A seminar at Wolfson College by @ireneclng, with an abstract:
Digitisation is radically changing the way we buy and experience products and services. As such, companies need to understand the implications of digital connectivity, from the need to design and scale future business models to better fit ‘lived lives’, to creating value as well as increasing worth so that new markets can emerge.
Following her Wolfson@50 lecture on Nov 18, Irene Ng will hold a seminar based on her highly-acclaimed book Creating New Markets in the Digital Economy. During this half-day event, Irene will speak on the future of the Digital Economy, applying concepts from the book. Amongst the topics addressed during the event are: “Where is the Internet-of-Things (IoT)’s impact on industry”; “What are the business/financial models in data and IoT”; “Where will markets of the future be?”; “How will lives be changed in an age of ubiquitous technology and data?”. Irene will also provide her take on current issues on the state of the digital economy, the dominance of Internet businesses, the state’s role, the empowerment of individuals and the HAT (hubofallthings.com).
Irene Ng is Senior Member of Wolfson and Professor of Marketing and Service Systems, and Director of the International Institute for Product and Service Innovation at the University of Warwick.
This digest was created in real-time during the meeting, based on the speaker’s presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, by David Ing.
[Irene Ng]
Wrote and published books in 2013 with digital rights
Then a publisher bought the hardcopy rights, with the condition the PDF version be removed
15 years as entrepreneur, 15 years in academia
Undergraduate in physics
Graduate work in marketing, mathematical economics
Published in operations and supply chain, marketing, economics, sociology
A mutt (multidisciplinary)
Need to have a discipline, a home, a mother ship where a lot of the contributions come back from in the peer community
An academic or entrepreneur? An academic, as know whose opinions matter
A lot of work is with startups, an angel investor
Work meshes practice and entrepreneurial
No sacred cows, can play with everything
Used to own Empress Cruise Lines, sold it, and then had to sue them
Had become an academic
An offshore casino on the high seas, Panamanian flag, Liberian
Hauled everything into court, could then write a case study
When work in markets and business markets, two strong types of researchers:
ON-IT researchers: describe, create insight and reflect what’s happening in the market, rear view mirror looking back
This is what we have, when there’s lots of data
IN-IT designers and engineers: who want to shape, invent, create markets, and shape
Now, there’s more IN-IT than ON-IT
Attendees have an instinct that something is changing
IN-IT research uses ON-IT research, and thinking about how the future is shaped
But IN-IT research has no data, so how do you move forward when you don’t know
A lot of this research is this way
Three most fundamental aspects of the book that may not come across that strongly
Interact more on Facebook than LinkedIn or Twitter
Value, variety and viability: The three tenets of creating markets
Viability is the firm perspective
1. Value: a lot of papers on academia.edu
Integrative framework of value, summation of the works on value
Have inherited a Smith world, 500 years of trade: pay something, get something
Is that normal? Yes, for 1000 years
Before that, it was barter (and there wasn’t currency)
Currency and money is only since the last 1000 years
From a historical point of view, why do we have money?
Today, no gold standard, and have quantitative easing, which is based on perception
Blockchain might change that
Then want to think about the most basic things
Adam Smith: Produce and trade, that’s where the wealth of nations come from
Buying shoes, happier when buying them when using them (which is unusual)
Normally, car, music, massauge, it’s the use — a value-induced approach
Book talk about goodness
Plato’s cave
If you think about value just in terms of “good”, then there’s no transcending thought
Have to say what is good, to whom
Can’t create value for everyone: it’s to who, of something
It’s not a scalar, it’s vector
What is good for the firm isn’t good for the customer: Not just the value of coffee, but where it was created
To whom, about what … and where was it created
Processually: where was this created? how was it created?
Book talks about the way value is created, from the user creating it, with agency
Coffee has agency with the person drinking it
If no one wants to drink the coffee, no agency
If the cup doesn’t lend itself to drinking, have to pair with some affordance: affording drinking
What companies do: they don’t create value, they enable it with some attribute
Also value when it’s created and where it’s created
To create the value, need an outcome
Outcome is different from value
Not thirsty is an outcome
The way to create that outcome can be different
If value isn’t the same as the outcome, then the goodness to achieve the outcome isn’t value
Use phone, book, pen: how many times do we think that this is good? We don’t
Value isn’t something that you’re going to evaluate all of the time
This is why a lot of value is described in a phenomenological sense … which makes sense in an ontological perspective
Firms would like to ask you: do you value this?
e.g. satisfaction measures, pressing button from good to bad
Level of cognition comes in the way we evaluate things
P-value: can’t be measured (phenomenological)
Access value: when you are asked
Link between satisfaction and value?
