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.”
In a digital world, things are
Speaker:infinite. The possibilities are
Speaker:infinite. The opportunities are
Speaker:infinite. The ability for
Speaker:inclusion is infinite. The
Speaker:ability to actually make money
Speaker:is infinite.
Speaker:That's Ray Wang, the founder,
Speaker:chairman, and principal analyst
Speaker:of Constellation Research, a
Speaker:leading technology research and
Speaker:advisory firm based in Silicon
Speaker:Valley. In his role at
Speaker:Constellation, Ray covers
Speaker:cutting-edge trends in big data,
Speaker:the future of work, technology
Speaker:optimization, and more. Ray's
Speaker:also the co-host of "DisrupTV,"
Speaker:a weekly enterprise technology
Speaker:and leadership webcast and
Speaker:writes a popular business
Speaker:strategy blog. Ray is an
Speaker:undisputed thought leader in the
Speaker:technology industry. He's
Speaker:spoken at almost every major
Speaker:tech conference and his
Speaker:groundbreaking, bestselling book
Speaker:on digital transformation, "
Speaker:Disrupting Digital Business,"
Speaker:was published in 2015. Ray's
Speaker:latest book, called "Everybody
Speaker:Wants to Rule the World" was
Speaker:released in July of 2021. There
Speaker:are only a handful of people who
Speaker:have much insight into the
Speaker:massive digital disruption that
Speaker:has shaped the last 20 years as
Speaker:Ray does. In this episode, Ray
Speaker:talks about the biggest lessons
Speaker:he's learned and how companies
Speaker:can learn to thrive in a world
Speaker:of digital giants or how to
Speaker:become giants themselves. This
Speaker:is Daniel Saks, co-CEO of
Speaker:AppDirect, and it's time to
Speaker:decode digital dominance.
Speaker:Welcome to "Decoding Digital," a
Speaker:podcast for innovators looking
Speaker:to thrive in the digital economy.
Speaker:I'm your host Daniel Saks and
Speaker:I'll sit down with other
Speaker:founders, CEOs, and changemakers
Speaker:to decode the trends that are
Speaker:transforming way we work. Let's
Speaker:decode. Ray, thrilled to have
Speaker:you on the show today.
Speaker:Hey, thanks for having me. I'm
Speaker:looking forward to it.
Speaker:Of course. Before we decode,
Speaker:let's talk a little bit about
Speaker:your background. I know in 2010,
Speaker:you founded Constellation
Speaker:Research, a Silicon Valley
Speaker:research firm that focuses on
Speaker:the tech sector. What led you to
Speaker:launch the research firm?
Speaker:We were looking at these trends
Speaker:around digital, and digital
Speaker:channels, and digital business.
Speaker:We realized there was a hole in
Speaker:the marketplace for a research
Speaker:advisor in this, and so we
Speaker:started talking to some of our
Speaker:early adopted clients and people
Speaker:I'd worked with in the past. I
Speaker:was in another firm called
Speaker:Altimeter. Before that, I was at
Speaker:Forester Research. We saw this
Speaker:hole in the market for high-end
Speaker:early adopters' innovation. We
Speaker:went after that research market.
Speaker:I originally actually had a
Speaker:whole bunch of theses set up.
Speaker:The week after I founded the
Speaker:firm, I got an offer from
Speaker:Harvard Business Press to write
Speaker:a book. It turned out that at
Speaker:the same time I was building the
Speaker:firm, we were writing the book.
Speaker:That's when we launched the
Speaker:first book. It was actually
Speaker:they started the firm because
Speaker:all the principals were there.
Speaker:We finally got around to writing
Speaker:the book. That was the first
Speaker:book.
Speaker:Tell us about the first book.
Speaker:The first book is Disrupting
Speaker:Digital Business. We really
Speaker:looked at where business models
Speaker:were forming and how you
Speaker:actually built digital
Speaker:businesses. We realized that
Speaker:just getting a digital channel
Speaker:was not enough. "Hey, I've got a
Speaker:website. I've got mobile. I can
Speaker:do this in some kind of
Speaker:augmented reality." That wasn't
Speaker:going to work. It needed a lot
Speaker:more. You really had to rethink
Speaker:what a business model looked
Speaker:like. You really had to think
Speaker:the role of data and how that
Speaker:played into the equation.
Speaker:Culturally, a lot of
Speaker:organizations just weren't ready.
