at about those rates. 

And digital transformation is nothing if not hugely more complex. In fact, it might be so complicated that no single technology change, in any one part of the business, actually captures the magnitude of necessary changes. 

While 85 percent of CEOs accelerated digital initiatives during the pandemic, most can’t articulate their overall strategy and progress beyond that they made a tech investment,” say consultants at Deloitte. 

“If CEOs can’t say their digital transformation resulted in new business advantages or adaptability, then they haven’t really transformed,” Deloitte consultants note. 

source: Deloitte  

Crypto at the Inflection Point?

With the caveat that important consumer technology products do not always succeed, the cryptocurrency adoption curve does presently seem to track use of the internet. Cryptocurrency adoption seems to be a classic S curve.  

source: Wells Fargo 

The important takeaway is that cryptocurrency might be at an inflection point. 

source: World Economic Forum

U.S. Home Broadband Prices Have Fallen in Every Speed Tier Since 2016

U.S. home broadband prices have fallen since 2016, according to a study by Broadband Now. 

Broadband Now says that the average price for internet in each speed bucket starting in the first quarter of 2016 compared to the fourth quarter of 2021 has fallen:

• The average price decreased by $8.80 or 14% for 25 – 99 Mbps.

• The average price decreased by $32.35 or 33% for 100 – 199 Mbps.

• The average price decreased by $34.39 or 35% for 200 – 499 Mbps.

• The average price decreased by $59.22 or 42% for 500+ Mbps.

source: Broadband Now

RFOG as a Bridge to Other PONs

A recent report by Point Topic notes that at the end of 2021, Virgin Media O2 had gigabit per second capability across its entire 15.5 million home footprint.

Openreach passed 5.8 million fiber-to-home locations while three million U.K. premises were passed by independent fiber networks.

Virgin Media premises passed by Gig1 and RFOG broadband technologies

	Premises passed, Dec 2021	Premises passed, Sep 2021	Premises added, Sep – Dec 2021
Docsis 3.1	15,484,086	11,554,960	3,929,126
RFOG	1,002,857	979,457	23,400

source: Point Topic

One point of interest is the access platform Virgin O2 uses for about a million of its passings. Called “radio frequency over glass,” RFOG is useful for compatibility with hybrid fiber coax networks, especially when a node split has to be implemented. 

So RFOG is a passive optical network and is a way to implement DOCSIS services over a FTTH network. 

Although in principle RFOG--as a PON--might be a protocol a cable operator could run longer term, it does not appear that Virgin Media O2 will do so when it converts its HFC and RFOG networks to function as a wholesale network, in addition to supporting its own needs. 

The value of RFOG is its backwards compatibility with HFC. That will not have value for new wholesale customers likely to be most interested in using the wholesale network to support internet access operations. 

And few of those potential customers are likely to have a need for backwards compatibility with HFC or the DOCSIS protocols.

Stablecoins and Disintermediation

Should they come into wider use, stablecoins could disintermediate other financial middlemen. Used either as a store of value or a medium of exchange, stablecoins could allow users to  settle transactions near-instantaneously without using an intermediary that facilitates settlements. 

source: Federal Reserve 

Many note the value for cross-border settlements, which take time and can be costly. “Firms are also using institutional stablecoins to near-instantly move cash across their subsidiaries to manage internal liquidity, and to facilitate wholesale transactions in existing financial markets, such as intraday repo transactions,” say Gordon Y. Liao and John Caramichael in a paper developed for the U.S. Federal Reserve.  “And finally, because public stablecoins are programmable and composable, they are used heavily in decentralized, public blockchain-based markets and services, known as decentralized finance or DeFi.”

Stablecoins are digital currencies that peg their value to an external reference, typically the U.S. dollar, and are recorded on distributed ledger technologies such as blockchain. 

The potential disintermediation is clear: “If stablecoins were to see broad adoption throughout the financial system, they could have a significant impact on the balance sheets of financial institutions,” say Liao and Caramichael. 

Digitization or Transformation? Sometimes it is a Nuance

Digitalization, the use of digital tools, often is hard to clearly distinguish from digital transformation, the creation of new business models. 

Think of digitalization as the application of technology to the way work gets done. Then digital transformation generally refers to new possible ways of earning money, in the final analysis. 

Are e-commerce businesses or business units an example of digitalization or transformation? Most observers might consider Netflix and Amazon examples of transformation. It might be more subtle. 