So, value is co-created
Customer resources to cocreate
Buy products to get benefits
Steve Vargo and Bob Lusch: Service-dominant logic
Cited 6000 times since publication in 2004, not just in business school, but by engineering, operations and innovations researchers
Goods-dominant logic: e.g. producing a mobile phone as an end it itself
However, many old phones sitting in draw without a function
Only a person can realize and enhance it: if phone the stockbroker, don’t thank Apple or Vodaphone
However, when get lost, may thank Google Maps for showing the way
Attribution theory
The value is created by me, but the firm has no control, yet the firm can advertise the value
Premier Inn: You can get a good night’s sleep or your money back — how does that happen, who is coming into my room to ensure I’m getting a good night’s sleep?
There’s a blank between the attribute of outcome and value
We have subjugated ourselves away from the economy. Why?
Mind has closed in: process of checking in, sleeping — you think Premier Inn is true, they can promise outcome
This is because all activities and practices are opaque, part of the phenomena, not in the GDP
Subjugated human activities
Don’t think about drinking coffee, because think it’s free … to you
You bought half of the product (the bed), and you contribute the other half (in your mind) — which is cocreation
You allow hotels to advertise this
More and more of our practices are become less opaque, in a digital world
While you can’t tell what I’m doing with this coffee, moving to a world where you can
Digitization: could be a half a million people know that the coffee is brown, and it’s hot
When the cup is digitalized, would know
It’s all connected on the Internet
Everyone could be known, e.g. with posting on Facebook or Google
An innovation that drops in this space can change things
Resources are used in the co-creation, could be mine
Symmetry is important
It’s in the world, but not in the GDP
Broadband: when we go on the Internet, do search
Dictionary, thesaurus, calculator are all in the GDP: 15GBP
Not completely reflected in GDP
So many things rapidly bundled, have to think about translation of value in the GDP
Cocreation: what is the resource?
Driving a car
Car has a lot of attributes, many driven by the resources of the firm
But then driving, the consequences and desired end state is a lot of resources of the driver
If think about getting from getting value, what about autonomous cars?
Autonomous cars are think in value from the firm’s side
However, there is the experience of driving the car, the status symbol of owning a car
In every dimension of goodness, some of it comes the firm, but a lot of it is how I feel
So, value creation is multidimensional
Innovation, in all products, has some things that can be taken over by the firm
To get from A to B, could take the bicycle
The role of the firm is seen in the light of human beings, and practices we have towards outcomes
Practices are opaque
However, as soon as outsource to a driver, it enters the GDP: you stop driving, someone else drives you
Where is value created? What is opaque?
In the 1970s, 1980s, became a service economy
It’s not because we went into services, it’s because companies outsourced their internal functions
e.g. BMW outsourced cafeteria, manufacturing
Thus, became the biggest driver of the economy
In the future, as more digital comes in, it will become less opaque, and GDP will increase
In the old days on the phone, no one cared what you were browsing
Now, information from Safari goes to Apple
They can monetize your data
It appears in the GDP
Does this help?
Farmer example:
Farmer, harvest and packages
If eats apples, uses resources
If she has a toothache, no outcome
[break, need to speed up]
Context important
How does a firm create form and content, if it doesn’t know what the context will be to the customer
Value is contextual. Resources are also contextual.
Babies smile
Do you take a picture with a phone or a camera?
The phone is an available resource, the camera is in the drawn
Things become value in context, because they enable resources for cocreation in context for outcomes
SD Logic: value becomes
Resource-Based View of the firm, doesn’t mean that all resources are the same
The resource is a resource if it helps us: it’s not the camera’s fault or the company’s fault that they don’t use it
Proliferation of cameras and phones, are in context
The camera and phone could be functionally the same, but not provide the same value in context
People forget that when you create value in context, that means that it’s not created when you buy it (or put it in a drawer)
Beer in the larder, not yet created value
Sunday with the sports, drink it — there’s the value
But if you didn’t buy it and chill it, could have someone come to the door with chilled beer, and would pay double
Willingness to pay creates where market is
Difference in competence (differently from the way companies it the word): What are our resources?
If we think about the stuff around it, we create value with a small subset of ourselves
That’s small potential, but it’s not being used
2. Variety: The most importance concept to be tagged with value, especially in an age where digitilization is coming through
Human life is lived in variety
(Heideggerian in philosophy)
Our lives are so clockwork: get the train to go to work
Most designed things are designed around routine
Variety isn’t usually good in routine … but that’s what living is
Thinking about the use of things leads everyone to think about routine
Able to lift the coffee cup, able to use the pen
Anyone outside of the norm is marginalized, not by society, but sometimes by the products we use: routinized products
We then marginalize individuals who can’t exercise the routines
Can you have a product that understands variety?