Speaker:They didn't have digital
Speaker:artisans. They didn't have folks
Speaker:that could balance the right
Speaker:brain and left brain
Speaker:capabilities. They couldn't
Speaker:figure out science, tech,
Speaker:engineering, and math had to get
Speaker:paired with empathy, and
Speaker:ethnographers, and design, and
Speaker:creatives. It was a big
Speaker:struggle up until about 2015,
Speaker:2016 when the book launched. We
Speaker:are still early in the world of
Speaker:digital business. Then
Speaker:everything picked up from 2017
Speaker:till about 2020. You could see
Speaker:that people finally got it.
Speaker:Boards were getting excited.
Speaker:People were like, "Let's go do
Speaker:this."
Speaker:It was interesting because you
Speaker:founded Constellation in 2010,
Speaker:which was right around the time
Speaker:that I moved to the Valley in
Speaker:2009. A lot of our
Speaker:underpinnings for founding
Speaker:AppDirect, which also focuses on
Speaker:digital business and digital
Speaker:channels, as you know, was born
Speaker:out of the Great Recession and
Speaker:looking at how businesses on
Speaker:Main Street were
Speaker:disproportionally disadvantaged
Speaker:because they didn't have the
Speaker:typical access to technology and
Speaker:capital. As the service
Speaker:business models and digital
Speaker:channels, it gave opportunities
Speaker:to businesses, big and small, to
Speaker:be able to capitalize on digital
Speaker:tech. Can you speak to the
Speaker:undercurrent of what you
Speaker:observed in that time, in 2010,
Speaker:and what drove the catalyst to
Speaker:accelerate through 2015 and then
Speaker:obviously 2020?
Speaker:It's a great point. It was like
Speaker:the worst time to found a
Speaker:company. We were in the middle
Speaker:of a recession. People were like, "
Speaker:We're in trouble. This is all
Speaker:going to be chaos." People were
Speaker:leaving the Valley instead of
Speaker:moving into the Valley.
Speaker:Congratulations on your end.
Speaker:They were leaving because the
Speaker:opportunities that they thought
Speaker:they had gone away. The
Speaker:underlying current was different.
Speaker:We were going direct to consumer.
Speaker:We were moving to cloud. We had
Speaker:subscription business models.
Speaker:The fundamentals of how we
Speaker:actually distribute services and
Speaker:offerings had changed because
Speaker:the efficiency was there. I
Speaker:think a lot of startups in 2009,
Speaker:2010 have eventually become
Speaker:unicorns. They were able to
Speaker:bypass that, think big, be able
Speaker:to build long-term views, and
Speaker:they got the capital behind them
Speaker:to go do that. I think that's
Speaker:the backdrop. While we were
Speaker:doing that, we also noticed
Speaker:there were a series of folks
Speaker:that could figure out how to
Speaker:bring the business and the tech
Speaker:together. More importantly, they
Speaker:realized that every startup, we
Speaker:joke as kind of a cult. You had
Speaker:to believe in where it was going
Speaker:to go. That's how these
Speaker:organizations succeed. It's like, "
Speaker:We're going to dominate this
Speaker:market. We're going to do food
Speaker:delivery apps. We're going to do
Speaker:ride-hailing services. We're
Speaker:going to re-transform the world
Speaker:of space." All these things
Speaker:happened during that period of
Speaker:time. A lot of those ideas were
Speaker:there. I imagine, with the
Speaker:pandemic, there's going to be so
Speaker:many awesome startups in the
Speaker:next 12 to 18 months that we're
Speaker:going to be hearing about. Ideas
Speaker:that got formed, capital
Speaker:creation was already there. This
Speaker:time around, people were
Speaker:actually active. It's not that
Speaker:people weren't working. They
Speaker:were probably working twice as
Speaker:hard.
Speaker:I know you're releasing a new
Speaker:book called "Everybody Wants to
Speaker:Rule the World -- Surviving and
Speaker:Thriving in a World of Digital
Speaker:Giants." Where did the idea for
Speaker:the book come from? What are
Speaker:some of the important takeaways?
Speaker:I was watching "Real Genius."
Speaker:Towards the end of the credits...