Netflix used technology to change its business from subscriptions to a “movie rental” service to an “on-demand video streaming” service. Still, even at the beginning, digitized ordering was used, if fulfillment was physical. 

Keep in mind that on-demand services also were available as part of linear video subscription services that also became “digitalized” prior to the advent of high-definition TV. Though not as elegant or easy to use as Netflix streaming, on-demand delivery was not unique to Netflix. 

Perhaps the big innovation is all-on-demand access, where legacy linear video still is mainly scheduled programming. In that sense, the big Netflix transformation was the shift to 100-percent “on-demand access,” not streaming as such, or internet delivery as such. It is a debatable point. 

Amazon likewise shifted retailing from a place-based activity to online ordering and physical fulfillment. Digitalized ordering was an innovation, to be sure. But “mail order” and catalog shopping had been  well established, before Amazon. 

Amazon digitalized the ordering interface and fulfillment (delivery rather than in-store pickup). Amazon virtualized retailing. Still, in a sense, that is similar to Netflix and its shift to “on-demand” ordering. 

Still, models have changed. Netflix now is a major force in content creation, rivaling the legacy studios. Netflix does not “merely” distribute content; it creates original content. 

Likewise, Amazon was a key leader of  the “cloud computing as a service” shift. AWS now drives Amazon’s overall profits. So Amazon is not just an e-tailer. It is a huge computing services provider. 

We can debate whether streaming or e-tailing are transformations or digitalizations. 

What seems incontestable is that Netflix emerging as a content creator and owner, and Amazon emerging as a computing services giant, are transformations. 

Work processes in most organizations are “digital” to some extent, and quite extensive in most enterprises. 

Customer interactions with firms now are largely “digital,” a new survey sponsored by MuleSoft and conducted by Vanson Bourne and Deloitte Digital finds.

source: MuleSoft 

That does not mean the firms have transformed their revenue models and created new products

Apple iPhone with Integrated Payment Terminal Features Illustrates Market Disruption "From Outside"

If it happens that Apple iPhones can act as contactless payment terminals, it will provide a clear example of something that happens in technology-shaped competitive markets: redefinition of market boundaries. 

source: Amazon 

Colloquially, “firms that used to be outside one’s business wind up inside the business.” Telcos once competed (briefly) only against other telcos. Then it became more common to hear telco executives saying they “compete with Google.” That was often a bit of hyperbole, but then Google became an internet service provider, a mobile services provider, a messaging provider, a voice services provider, a linear video provider. 

One might argue that Netflix “had no business” in subscription TV. It was a competitive disruptor of the videocassette rental business, after all. But the very improvements in home broadband that made internet access the key revenue driver fo the fixed networks business also allowed Netflix to change its model. 

Streaming now undermines the legacy TV subscription business. 

source: Strategy& 

Earlier, telcos found they were competing with Skype in international long distance, while Facebook became a major messaging platform limiting demand for text messaging. 

The bigger change came with the choice of internet protocol as a telco next-generation platform. That choice instantly broke the application and service “gatekeeper role” of any telco. No longer can a telco dictate what lawful applications can be used by customers of any telco’s internet access service. 

To be sure, telcos still control the creation and offering of managed services on the closed telco platform. But most applications now are created for internet access, not as managed services on a telco platform. 

To reiterate, deregulation and use of the internet have similar impact on industry structure: they enable new entrants from “outside the industry” to enter a market. 

To be sure, transaction processor Square (now “Block”) has allowed iPhones to become credit card readers by adding a plug-in or wireless piece of hardware. 

source: Square 

The move by Apple to incorporate the function directly into the iPhone removes the boundary between “transaction processing using credit cards” (payments) and “phones.”

To be sure, redefining boundaries is one growth strategy for any firm in any industry. In any competitive industry with weak barriers to entry, high profits will attract new entrants. That leads to downward pressure on prices. 

But technology substitution also happens, a new form of competition where the traditional boundaries between industries become porous. 

Also, the internet now functions much as deregulation does: it not only creates the potential for more competition, but also competition from possibly unexpected contestants. 

As we have seen more unstable markets since the telecom wave of deregulation and privatization that began in the 1980s, we have seen even more disruption in the internet era. 

Use of an Apple iPhone as a payment processing terminal is one example of how competitive markets, often enabled by technology, erase industry boundaries. When that happens, attacks by new competitors outside the industry become more common.