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Decoding Digital Dominance: Ray Wang on Thriving Among Digital Giants
Episode 287th September 2021 • Decoding Digital • AppDirect
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What does it take to compete against digital giants? The Founder, Chairman, Principal Analyst, and CEO of Constellation Research Inc., Ray Wang, joins this episode to reveal the key takeaways from his latest book, Everybody Wants to Rule the World: Surviving and Thriving in a World of Digital Giants. Ray discusses the current landscape of digital transformation, what the challenges are, and how to follow in the footsteps of today’s digital giants.

 Press play to hear Ray’s thoughts on…

The Need for “Digital Artisans”

“The last piece is the digital artisans. They blend the right brain left brain pieces that are out there. They understand that hard science is important, but you also have to understand the humanities and your role in playing out what the implications of that change is going to be, not only just on your employees, but also your other stakeholders.”

Building the Business Graph

“The business graph is like the social graph, the social graph in social networks that tells you, 'hey, this person's connected. This person here, their actions, there's what they're going to do.' The business graph is a stakeholder, a customer employee, a supplier, or a partner. And how do I connect that stakeholder to an action with an object? And what do we learn about those patterns? And that becomes the competitive mode.”

Creative Acceleration

“Creative acceleration actually happens with a common set of ideas, the density of ideas and the random collisions that occur. That's kind of how this technology innovation has been built. It's just these networks of networks that get passed on.”

Transcripts

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In a digital world, things are

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infinite. The possibilities are

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infinite. The opportunities are

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infinite. The ability for

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inclusion is infinite. The

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ability to actually make money

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is infinite.

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That's Ray Wang, the founder,

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chairman, and principal analyst

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of Constellation Research, a

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leading technology research and

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advisory firm based in Silicon

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Valley. In his role at

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Constellation, Ray covers

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cutting-edge trends in big data,

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the future of work, technology

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optimization, and more. Ray's

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also the co-host of "DisrupTV,"

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a weekly enterprise technology

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and leadership webcast and

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writes a popular business

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strategy blog. Ray is an

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undisputed thought leader in the

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technology industry. He's

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spoken at almost every major

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tech conference and his

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groundbreaking, bestselling book

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on digital transformation, "

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Disrupting Digital Business,"

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was published in 2015. Ray's

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latest book, called "Everybody

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Wants to Rule the World" was

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released in July of 2021. There

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are only a handful of people who

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have much insight into the

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massive digital disruption that

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has shaped the last 20 years as

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Ray does. In this episode, Ray

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talks about the biggest lessons

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he's learned and how companies

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can learn to thrive in a world

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of digital giants or how to

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become giants themselves. This

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is Daniel Saks, co-CEO of

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AppDirect, and it's time to

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decode digital dominance.

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Welcome to "Decoding Digital," a

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podcast for innovators looking

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to thrive in the digital economy.

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I'm your host Daniel Saks and

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I'll sit down with other

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founders, CEOs, and changemakers

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to decode the trends that are

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transforming way we work. Let's

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decode. Ray, thrilled to have

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you on the show today.

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Hey, thanks for having me. I'm

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looking forward to it.

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Of course. Before we decode,

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let's talk a little bit about

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your background. I know in 2010,

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you founded Constellation

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Research, a Silicon Valley

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research firm that focuses on

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the tech sector. What led you to

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launch the research firm?

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We were looking at these trends

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around digital, and digital

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channels, and digital business.

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We realized there was a hole in

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the marketplace for a research

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advisor in this, and so we

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started talking to some of our

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early adopted clients and people

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I'd worked with in the past. I

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was in another firm called

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Altimeter. Before that, I was at

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Forester Research. We saw this

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hole in the market for high-end

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early adopters' innovation. We

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went after that research market.

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I originally actually had a

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whole bunch of theses set up.

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The week after I founded the

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firm, I got an offer from

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Harvard Business Press to write

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a book. It turned out that at

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the same time I was building the

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firm, we were writing the book.

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That's when we launched the

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first book. It was actually

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they started the firm because

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all the principals were there.

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We finally got around to writing

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the book. That was the first

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book.

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Tell us about the first book.

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The first book is Disrupting

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Digital Business. We really

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looked at where business models

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were forming and how you

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actually built digital

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businesses. We realized that

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just getting a digital channel

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was not enough. "Hey, I've got a

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website. I've got mobile. I can

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do this in some kind of

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augmented reality." That wasn't

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going to work. It needed a lot

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more. You really had to rethink

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what a business model looked

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like. You really had to think

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the role of data and how that

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played into the equation.