Speaker:No, I'm just kidding. That's
Speaker:where the "Tears for Fears"
Speaker:kicks in. Here we are, talking
Speaker:about digital transformation in
Speaker:2018. We have a list of
Speaker:executives called the Business
Speaker:Transformation 150. Dion
Speaker:Hinchcliffe and I put that
Speaker:together. We try to figure out
Speaker:who are the top digital
Speaker:transformation experts and the
Speaker:project that they'll be doing.
Speaker:We have the world's largest
Speaker:digital transformation case
Speaker:study live. We've got a thousand
Speaker:stories of people that have done
Speaker:it, the ROIs, and the metrics,
Speaker:and so we looked back to some of
Speaker:these folks and said, "Hey, how
Speaker:are you doing? What's going on?"
Speaker:Well, their digital
Speaker:transformation projects were
Speaker:successful, but the overall
Speaker:strategy of turning digital
Speaker:around wasn't, and we couldn't
Speaker:figure out what it was. These
Speaker:were great projects. They were
Speaker:well-funded. You had the right
Speaker:governance. You had the right
Speaker:amount of funding. You had the
Speaker:right level of technology
Speaker:platform, but they were still
Speaker:losing. It turned out there's a
Speaker:new class of companies called
Speaker:digital giants. Yeah, we know
Speaker:them as Facebook, Apple, Netflix,
Speaker:Microsoft, Google, Amazon, but
Speaker:there's also a new class like
Speaker:Airbnb, Roblox. If you think
Speaker:about Stripe, if you think about
Speaker:Coupon, if you think about eToro,
Speaker:if you think about Robin Hood,
Speaker:something was different about
Speaker:these companies. All the food
Speaker:delivery apps, DoorDash, Uber
Speaker:Eats. Something was going on. We
Speaker:realized there were a couple of
Speaker:patterns that people were
Speaker:missing. We started looking deep.
Speaker:I started looking deep into this
Speaker:and trying to figure out why
Speaker:companies weren't succeeding. A
Speaker:great example is our favorite
Speaker:poster child for digital
Speaker:transformation, which is
Speaker:Domino's Pizza. Love it, hate it,
Speaker:order the pizza or not. The
Speaker:point being is they won the
Speaker:battle for digital
Speaker:transformation. You can order
Speaker:pizza from any device, any
Speaker:digital channel. You can call
Speaker:Alexa up and say, "Hey, I want a
Speaker:pizza." The app is so good. It
Speaker:reminds you every week, "Hey,
Speaker:you ordered one last week. Do
Speaker:you need one this week?" You can
Speaker:track the order. The pizza's in
Speaker:the oven. The pizza is 10
Speaker:minutes away. The pizza is 5
Speaker:minutes away. By the way, take a
Speaker:picture of the pizza and our AI
Speaker:engine will tell you how good
Speaker:the pizza is and what the
Speaker:quality's like. They won, right?
Speaker:But in the world of food
Speaker:delivery apps, what happens?
Speaker:What happened during the
Speaker:pandemic? The food delivery apps
Speaker:helped out small businesses.
Speaker:That would be the positive spin.
Speaker:The reality is those small
Speaker:businesses gave all their
Speaker:customers to the food delivery
Speaker:app companies, who then took the
Speaker:payment information and learned
Speaker:the preference data from these
Speaker:customers to build really large
Speaker:networks over time to create new
Speaker:digital monetization models.
Speaker:Whether it's ads, search,
Speaker:placements, or even ghost
Speaker:kitchens to the point where they
Speaker:can lose hundreds of millions of
Speaker:dollars, these small businesses
Speaker:can and Domino's can't at all.
Speaker:What does Domino's do in a world
Speaker:of food delivery apps where
Speaker:digital giants are trumping them?
Speaker:Think about that. It's huge.
Speaker:It's huge. Do I need Domino's
Speaker:anymore? You order from a food
Speaker:delivery app, not Domino's. They
Speaker:just lost the war. They won the
Speaker:battle but they just lost the
Speaker:war. Now, they could be saved.
Speaker:Here's how I would do it. You
Speaker:would actually create a separate
Speaker:entity at Domino's called
Speaker:Delivered by Domino's and help
Speaker:all the small businesses and
Speaker:give them the infrastructure
Speaker:that they use for pizza, which
Speaker:is a small market compared to
Speaker:food delivery apps, which is 15x.