Engineer would say: no, you need to make a different product
But not making a variety in products — it’s variety in use
Every day, I use my mug in a different way … or my shoe in a different way
Variety in use — something that product designers don’t like, as can’t specify requirements
But we make tradeoffs
If want to make you a cup of coffee, you can specify any way you would drink it: today with milk and sugar
But then replace with a vending machine, have to think about about the variety it provides
Products create rigidity
The world started with services, and then became rigid
Now wake up, first reach for the phone, which was different from 10 years ago when there was more variety
What is a product? Jaeyoon Yu says it’s a template for behaviour
We, as human beings, are templates
Our templates don’t have enough variety
The more variety the template gives you, the more the market rewards you
Phone used to be a simple template, now it’s so much more
It’s fragmenting
On a smartphone, there’s lots of ways to communicate, now
Our ability to connect, not just between selves but between things, has gone hyper
It works for some people, and others become overwhelmed
Used to be happy with iPod for music, but when then connected, it’s not enough
Generativity theory: human beings request the next step, when they experience things
This is caused by contextual variety: the context of using it
Variety is the latent need, the manifestation of latent demand for future products
Resonance chamber: a music hall, where the ceiling has movable plates, where depending on the music, it changes its acoustics
That’s a product that can change its capability in context of use
Do we have a mug that can change itself into a wineglass when you pour wine into it? Not yet
However, there are new materials coming, could change in context
A human being can serve you with coffee, but can’t scale
A product can scale, but is rigid
It’s not a surprise with that McDonalds serves you with people … but now they’re coming up with a vending machine (which is complex, as it tries to understand your variety).
A vending machine makes a person modularize behaviour
e.g. if want bun toasted, could ask for it; now have to push button by button
A lot of firms don’t understand need firms to change, but don’t know about context
3: Viability – the value for the firm
Have to think about revenues and costs
Only one product that has a single cost — space travel
Other markets are based in variety
Transfer pricing is an interesting problem: who subsidizes whom, on a plane? Economy subsidize business class, or reverse? Both
If had all business class, prices would drop
If had all economy class, no subsidy
Have to think about both scale and revenue
Candy Crush: Transactions are, at most, a dollar … but there’s a billion of them
Insulin patch: thinking the customer should pay more? Maybe should pay less. Now 100,000 customers, but if had a target to pay less if customers scale up to 500,000
The power of scale: possible by material products, e.g. 3-D printers
Why not have USB all around the house? Would bring the price down
If there’s a digital infrastructure around it, would get even more scale
In 1996, when iPhone came out, how many segments of phones did Nokia have? 10 or 20?
iPhone initially created one phone, collapsing 10 segments into one
In business school, thought customization cost more
iPhone shatters assumption, as the individual customizes the phone
Apple is the large phone company, they were lucky that they created the platform, with the Apple brand in the premium game
Apple didn’t plan on this: Steve Jobs doesn’t like software, he wasn’t building a phone, he was building a computer, Apple doesn’t do software
Steve Jobs says he doesn’t build software, Bill Gates does
Created a platform that can be totally personalized … although they haven’t decided on size
Apple is trying to learn how a mother would use a big phone differently from a daughter who uses a small phone
Only we know our variety, our use context, how we’re going to use it, when we’re going to use it
Just give us the platform
Almost everything is going that way
Don’t want to do standardization
Could we do this with a car, e.g. a dashboard that is fully customizable?
Every industry locks in path dependency, will be hard to change
Now we have the three core concepts of Value, Variety and Viability, in the book
We’ll talk around that now
[This is from yesterday’s lecture]
Irene in 1965, 2 years old, black and white photo
1965 in UK
M4 opens
Permissive society begins, divorce rates goup
Sound of Music released
Beatles, Help
First Grateful Dead concert
Quantities of scale in industrialization
U.S. recovering from 1950s standardization
What is the economic model: how does what, we gets what?
Business model is about the way the company does business: value proposition, experience of product, the way we buy products
Individual-centered view of the world (more right that wrong)
It’s users that drive markets
Technology doesn’t disrupt markets, it’s the users
There are lots of technologies that never reach you, when it’s created in a garage
Markets begin when you take out your wallet
In a computer lab, Apple is always old technology, but they create new markets
Humans buy capabilities:
Hammer: Need, tool, capability
Firms supply the tools
Human applaud, by paying
Firms seem to hate companies that make profits, but yet we pay them
Margins are different issue from paying: we applause
We have the agency to pay, sometimes without question
Are we buying tools or capabilities?