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Culturally, a lot of

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organizations just weren't ready.

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They didn't have digital

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artisans. They didn't have folks

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that could balance the right

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brain and left brain

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capabilities. They couldn't

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figure out science, tech,

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engineering, and math had to get

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paired with empathy, and

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ethnographers, and design, and

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creatives. It was a big

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struggle up until about 2015,

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2016 when the book launched. We

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are still early in the world of

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digital business. Then

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everything picked up from 2017

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till about 2020. You could see

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that people finally got it.

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Boards were getting excited.

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People were like, "Let's go do

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this."

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It was interesting because you

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founded Constellation in 2010,

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which was right around the time

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that I moved to the Valley in

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2009. A lot of our

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underpinnings for founding

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AppDirect, which also focuses on

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digital business and digital

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channels, as you know, was born

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out of the Great Recession and

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looking at how businesses on

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Main Street were

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disproportionally disadvantaged

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because they didn't have the

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typical access to technology and

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capital. As the service

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business models and digital

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channels, it gave opportunities

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to businesses, big and small, to

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be able to capitalize on digital

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tech. Can you speak to the

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undercurrent of what you

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observed in that time, in 2010,

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and what drove the catalyst to

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accelerate through 2015 and then

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obviously 2020?

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It's a great point. It was like

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the worst time to found a

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company. We were in the middle

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of a recession. People were like, "

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We're in trouble. This is all

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going to be chaos." People were

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leaving the Valley instead of

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moving into the Valley.

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Congratulations on your end.

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They were leaving because the

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opportunities that they thought

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they had gone away. The

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underlying current was different.

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We were going direct to consumer.

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We were moving to cloud. We had

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subscription business models.

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The fundamentals of how we

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actually distribute services and

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offerings had changed because

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the efficiency was there. I

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think a lot of startups in 2009,

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2010 have eventually become

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unicorns. They were able to

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bypass that, think big, be able

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to build long-term views, and

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they got the capital behind them

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to go do that. I think that's

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the backdrop. While we were

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doing that, we also noticed

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there were a series of folks

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that could figure out how to

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bring the business and the tech

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together. More importantly, they

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realized that every startup, we

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joke as kind of a cult. You had

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to believe in where it was going

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to go. That's how these

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organizations succeed. It's like, "

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We're going to dominate this

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market. We're going to do food

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delivery apps. We're going to do

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ride-hailing services. We're

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going to re-transform the world

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of space." All these things

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happened during that period of

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time. A lot of those ideas were

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there. I imagine, with the

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pandemic, there's going to be so

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many awesome startups in the

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next 12 to 18 months that we're

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going to be hearing about. Ideas

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that got formed, capital

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creation was already there. This

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time around, people were

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actually active. It's not that

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people weren't working. They

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were probably working twice as

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hard.

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I know you're releasing a new

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book called "Everybody Wants to

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Rule the World -- Surviving and

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Thriving in a World of Digital

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Giants." Where did the idea for

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the book come from? What are

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some of the important takeaways?

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I was watching "Real Genius."

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Towards the end of the credits...

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No, I'm just kidding. That's

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where the "Tears for Fears"

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kicks in. Here we are, talking

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about digital transformation in

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2018. We have a list of

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executives called the Business

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Transformation 150. Dion

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Hinchcliffe and I put that

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together. We try to figure out

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who are the top digital

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transformation experts and the

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project that they'll be doing.

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We have the world's largest

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digital transformation case

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study live. We've got a thousand

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stories of people that have done

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it, the ROIs, and the metrics,

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and so we looked back to some of

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these folks and said, "Hey, how

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are you doing? What's going on?"

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Well, their digital

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transformation projects were

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successful, but the overall

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strategy of turning digital

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around wasn't, and we couldn't

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figure out what it was. These

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were great projects. They were

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well-funded. You had the right

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governance. You had the right

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amount of funding. You had the

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right level of technology

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platform, but they were still

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losing. It turned out there's a

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new class of companies called

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digital giants. Yeah, we know

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them as Facebook, Apple, Netflix,

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Microsoft, Google, Amazon, but

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there's also a new class like

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Airbnb, Roblox. If you think

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about Stripe, if you think about

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Coupon, if you think about eToro,

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if you think about Robin Hood,

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something was different about

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these companies. All the food

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delivery apps, DoorDash, Uber

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Eats. Something was going on. We

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realized there were a couple of

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patterns that people were

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missing. We started looking deep.