Speaker:That would allow them to play in
Speaker:both markets and leverage their
Speaker:expertise to help small
Speaker:businesses succeed. They're not
Speaker:there yet. They haven't invited
Speaker:me over to talk to them, but my
Speaker:point being is they're not there
Speaker:yet. That's something they
Speaker:should think about. That's what
Speaker:this book is about. Digital
Speaker:giants do five things really
Speaker:well. They disintermediate
Speaker:customer account control. They
Speaker:compete for data supremacy. They
Speaker:build the largest networks. They
Speaker:understand digital monetization.
Speaker:They're in it for the long haul.
Speaker:Super powerful. Let's go to the
Speaker:Domino's example, right? We all
Speaker:know that over the last 10 years
Speaker:there's been a lot of narratives
Speaker:around I'm a taxi company. I'm
Speaker:going to fight Uber. I'm a hotel.
Speaker:I'm going to compete against
Speaker:Airbnb. It's crazy that, as
Speaker:much talk as they had about
Speaker:digital innovation and hiring a
Speaker:chief digital officer, we all
Speaker:know how that played out a few
Speaker:years later, especially on
Speaker:market cap and market value. Do
Speaker:you still think there's hope for
Speaker:a lot of incumbents? I guess
Speaker:traditional incumbents that
Speaker:haven't innovated yet. How do
Speaker:they fight to thrive?
Speaker:There definitely is hope. That's
Speaker:part of why we wrote the book.
Speaker:We wrote the book to say, "Hey,
Speaker:how do you figure out digital
Speaker:giants?" Then we wrote...The
Speaker:second part is, "How do you
Speaker:compete against digital giants?"
Speaker:Then, we wrote the last part
Speaker:talking about regulation and the
Speaker:regulatory framework. Yeah,
Speaker:you're a small company. You're
Speaker:going to partner. If you're an
Speaker:existing company, you're going
Speaker:to have to rethink what your
Speaker:company is about. Using the
Speaker:Domino's example, let's go
Speaker:deeper there. If they opened up
Speaker:that capability to create a
Speaker:brand-new startup, work with a
Speaker:whole bunch of partners, from
Speaker:payment providers to companies
Speaker:that can actually provide
Speaker:logistics and automation the
Speaker:back end, they could create a
Speaker:brand-new entity that's worth a
Speaker:billion dollars, two billion
Speaker:dollars of market cap on day one
Speaker:and then invite all the small
Speaker:businesses to be part of it.
Speaker:Put in $50,000. Get the small
Speaker:businesses or other enterprises.
Speaker:Put $50,000 in. We'll give you
Speaker:shares of the company. Here's
Speaker:what we're going to give you, as
Speaker:well. We have the ability to
Speaker:leverage the capabilities to
Speaker:compete against a GrubHub or a
Speaker:DoorDash. That's where you want
Speaker:to be. I'm seeing a lot of
Speaker:joint venture partnerships, as
Speaker:well, at the enterprise side
Speaker:where companies can partner with
Speaker:other cloud entities to build
Speaker:these coalitions, what we call
Speaker:joint venture startups, to be
Speaker:able to then compete. There are
Speaker:typically four themes. One is
Speaker:compete a common enemy. Maybe
Speaker:the common enemy's Amazon, or
Speaker:WeWork, or another digital giant.
Speaker:Take the whole value chain.
Speaker:Maybe you want to go into the
Speaker:entire food delivery business
Speaker:and bring people together.
Speaker:Sometimes cross-industries.
Speaker:Comms, media, entertainment, and
Speaker:telco are really the same
Speaker:because it's all about getting
Speaker:content. It's all about getting
Speaker:to distribution networks. It's
Speaker:about getting the technology
Speaker:platforms and then building the
Speaker:customers. That's the same
Speaker:business of moving digital IP
Speaker:and assets around. Then, of
Speaker:course, there's thing they can
Speaker:do that are good for a non-
Speaker:profit or a public sector where
Speaker:people can actually share that
Speaker:information. You can share that
Speaker:data and actually get better
Speaker:outreach and accomplish their
Speaker:mission.
Speaker:What's a case that you would
Speaker:speak to, let's say in the
Speaker:incumbent space, of someone who
Speaker:has done this really well?
Speaker:I think Walmart has finally
Speaker:figured it out. When they first
Speaker:created Walmart Labs in San
Speaker:Bruno, Bentonville and San Bruno
Speaker:never got along. It was kind of...