Need, hungry; tool, food; capability is caveman hunting
Today, still hungry; more tools as choices of food; capabilities through work
Need to look good; tools makeup; capability is looking good
Tools are bought in markets
Where are markets?
Trading ducks for vegetables, at the river delta
But then someone wants half a duck
Original markets were utilitarian
Markets began on water transportation at river mouths, becoming cities
Markets today:
Amazon
Shopping malls
Street markets
Two reasons we buy: hedonistic, or utilitarian
Markets are powerful, if you know how to shape them
Starting to see markets evolving into multi-sided markets
How did the shopping mall come about? Why not a big department store?
Variety
After a while, one company can’t do it
They open up a platform and let others create more variety
Have gone through phases where one company could not provide it all
eBay, Amazon, are all evolving into multi-sided markets
What is the role of markets?
(1) Market has a huge role in coordination
How would you know where to get a tool, if you didn’t go to a market
Need to go to a place, e.g. Amazon
When there are so many tools and capabilities, it’s a huge role to find who has what, who wants what, and who will pay
(2) Must have a mechanism to fulfill needs
The exchange has to consummate through the price
Apple Pay is now coming in
(3) Allocation and reallocation of resources
When the demand for tea goes up, the production goes up
When Christmas comes, products come in
This is why Apple wants to know what you want to use the product for
Have you ever tried to establish a price to sell to a friend?
The market helps to lubricate the price setting, sometimes through auctions (eBay), sometimes through proposals
(4) Provides choice and freedoms to absorb variety and indicivudl heterogeneity
(5) However, markets will create externalities (pollution)
In the digital world, markets bring up issues of privacy
(6) Markets may fail, or might not exist, e.g. public goods
e.g. U.S. doesn’t have a coast-to-coast railroad, but who would pay for that?
Often, the state will say they’ll pay for it, as a public good
Who will pay for roads
(7) Markets may need to be regulated
Typical theory of the firm says that shareholder equity matters, or labour — opportunism to cheat, lie
Who else does this?
Would the state do this better?
Centralized planning: communism, where the state does all of these functions
Then people say, don’t want the state to do this
But then: when would the state do it better?
Some would say that the state does better in health
Have NHS, universal healthcare
Obamacare is a strange mix of healthcare and payers
The market does this, but the state gives it a hand
HAT? Market socialism?
Advances
1975, personal computer
Who owns and accesses that information?
We started with a dumb terminal with a big head (mainframe)
We then went to smart terminal with no head (personal computing)
Now, back to smart with big head?
1979, digital music: we can digitize the analog
The first possibilities of digitalization, can send it everywhere
Today, can digitalize the colour of a book cover
Will move into practices
1989: The worldwide web
We can move information
1974: Universal Product Code, revolutionalized supply chains, gave clue that we could track everything
1973: Mobile phone: we can do (whatever) on the move and on demand
Universal utility belt, a superpower
But who knows what we’re doing? Apple does
1995: GPS, we know where we are
Four major influences:
1. Globalization, role of markets have changed
Manufacturing to China
Prices are political, protectionism
Entrenchment?
Digitalization
IGRM: Internet of Things Research Agenda, can e-mail Irene to ask for PDF
Richard Normann called this liquidification
Irene calls it leaking
Information will leak out everywhere
Details on train, where it will arrive, space in one car for seating, another car for bicycles
They physical thing is leaking, new transactions
You don’t pay for search, would you pay for the train?
The data is liquidified, it’s moving everywhere
How do you price information of the train?
We used to buy CDs, now pay $9.95 a month, have a bath and soak playlist, have a barbeque playlist, each created for contexts
Should this reward, or punish entrenched places
Connectivity:
From computers, to people, to everything
What happens to exchange?
You don’t know who wants half a duck for a little bit of vegetables
What’s the role of money?
What’s the role of the social economy, where can pay someone for cooking by walking their dog
These all disappear from the GDP, but our lives may not be that bad
AirBnB and Uber have taken advantage of connectivity for exchanges
Computers, Computable and Connected Smart Things
Have something that would catch all of the information like a PC would break up into parts of the body
Service provision may not be from the firm
Ph.D. studying the role of the firm? Coase says it’s efficiency. What if everything was known in parts?
Markets change
Locations/places, physically and spatially
In time, both absolute and relative time between buying and using
Friction is the separation between the purchase and the using it
Don’t have variety of tea in the morning, it can’t be digitalized
The last yard: the market of the future
Who will buy?