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I started looking deep into this

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and trying to figure out why

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companies weren't succeeding. A

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great example is our favorite

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poster child for digital

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transformation, which is

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Domino's Pizza. Love it, hate it,

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order the pizza or not. The

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point being is they won the

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battle for digital

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transformation. You can order

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pizza from any device, any

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digital channel. You can call

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Alexa up and say, "Hey, I want a

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pizza." The app is so good. It

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reminds you every week, "Hey,

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you ordered one last week. Do

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you need one this week?" You can

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track the order. The pizza's in

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the oven. The pizza is 10

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minutes away. The pizza is 5

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minutes away. By the way, take a

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picture of the pizza and our AI

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engine will tell you how good

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the pizza is and what the

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quality's like. They won, right?

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But in the world of food

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delivery apps, what happens?

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What happened during the

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pandemic? The food delivery apps

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helped out small businesses.

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That would be the positive spin.

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The reality is those small

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businesses gave all their

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customers to the food delivery

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app companies, who then took the

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payment information and learned

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the preference data from these

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customers to build really large

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networks over time to create new

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digital monetization models.

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Whether it's ads, search,

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placements, or even ghost

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kitchens to the point where they

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can lose hundreds of millions of

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dollars, these small businesses

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can and Domino's can't at all.

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What does Domino's do in a world

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of food delivery apps where

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digital giants are trumping them?

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Think about that. It's huge.

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It's huge. Do I need Domino's

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anymore? You order from a food

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delivery app, not Domino's. They

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just lost the war. They won the

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battle but they just lost the

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war. Now, they could be saved.

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Here's how I would do it. You

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would actually create a separate

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entity at Domino's called

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Delivered by Domino's and help

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all the small businesses and

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give them the infrastructure

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that they use for pizza, which

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is a small market compared to

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food delivery apps, which is 15x.

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That would allow them to play in

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both markets and leverage their

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expertise to help small

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businesses succeed. They're not

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there yet. They haven't invited

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me over to talk to them, but my

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point being is they're not there

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yet. That's something they

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should think about. That's what

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this book is about. Digital

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giants do five things really

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well. They disintermediate

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customer account control. They

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compete for data supremacy. They

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build the largest networks. They

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understand digital monetization.

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They're in it for the long haul.

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Super powerful. Let's go to the

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Domino's example, right? We all

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know that over the last 10 years

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there's been a lot of narratives

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around I'm a taxi company. I'm

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going to fight Uber. I'm a hotel.

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I'm going to compete against

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Airbnb. It's crazy that, as

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much talk as they had about

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digital innovation and hiring a

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chief digital officer, we all

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know how that played out a few

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years later, especially on

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market cap and market value. Do

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you still think there's hope for

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a lot of incumbents? I guess

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traditional incumbents that

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haven't innovated yet. How do

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they fight to thrive?

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There definitely is hope. That's

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part of why we wrote the book.

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We wrote the book to say, "Hey,

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how do you figure out digital

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giants?" Then we wrote...The

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second part is, "How do you

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compete against digital giants?"

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Then, we wrote the last part

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talking about regulation and the

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regulatory framework. Yeah,

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you're a small company. You're

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going to partner. If you're an

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existing company, you're going

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to have to rethink what your

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company is about. Using the

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Domino's example, let's go

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deeper there. If they opened up

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that capability to create a

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brand-new startup, work with a

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whole bunch of partners, from

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payment providers to companies

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that can actually provide

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logistics and automation the

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back end, they could create a

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brand-new entity that's worth a

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billion dollars, two billion

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dollars of market cap on day one

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and then invite all the small

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businesses to be part of it.

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Put in $50,000. Get the small

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businesses or other enterprises.

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Put $50,000 in. We'll give you

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shares of the company. Here's

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what we're going to give you, as

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well. We have the ability to

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leverage the capabilities to

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compete against a GrubHub or a

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DoorDash. That's where you want

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to be. I'm seeing a lot of

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joint venture partnerships, as

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well, at the enterprise side

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where companies can partner with

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other cloud entities to build

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these coalitions, what we call

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joint venture startups, to be

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able to then compete. There are

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typically four themes. One is

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compete a common enemy. Maybe

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the common enemy's Amazon, or

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WeWork, or another digital giant.

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Take the whole value chain.

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Maybe you want to go into the

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entire food delivery business

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and bring people together.

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Sometimes cross-industries.