Speaker:Here's this entity trying to
Speaker:build the future Walmart. Here's
Speaker:this entity that says, "Hey, we
Speaker:don't like what you're building
Speaker:and we're never going to use it."
Speaker:Then they bought Jet. Once they
Speaker:bought Jet, I think they figured
Speaker:out they were missing something,
Speaker:but it wasn't until I saw them
Speaker:make a purchase for TikTok that
Speaker:I realized they got in the game
Speaker:finally. They have 200 million
Speaker:shoppers every week and they
Speaker:never saw them as members. They
Speaker:never saw them as being part of
Speaker:something. When they realized
Speaker:they needed a digital ad network
Speaker:through TikTok when they started
Speaker:creating Walmart+ and the
Speaker:ability to be a member... When
Speaker:they started understanding that
Speaker:they could actually use their
Speaker:membership base to create this
Speaker:massive network effect to
Speaker:deliver health care, to deliver
Speaker:other types of services, that's
Speaker:when they got it. That's where
Speaker:you can see an interesting
Speaker:turnaround over there, where
Speaker:they realized it's not just a
Speaker:tech play. They're not just
Speaker:competing against Amazon for
Speaker:commerce. They're really turning
Speaker:into a digital business over
Speaker:time.
Speaker:Decoding Digital talks a lot
Speaker:about transformation stories. I
Speaker:know a lot of your research is
Speaker:around digital transformation.
Speaker:What would you say are the most
Speaker:effective strategies that a
Speaker:traditional business can take to
Speaker:transform?
Speaker:That's a great question. We
Speaker:actually start with this one
Speaker:chapter talking about how
Speaker:organizations have to transform
Speaker:their life cycle. The life cycle
Speaker:of organization goes like this.
Speaker:When you're a company and you
Speaker:first start out, you focus
Speaker:completely on getting the best
Speaker:idea out there. You answer the
Speaker:question, why? What's my mission?
Speaker:What's my purpose? How do I get
Speaker:there and be successful? Then,
Speaker:you start focusing on brand
Speaker:value. This is all happening
Speaker:because you have a dynamic
Speaker:founder. Then, when you go out,
Speaker:you go hire the biggest team you
Speaker:can. Let's go find the top
Speaker:talent. Let's become the best
Speaker:place to work. Let's take in our
Speaker:talent networks. Then you use
Speaker:design. You create the best
Speaker:offering. What's our minimum
Speaker:viable offering? Your metric of
Speaker:success, as Alice reports. From
Speaker:there, you build out the markers.
Speaker:How do we win market share? How
Speaker:do we win customer satisfaction?
Speaker:How do we get the top customers
Speaker:in each market in every industry?
Speaker:The problem is you go public.
Speaker:Now, let's maximize the
Speaker:deployment of capital. Profit
Speaker:per sale, revenue per employee,
Speaker:EBITDA, right? Over 30 to 40
Speaker:years, these companies get stale
Speaker:and forget even why they exist
Speaker:and what they're building. You
Speaker:need some turnaround catalysts.
Speaker:You have to hit all five of
Speaker:these -- purpose, team, offering,
Speaker:markets, and capital. This is
Speaker:the secret behind it. The
Speaker:turnaround catalyst for purpose
Speaker:is an owner-operator, someone
Speaker:who comes in willing to make the
Speaker:investments turn around the
Speaker:company. The turnaround
Speaker:catalyst for team is reset the
Speaker:cap tables to get stock upside.
Speaker:The catalyst for offering is a
Speaker:brand-new exponential technology
Speaker:comes in and you use that to
Speaker:actually say, "Hey, let's put
Speaker:that into the cloud. Let's use
Speaker:AI here. Let's figure out a new
Speaker:type of augmented reality
Speaker:challenge were talking about
Speaker:earlier." Then, of course, the
Speaker:catalyst for markets is building
Speaker:partner ecosystems with multi-
Speaker:sided trading networks against
Speaker:data. Then, the last piece
Speaker:around capital is you're
Speaker:basically refreshing investment
Speaker:cycles and communicating that to
Speaker:investors so they understand
Speaker:that long-term nature of how you
Speaker:actually get there and why you
Speaker:have to invest 10x in order to
Speaker:do that. Innovation in your
Speaker:technology and, of course, in
Speaker:your teams because that's what
Speaker:the digital giants are doing.