Look at markets from value, variety and viability, maybe the markets haven’t changed so much
Market inefficiencies
Path of least resistance
On RyanAir flight, can’t get a Cafe Nero coffee; but on a hot day in front of Empire State Building a water vendor will come
Vendors will come because they will pay, in context, and in demand
This is where wealth is
More than 50 years of an exchange economy, looking for a business model
Three parts: (i) the market, (ii) the experience, and (iii) the offering
In the digital economy, how you design the offering will be more entangled with the experience, and how you pay for it
When you have the firm paying for music, it changes the experience, the way you use it
Connecting products to it, then different industries can creep in
Amazon, moving into video
Google, moving into physical space, Nest
Moving to the domain of connected stuff, serving you to give different capabilities
The future? Beyond the research, crystal wall gazing
The future is beyond capability (way beyond markets)
Belief the future is through amplification and augmentation
The ability to be in multiple places in multiple times — have cameras in the house, can view from anywhere
Choices and freedoms, want to work from a beach, that requires a lot of augmentation
Augmentation in demand, when I want it
To shape society, we need to shape markets, not merely reflect it
Bots: Strive for individualization as much as we strive for automation
Human beings will always fight back
Market cap of Facebook, Amazon, Google, Twitter is USD$988 billion
Market cap of P&G, Nestle, Coca Cola and Samsung is USD$815 billion
Epic collision between companies on data, and companies that sell things
As an IN-IT thinker, could shape this
The new battlefront is the control, access and combinations of personal data for the augmentation and amplification of human capabilities
This means the control of personal data
Need to intervene: http://hubofallthings.com
Layer missing, want some personal data back
I could have a HAT, could use it to analyze my data
If me make the HAT fee, and standardize, yet personal for own data, then it will be viable for the firms to create apps on top of that
Have spent GBP1.2M across 6 universities
How do we internalize externalities
Have to create a market for personal data
If go to a restaurant, and have a hat, they could give you your data back
Today, we have terrible knowledge ability, recall ability
Companies have it, why don’t we have them as individuals?
It’s an irony
When you sign up with Google and Facebook, your protection of personal data is pathetic.
But if you host with AWS and sign up with Tesco, going near that data would become industrial espionage
Instead of waiting for governments to come to this, could do this
Rolling out HATs in UK and Singapore in 1H2016
[Questions]
Digital innovation relevant for physical products?
Path dependency is important
If used to a certain world, hard to change
Toilet manufacturer can put in sensors to measure urine, but he thinks he’s a toilet manufacturer
As an SME, it’s hard to get funding together
His market is builders, not consumers, where he doesn’t have competence, doesn’t know which channel to use
No one has a toilet app
The whole process of getting into a new value system requires a transversal of innovations
Digitalization liquidifies information where it’s important
Instead of having a sensor in a beer glass, can sell more by having a bartender coming up to ask you
For consumer packaged manufacturers, their data stops at the grocery store
Meta information is important, e.g. close to empty, when and how you consume them
A lot of money in CRM, when and where you buy it
Reverse supply chain: waste and recyclables, have a huge impact on packaging
Saying it’s all digital, which one goes in first?
Glass is becoming more digital, it can become dark to become a screen to project
Materials, and the ability to absorb digital become important
Big data
An externality, don’t know where the data could be used
Could be used to figure out who you are, where you are
See HAT video
Firms have no choice but to anonymize the data
The HAT has more power than the firm, because can share my data
Big data solidified the need for understanding data science, but more through algorithms than insights
Control of personal data, trust. Can be handled through blockchain
HAT is all of the metadata, could be disruptive more in the digital world than the physical world
Supposed can establish things as fact, rather than speculation
Blockchain gives a mechanism where you can trust the fact; trusting the vendor is another story
Imagine all of your life, if everything is a fact
Think of a plumber with all of his work is fact, and there’s defects years later
Immutability is a factor: when I jump, how do you know it’s me, and not my dog on the activity monitor
When value is created? e.g. fire extinguisher, insurance, may never get benefit, although do have peace of mind
Many people look at function, in terms of value
Peace of mind is enduring when you have it, it’s a value in use (as opposed to value in experience)
Have a Ferrari in the driveway, but never drive it, get the value of status
“Value in use” isn’t a good term, “value in experience” is better in multiple dimensions
Variety, behavioural economics says beyond a certain level, the choices get harder, not easier
Variety more in experience, different from variety in buying it
If too much variety at the point of exchange, it adds costs to the person
A lot of variety in experience is taken care of in experience
At point of buying, want wide variety, but less complexity
Commercial plan on rumple
HAT data exchange, charge for privacy, etc.
An Apple model, providing a device, but money is made separately in the apps
Toktok: government mandating security
[Slides available on request by contacting Irene Ng]