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Comms, media, entertainment, and

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telco are really the same

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because it's all about getting

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content. It's all about getting

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to distribution networks. It's

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about getting the technology

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platforms and then building the

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customers. That's the same

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business of moving digital IP

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and assets around. Then, of

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course, there's thing they can

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do that are good for a non-

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profit or a public sector where

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people can actually share that

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information. You can share that

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data and actually get better

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outreach and accomplish their

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mission.

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What's a case that you would

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speak to, let's say in the

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incumbent space, of someone who

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has done this really well?

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I think Walmart has finally

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figured it out. When they first

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created Walmart Labs in San

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Bruno, Bentonville and San Bruno

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never got along. It was kind of...

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Here's this entity trying to

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build the future Walmart. Here's

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this entity that says, "Hey, we

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don't like what you're building

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and we're never going to use it."

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Then they bought Jet. Once they

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bought Jet, I think they figured

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out they were missing something,

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but it wasn't until I saw them

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make a purchase for TikTok that

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I realized they got in the game

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finally. They have 200 million

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shoppers every week and they

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never saw them as members. They

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never saw them as being part of

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something. When they realized

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they needed a digital ad network

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through TikTok when they started

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creating Walmart+ and the

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ability to be a member... When

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they started understanding that

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they could actually use their

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membership base to create this

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massive network effect to

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deliver health care, to deliver

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other types of services, that's

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when they got it. That's where

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you can see an interesting

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turnaround over there, where

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they realized it's not just a

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tech play. They're not just

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competing against Amazon for

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commerce. They're really turning

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into a digital business over

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time.

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Decoding Digital talks a lot

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about transformation stories. I

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know a lot of your research is

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around digital transformation.

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What would you say are the most

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effective strategies that a

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traditional business can take to

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transform?

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That's a great question. We

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actually start with this one

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chapter talking about how

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organizations have to transform

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their life cycle. The life cycle

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of organization goes like this.

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When you're a company and you

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first start out, you focus

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completely on getting the best

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idea out there. You answer the

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question, why? What's my mission?

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What's my purpose? How do I get

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there and be successful? Then,

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you start focusing on brand

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value. This is all happening

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because you have a dynamic

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founder. Then, when you go out,

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you go hire the biggest team you

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can. Let's go find the top

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talent. Let's become the best

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place to work. Let's take in our

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talent networks. Then you use

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design. You create the best

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offering. What's our minimum

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viable offering? Your metric of

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success, as Alice reports. From

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there, you build out the markers.

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How do we win market share? How

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do we win customer satisfaction?

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How do we get the top customers

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in each market in every industry?

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The problem is you go public.

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Now, let's maximize the

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deployment of capital. Profit

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per sale, revenue per employee,

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EBITDA, right? Over 30 to 40

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years, these companies get stale

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and forget even why they exist

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and what they're building. You

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need some turnaround catalysts.

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You have to hit all five of

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these -- purpose, team, offering,

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markets, and capital. This is

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the secret behind it. The

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turnaround catalyst for purpose

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is an owner-operator, someone

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who comes in willing to make the

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investments turn around the

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company. The turnaround

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catalyst for team is reset the

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cap tables to get stock upside.

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The catalyst for offering is a

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brand-new exponential technology

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comes in and you use that to

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actually say, "Hey, let's put

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that into the cloud. Let's use

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AI here. Let's figure out a new

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type of augmented reality

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challenge were talking about

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earlier." Then, of course, the

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catalyst for markets is building

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partner ecosystems with multi-

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sided trading networks against

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data. Then, the last piece

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around capital is you're

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basically refreshing investment

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cycles and communicating that to

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investors so they understand

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that long-term nature of how you

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actually get there and why you

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have to invest 10x in order to

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do that. Innovation in your

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technology and, of course, in

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your teams because that's what

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the digital giants are doing.

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You've consistently mentioned

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this concept of the importance

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of the human element or people.

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That's a philosophy that we have

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at Decoding Digital and at

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AppDirect. We call them digital

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heroes, people who take the

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transformative change to make a

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difference. One of the things I

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know you do beyond Constellation

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and all of your research is

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you're the co-host of DisrupTV.

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You feature some incredible

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business leaders that are making

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huge transformations. What are

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some of the similarities that

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you see across these successful

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transformative entrepreneurs?

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They understand empathy. They

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understand. They start from that

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point. I think that's really

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important because every year I

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watch your Digital Heroes. It's

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awesome. This is where you guys

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go celebrate folks that are

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winning in the digital economy.