Speaker:You've consistently mentioned
Speaker:this concept of the importance
Speaker:of the human element or people.
Speaker:That's a philosophy that we have
Speaker:at Decoding Digital and at
Speaker:AppDirect. We call them digital
Speaker:heroes, people who take the
Speaker:transformative change to make a
Speaker:difference. One of the things I
Speaker:know you do beyond Constellation
Speaker:and all of your research is
Speaker:you're the co-host of DisrupTV.
Speaker:You feature some incredible
Speaker:business leaders that are making
Speaker:huge transformations. What are
Speaker:some of the similarities that
Speaker:you see across these successful
Speaker:transformative entrepreneurs?
Speaker:They understand empathy. They
Speaker:understand. They start from that
Speaker:point. I think that's really
Speaker:important because every year I
Speaker:watch your Digital Heroes. It's
Speaker:awesome. This is where you guys
Speaker:go celebrate folks that are
Speaker:winning in the digital economy.
Speaker:These digital champions are out
Speaker:there. I think that's awesome
Speaker:because we need more of that in
Speaker:this business. What I also
Speaker:notice about your Digital Heroes,
Speaker:and the people that we celebrate,
Speaker:and the folks that show up on
Speaker:DisrupTV, and my co-host Vala
Speaker:Afshar is that we live in a
Speaker:culture of abundance, not a
Speaker:culture of scarcity. A culture
Speaker:of scarcity is where you're
Speaker:dividing the pie and you're
Speaker:thinking that, "Hey, if I do
Speaker:this then I only get this piece.
Speaker:Someone else gets that piece."
Speaker:It's like, "No. I'm trying to
Speaker:build the pie." In a culture of
Speaker:abundance, you're building the
Speaker:pie. You know that. In a digital
Speaker:world, things are infinite. The
Speaker:possibilities are infinite. The
Speaker:opportunities are infinite. The
Speaker:ability for inclusion is
Speaker:infinite. The ability to
Speaker:actually make money is infinite.
Speaker:That perspective, I think,
Speaker:underlines that. The third part
Speaker:is, these are change agents. You
Speaker:know that. You select change
Speaker:agents as your winners, I'm
Speaker:guessing. I'm making the
Speaker:assumption. You select change
Speaker:agents, people who are forces of
Speaker:nature, people who are open to
Speaker:actually helping others succeed.
Speaker:I think that's important. The
Speaker:last piece is they're digital
Speaker:artisans. They blend the right
Speaker:brain/left brain piece that are
Speaker:out there. They understand that
Speaker:hard science is important, but
Speaker:you also have to understand the
Speaker:humanities and your role in
Speaker:playing out what the
Speaker:implications of that change is
Speaker:going to be, not only just on
Speaker:your employees but also your
Speaker:other stakeholders. I see that
Speaker:as all the other characteristics.
Speaker:We've touched a wide variety of
Speaker:topics, but I really want to
Speaker:double-click and decode the
Speaker:intersection of digital channels
Speaker:and digital monetization. I know
Speaker:you've spoke to the term digital
Speaker:monetization quite a bit. We see
Speaker:the whole fintech and payments
Speaker:ecosystem penetrating every
Speaker:aspect of our economy. Can you
Speaker:speak to some of the trends in
Speaker:digital monetization and how
Speaker:every company can be a part of
Speaker:that shift?
Speaker:A great example of this, and
Speaker:people don't necessarily realize
Speaker:what's in the news is, "Oh, evil
Speaker:tech companies, those monopolies.
Speaker:We need to break them up." When
Speaker:you actually sit down and think
Speaker:about business models, and
Speaker:channels, and monetization, you
Speaker:realize those are three
Speaker:different things. In the
Speaker:digital world, in monetization,
Speaker:there's only six things you can
Speaker:do. It's ads. It's search. It's
Speaker:services. It's goods. It's
Speaker:memberships. It's subscriptions.
Speaker:We can drill in on any one of
Speaker:those if you want. Let's take
Speaker:an example of monopolies or big
Speaker:tech giants. Google, $130
Speaker:billion in digital ads, 4.1
Speaker:billion users. They're the
Speaker:dominant player in search.
Speaker:They're the 21st company to come
Speaker:out for search. It took them 10
Speaker:years to get to that dominance.
Speaker:It took them 24 years to be a
Speaker:trillion-dollar market cap. All
Speaker:right, fine. Let's look at
Speaker:Facebook. 2.8 billion users, $70
Speaker:billion in digital ad revenue.