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These digital champions are out

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there. I think that's awesome

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because we need more of that in

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this business. What I also

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notice about your Digital Heroes,

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and the people that we celebrate,

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and the folks that show up on

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DisrupTV, and my co-host Vala

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Afshar is that we live in a

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culture of abundance, not a

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culture of scarcity. A culture

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of scarcity is where you're

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dividing the pie and you're

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thinking that, "Hey, if I do

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this then I only get this piece.

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Someone else gets that piece."

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It's like, "No. I'm trying to

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build the pie." In a culture of

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abundance, you're building the

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pie. You know that. In a digital

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world, things are infinite. The

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possibilities are infinite. The

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opportunities are infinite. The

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ability for inclusion is

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infinite. The ability to

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actually make money is infinite.

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That perspective, I think,

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underlines that. The third part

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is, these are change agents. You

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know that. You select change

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agents as your winners, I'm

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guessing. I'm making the

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assumption. You select change

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agents, people who are forces of

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nature, people who are open to

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actually helping others succeed.

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I think that's important. The

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last piece is they're digital

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artisans. They blend the right

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brain/left brain piece that are

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out there. They understand that

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hard science is important, but

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you also have to understand the

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humanities and your role in

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playing out what the

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implications of that change is

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going to be, not only just on

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your employees but also your

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other stakeholders. I see that

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as all the other characteristics.

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We've touched a wide variety of

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topics, but I really want to

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double-click and decode the

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intersection of digital channels

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and digital monetization. I know

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you've spoke to the term digital

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monetization quite a bit. We see

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the whole fintech and payments

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ecosystem penetrating every

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aspect of our economy. Can you

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speak to some of the trends in

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digital monetization and how

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every company can be a part of

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that shift?

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A great example of this, and

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people don't necessarily realize

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what's in the news is, "Oh, evil

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tech companies, those monopolies.

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We need to break them up." When

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you actually sit down and think

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about business models, and

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channels, and monetization, you

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realize those are three

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different things. In the

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digital world, in monetization,

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there's only six things you can

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do. It's ads. It's search. It's

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services. It's goods. It's

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memberships. It's subscriptions.

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We can drill in on any one of

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those if you want. Let's take

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an example of monopolies or big

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tech giants. Google, $130

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billion in digital ads, 4.1

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billion users. They're the

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dominant player in search.

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They're the 21st company to come

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out for search. It took them 10

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years to get to that dominance.

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It took them 24 years to be a

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trillion-dollar market cap. All

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right, fine. Let's look at

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Facebook. 2.8 billion users, $70

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billion in digital ad revenue.

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It took them 10 years to be

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dominant in their place,

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depending on the date that we

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actually broadcast this, this

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year they became a trillion-

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dollar market cap. Definitely

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dominant players. They all

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compete in digital ads. There's

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only two players. We're in a

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market of duopolies, right? If a

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third player were to emerge and

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to compete, and if we were to

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look at this five years ago, the

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only other player there was

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Microsoft at one billion. Google

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was 70X the size of Microsoft's

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revenue in digital ads. Today,

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that next player's Amazon, which

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is the dominant player in

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commerce. $14.1 billion in

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digital ad revenues. The only

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company Facebook and Google are

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worried about in digital ads. Is

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that a competitive market or

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what? Between three monopolies?

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The business models are

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monopolies. They've got

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monopolistic power in there, if

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you want to look at that way,

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even though they haven't

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exercised monopolistic abuses.

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Their business models are so

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different. Their channels are so

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different, yet they're all

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monetizing its digital ads. In

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the digital world, there's only

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six places to monetize. We're

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going to see a massive amount of

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competition, different business

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models to get to monetization.

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The use of every single channel

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you can possibly get to optimize

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that monetization. That's the

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inversion that's occurred

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because traditionally you sell a

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car. You have your own

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dealership. You sell the good.

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That's kind of it. No one else

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is selling cars unless they run

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a car business. Now, I'm selling

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you a subscription. I'm selling

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you an option. I'm selling you a

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membership. I'm building ads on

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top of that. I'm monetizing the

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search against that. You know

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what? It's kind of interesting.

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It's kind of exciting.