Speaker:It took them 10 years to be
Speaker:dominant in their place,
Speaker:depending on the date that we
Speaker:actually broadcast this, this
Speaker:year they became a trillion-
Speaker:dollar market cap. Definitely
Speaker:dominant players. They all
Speaker:compete in digital ads. There's
Speaker:only two players. We're in a
Speaker:market of duopolies, right? If a
Speaker:third player were to emerge and
Speaker:to compete, and if we were to
Speaker:look at this five years ago, the
Speaker:only other player there was
Speaker:Microsoft at one billion. Google
Speaker:was 70X the size of Microsoft's
Speaker:revenue in digital ads. Today,
Speaker:that next player's Amazon, which
Speaker:is the dominant player in
Speaker:commerce. $14.1 billion in
Speaker:digital ad revenues. The only
Speaker:company Facebook and Google are
Speaker:worried about in digital ads. Is
Speaker:that a competitive market or
Speaker:what? Between three monopolies?
Speaker:The business models are
Speaker:monopolies. They've got
Speaker:monopolistic power in there, if
Speaker:you want to look at that way,
Speaker:even though they haven't
Speaker:exercised monopolistic abuses.
Speaker:Their business models are so
Speaker:different. Their channels are so
Speaker:different, yet they're all
Speaker:monetizing its digital ads. In
Speaker:the digital world, there's only
Speaker:six places to monetize. We're
Speaker:going to see a massive amount of
Speaker:competition, different business
Speaker:models to get to monetization.
Speaker:The use of every single channel
Speaker:you can possibly get to optimize
Speaker:that monetization. That's the
Speaker:inversion that's occurred
Speaker:because traditionally you sell a
Speaker:car. You have your own
Speaker:dealership. You sell the good.
Speaker:That's kind of it. No one else
Speaker:is selling cars unless they run
Speaker:a car business. Now, I'm selling
Speaker:you a subscription. I'm selling
Speaker:you an option. I'm selling you a
Speaker:membership. I'm building ads on
Speaker:top of that. I'm monetizing the
Speaker:search against that. You know
Speaker:what? It's kind of interesting.
Speaker:It's kind of exciting.
Speaker:It's super powerful. All these
Speaker:transformations are game-
Speaker:changing in terms of the overall
Speaker:economy and competition. One of
Speaker:the things that we've observed
Speaker:across our commerce platform is
Speaker:that there's five pillars that
Speaker:can be enabled in terms of the
Speaker:digital transformation. One is
Speaker:the digital ecosystem, which is
Speaker:really opening up your product
Speaker:to others and creating a
Speaker:partnership environment. Two is
Speaker:digital supply chain, so taking
Speaker:operations that would have been
Speaker:done in the physical world or
Speaker:manually and digitally
Speaker:automating them. Three is a
Speaker:digital hub, which is enabling a
Speaker:unified customer experience
Speaker:across all the products and
Speaker:services that you offer. Four
Speaker:is digital channels, which we've
Speaker:spoke quite a bit to, but
Speaker:enabling your customers to buy
Speaker:where they want when they want.
Speaker:Five is becoming a true digital
Speaker:platform where you're turning
Speaker:data into a core asset. You
Speaker:spoke to all of these different
Speaker:components. I would love to get
Speaker:your perspective on how to bring
Speaker:these different themes together
Speaker:to augment your business and
Speaker:ultimately your bottom line.
Speaker:I like your framework there. I
Speaker:think those are the core
Speaker:components for where digital is
Speaker:headed. What's missing for
Speaker:companies is not just the
Speaker:execution of that framework.
Speaker:What's missing is the boardroom
Speaker:conversation about what do we
Speaker:want to do. This is the biggest
Speaker:challenge because let's just put
Speaker:it this way, the investors of
Speaker:highly profitable companies are
Speaker:pretty much stripping them of
Speaker:their cash through share
Speaker:buybacks and dividends and
Speaker:asking for growth through
Speaker:mergers and acquisitions.
Speaker:What's really happening over
Speaker:time is that the money that's
Speaker:available for innovation is
Speaker:being stripped away. Even worse,
Speaker:they're taking that cash and
Speaker:investing in startups in the
Speaker:same businesses to disrupt the
Speaker:companies they're invested in.