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It's super powerful. All these

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transformations are game-

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changing in terms of the overall

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economy and competition. One of

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the things that we've observed

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across our commerce platform is

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that there's five pillars that

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can be enabled in terms of the

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digital transformation. One is

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the digital ecosystem, which is

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really opening up your product

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to others and creating a

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partnership environment. Two is

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digital supply chain, so taking

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operations that would have been

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done in the physical world or

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manually and digitally

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automating them. Three is a

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digital hub, which is enabling a

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unified customer experience

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across all the products and

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services that you offer. Four

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is digital channels, which we've

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spoke quite a bit to, but

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enabling your customers to buy

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where they want when they want.

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Five is becoming a true digital

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platform where you're turning

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data into a core asset. You

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spoke to all of these different

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components. I would love to get

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your perspective on how to bring

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these different themes together

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to augment your business and

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ultimately your bottom line.

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I like your framework there. I

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think those are the core

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components for where digital is

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headed. What's missing for

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companies is not just the

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execution of that framework.

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What's missing is the boardroom

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conversation about what do we

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want to do. This is the biggest

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challenge because let's just put

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it this way, the investors of

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highly profitable companies are

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pretty much stripping them of

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their cash through share

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buybacks and dividends and

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asking for growth through

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mergers and acquisitions.

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What's really happening over

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time is that the money that's

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available for innovation is

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being stripped away. Even worse,

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they're taking that cash and

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investing in startups in the

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same businesses to disrupt the

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companies they're invested in.

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They're basically hedging

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against the companies that they

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own. In order to make any of

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these numbers work, they want at

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least a 15 percent return on

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margin. Otherwise, they feel

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like they're going backwards.

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They're expecting 30 to 50

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percent growth. You have to be

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able to reset the expectations

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in the boardroom about how to

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compete against digital

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businesses and what kind of

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runway you need for those

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investments to pan out.

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Otherwise, they're just going to

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be ATMs for other people's

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investments. That fundamentally

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is the piece that's missing for

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a lot of companies. Once you

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have that in place and you've

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got a charter and a mission to

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go after it, what you really

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want to think about is building

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what we call a data-driven

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digital network. These DDDNs

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are the 100-year platforms that

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allow you to create multi-sided

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networks that allow you to

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compete on data value chains.

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More importantly, that help you

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start building what we call the

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business graph. The business

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graph is like the social graph.

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The social graph in social

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networks, that tells you, "Hey,

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this person's connected to this

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person. Here are their actions.

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Here's what they're going to do."

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The business graph is, "Here's a

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stakeholder, a customer, an

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employee, a supplier, a partner.

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How do I connect that

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stakeholder to an action with an

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object? What do we learn about

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those patterns?" That becomes

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the competitive moat. You have

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to have that mindset of building

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that 100-year platform to get

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there.

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Last question. When you talk

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about the world of digital

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giants, and you mentioned the

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FANGs, and Facebook, and Google,

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and Amazon, do you think they're

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the giants to stay? Do you think

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that over the next couple waves

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they'll get disrupted by others?

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That's a great question. We look

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at the life cycle of what

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digital giants are going to be.

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We've seen the dawn of digital

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giants. We're in the middle of

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the rise of digital giants.

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There will be a decline and a

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dusk of digital giants. When

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that happens, their technologies,

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their capabilities are going to

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be critical infrastructure

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that's a public good. There's no

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patent on the wheel. Everyone

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gets onto the Internet. There's

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common standards on the HDMI

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cord. Those things are all

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going to be back to where we are.

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You're not going to expect them

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to forever be in their place.

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Along the way, you're going to

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see shifts. You're going to see

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acquisitions. Some companies

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fail. These companies are going

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to become middle-aged and flail

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for a little bit and then find

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their footing again. Some might

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never find their footing and

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you'll see that complete decline.

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We'll go through life, just like

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all life cycles of companies.

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Ray, thanks so much for joining

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us. Everyone, check out his book,

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Everyone Wants to Rule the World --

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Surviving and Thriving in a

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World of Digital Giants. Thanks

Speaker:

again.

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Thank you so much for having me.

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I can't wait to engage.

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On the next episode of Decoding

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Digital...

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You hope that if you build it,

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they will come. That's where you

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start out in the early days.

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Without having the APIs and

Speaker:

having that capability, nobody's

Speaker:

ever going to come. Nobody wants

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to partner with somebody that

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has a closed ecosystem and is

Speaker:

really difficult to interface

Speaker:

with.

Speaker:

CEO of Mindbody, Josh McCarter.

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Thanks for listening to Decoding

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Digital. Make sure you never

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miss an episode by subscribing

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to the show in your favorite

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podcast player. To learn more,

Speaker:

visit decodingdigital.com. Until