Speaker:They're basically hedging
Speaker:against the companies that they
Speaker:own. In order to make any of
Speaker:these numbers work, they want at
Speaker:least a 15 percent return on
Speaker:margin. Otherwise, they feel
Speaker:like they're going backwards.
Speaker:They're expecting 30 to 50
Speaker:percent growth. You have to be
Speaker:able to reset the expectations
Speaker:in the boardroom about how to
Speaker:compete against digital
Speaker:businesses and what kind of
Speaker:runway you need for those
Speaker:investments to pan out.
Speaker:Otherwise, they're just going to
Speaker:be ATMs for other people's
Speaker:investments. That fundamentally
Speaker:is the piece that's missing for
Speaker:a lot of companies. Once you
Speaker:have that in place and you've
Speaker:got a charter and a mission to
Speaker:go after it, what you really
Speaker:want to think about is building
Speaker:what we call a data-driven
Speaker:digital network. These DDDNs
Speaker:are the 100-year platforms that
Speaker:allow you to create multi-sided
Speaker:networks that allow you to
Speaker:compete on data value chains.
Speaker:More importantly, that help you
Speaker:start building what we call the
Speaker:business graph. The business
Speaker:graph is like the social graph.
Speaker:The social graph in social
Speaker:networks, that tells you, "Hey,
Speaker:this person's connected to this
Speaker:person. Here are their actions.
Speaker:Here's what they're going to do."
Speaker:The business graph is, "Here's a
Speaker:stakeholder, a customer, an
Speaker:employee, a supplier, a partner.
Speaker:How do I connect that
Speaker:stakeholder to an action with an
Speaker:object? What do we learn about
Speaker:those patterns?" That becomes
Speaker:the competitive moat. You have
Speaker:to have that mindset of building
Speaker:that 100-year platform to get
Speaker:there.
Speaker:Last question. When you talk
Speaker:about the world of digital
Speaker:giants, and you mentioned the
Speaker:FANGs, and Facebook, and Google,
Speaker:and Amazon, do you think they're
Speaker:the giants to stay? Do you think
Speaker:that over the next couple waves
Speaker:they'll get disrupted by others?
Speaker:That's a great question. We look
Speaker:at the life cycle of what
Speaker:digital giants are going to be.
Speaker:We've seen the dawn of digital
Speaker:giants. We're in the middle of
Speaker:the rise of digital giants.
Speaker:There will be a decline and a
Speaker:dusk of digital giants. When
Speaker:that happens, their technologies,
Speaker:their capabilities are going to
Speaker:be critical infrastructure
Speaker:that's a public good. There's no
Speaker:patent on the wheel. Everyone
Speaker:gets onto the Internet. There's
Speaker:common standards on the HDMI
Speaker:cord. Those things are all
Speaker:going to be back to where we are.
Speaker:You're not going to expect them
Speaker:to forever be in their place.
Speaker:Along the way, you're going to
Speaker:see shifts. You're going to see
Speaker:acquisitions. Some companies
Speaker:fail. These companies are going
Speaker:to become middle-aged and flail
Speaker:for a little bit and then find
Speaker:their footing again. Some might
Speaker:never find their footing and
Speaker:you'll see that complete decline.
Speaker:We'll go through life, just like
Speaker:all life cycles of companies.
Speaker:Ray, thanks so much for joining
Speaker:us. Everyone, check out his book,
Speaker:Everyone Wants to Rule the World --
Speaker:Surviving and Thriving in a
Speaker:World of Digital Giants. Thanks
Speaker:again.
Speaker:Thank you so much for having me.
Speaker:I can't wait to engage.
Speaker:On the next episode of Decoding
Speaker:Digital...
Speaker:You hope that if you build it,
Speaker:they will come. That's where you
Speaker:start out in the early days.
Speaker:Without having the APIs and
Speaker:having that capability, nobody's
Speaker:ever going to come. Nobody wants
Speaker:to partner with somebody that
Speaker:has a closed ecosystem and is
Speaker:really difficult to interface
Speaker:with.
Speaker:CEO of Mindbody, Josh McCarter.
Speaker:Thanks for listening to Decoding
Speaker:Digital. Make sure you never
Speaker:miss an episode by subscribing
Speaker:to the show in your favorite
Speaker:podcast player. To learn more,
Speaker:visit decodingdigital.com. Until