Digital Matters - Issue 35

"What are the rules of the Digital Road?"

One of the benefits of writing a column for Fast Company is that CEOs, CIOs, and COOs of digital companies want to meet with me. Generally speaking, I conduct two or three of those meetings every week. One question keeps coming up — the same question that comes up whenever I join cup-of-coffee conversations anywhere: What does it mean to be digital? Everybody understands that the Digital Revolution is real and that running the Internet through the heart of your business is critical. But what are the implications of all this? What are the rules of the Digital Road?

Here's my proposal: Let's talk about it. We've set up a bulletin board on the Fast Company Web site (www.fastcompany.com/fasttalk). Sign in to the site (if you've never used it before, you'll need to select a username and password) and navigate to the "Inspired by Print" discussion. See what other people have to say, and then offer your own comments. I'll kick off the conversation by offering my eight rules for the Digital Road.

Rule 1: Inflation is toast, and there's no such thing as a price increase. Think about your mortgage for a second. The bank sends you a monthly statement. You put the statement aside. Before the bill is due, you write out a check and send it in. But what if you paid your mortgage on the Web, and what if you paid in biweekly, instead of monthly, installments? That way, you would pay off a 30-year mortgage in 21 years — and you would save a lot of money. At least one company, Paymap Inc., offers the kind of online mortgage-payment service that will make such arrangements possible.

Being able to cut your payments by nearly one-third over the course of a 30-year mortgage is more evidence of a central fact of the digital economy: There's no such thing as inflation. Everywhere you look, computing power is relentlessly cutting prices and costs. General Motors, DaimlerChrysler, and Ford have entered into a historic agreement to pool their buying power on the Web. Does anyone think that the cost of shatterproof windshield glass is going to go up in the near future — or ever? Go to MobShop Inc.'s Web site (www.mobshop.com) and buy a DVD player. MobShop pools buyers of DVD players into a consortium and then says to Sony or Phillips, "We have 1,000 buyers for your best DVD player. What's your best price? And don't tell us that it's the list price."

What about OPEC, you say? Well, what about OPEC? It has managed to drive the price of oil up to $34 a barrel in the past seven months by restricting supply. Bad move on OPEC's part. As soon as businesspeople decide that the price of gasoline is likely to stay that high, they'll start using technology to cut back on their travel costs. And digital-economy companies will provide those businesses with products that enable people to work without leaving their home or office. Everything that businesses need to do, they will do over the Web. Demand for oil will fall. And OPEC will lower prices. Then, if OPEC is lucky, people will start traveling again. But they will know that they don't have to travel unless they want to — and OPEC will never be able to raise prices again.

Rule 2: You'd better be wireless. Let's say that my friend Anders Brag is in Finland on business. He wraps up his work early and decides to take the afternoon flight to Stockholm. But time is short: He barely has time to pack and to check out of his hotel. So he figures that he'll take a chance and go directly to the airport. He catches a cab and explains his predicament to the cab driver, who says, "No problem. I'll use my cell-phone to see if there are any seats available." The driver then dials into Finnair's Web site, types in the flight number and the date, and — bingo! — a seating chart appears on his cell-phone. The driver hands Brag the phone, and Brag makes his seat selection, punches in his ticket number, and receives a confirmation of his reservation. Just like that.

The whole world is going wireless. Americans have a superiority complex when it comes to information technology, but we're not even close to the Scandinavians (or to other Europeans) when it comes to wireless technology. And once you get a taste for wireless service — once you get used to communicating faster and more efficiently — the world of "ordinary" service pales in comparison. The telecommunications system of the Digital Road will be wireless. And when speech-recognition technology becomes fully functional, it will be imperative for companies to work without wires.

Rule 3: There's nothing in the middle. In the Digital Age, companies have to be small, smart, and special — or big, smart, and fast. Midsize companies aren't big enough to cover all of the bases that most customers need to have covered, nor are they small enough to provide the kind of specialization that most customers want.

Who wants a midsize bank? Who wants a midsize supermarket? No one wants a cell-phone provider that functions only in one location. People want highly personalized service, or they want clout, or they want both. Hence the consolidation that is occurring across so many industries. Midsize companies can't cope in the digital economy, because they're caught in a pincer movement between specialization on the one hand and global reach on the other. To survive, they must either break down their businesses into their component parts or sell themselves to a global player.

Rule 4: Partner — don't purchase. Does anyone think that AOL's acquisition of Time Warner is a good idea? It would be — if AOL took Time Warner's cable properties and sold everything else to strong buyers. But that's not what AOL is up to. The AOL folks want to be Hollywood moguls. This acquisition is not about what's best for us, their customers; it's about what's best for them, the big shots.

The Digital Road doesn't have much use for corporate vanity. AOL's Steve Case and Bob Pittman will spend the rest of their careers reengineering the combined companies. And that will sap those two men of all of their strength. They'll get bogged down in the turf wars that have long been the bane of Time Warner.

On the other hand, Yahoo! and companies like it will partner like crazy with other companies, looking to offer every conceivable service — and, unlike AOL, they won't have the headache of trying to fix Money magazine or Warner Bros. Movies or the WB Television Network. And if Yahoo!'s service partners don't measure up, Yahoo! will simply find new ones. In the digital world, anyone can be your partner for any length of time. To own a bureaucracy is crazy. Don't do it, unless it expands your core business.

Rule 5: Everybody is in everybody else's business. James Cramer, in his column for TheStreet.com, recently asked, "Who would make a better banker and broker in the New World?" His list of possibilities included just one traditional bank, Chase Manhattan. The other names listed were Charles Schwab, Goldman Sachs Group, Microsoft, Nokia, and Yahoo! He might as well have added General Electric and General Motors.

The Digital Road offers companies the ability to join forces with businesses that aren't a part of their corporate "category." As technology advances and as the Internet becomes easier to use, the opportunities to partner increase. Ten years ago, the newspaper that I read most often was the New York Times. Today, I read MyYahoo! Today, my mortgage lender is Washington Mutual Inc. Tomorrow, it could be General Motors.

Rule 6: Collaboration software wins. In the 1980s, the key to success was to "layer" services on top of your product. In the horrible jargon of the time, this was called "servicizing your product line." For example, broadband companies had a wire in the ground. To get the most out of that investment, those companies would layer onto that wire many different services: cable television, Internet access, telephone service. But that was then.

Today (to use equally horrible jargon), the Digital Road requires that companies "productize" their services. Intraspect Software, based in Los Altos, California, has developed software that allows companies to transform services into products. Jim Pflaging, president and CEO of Intraspect, has said that he believes that "c-business" (collaboration-centric business) software tools will be a key to success in the digital economy. He may be right.

With fixed-fee arrangements becoming the norm, service companies must make their core service an off-the-shelf product, one that they can deliver to clients immediately and at minimal cost. After that, these companies can charge whatever they want for their ideas and creativity — for what Pflaging calls their "magic dust."

Rule 7: Branding is interactive. In the old model of branding, a company used advertising to communicate what it wanted you to think about its brands. It tried to Etch-a-Sketch its ideas onto your brain. Because you erased those messages as fast as you received them, companies repeated their advertisements constantly in order to keep their products "top of mind." The Digital Road doesn't change a company's need to be known, but it does change fundamentally the way that it fulfills that need. On the Digital Road, branding is interactive.

Amazon.com is a powerful brand — not because of the way it advertises (which is great) but because of the way it handles customer service (which is better than great). General Motors will be a hot brand over the next decade because it is working toward "mass customization" — toward letting you design your own car on the Web and then engineering that car accordingly. Mass customization is a product of digital technology, and the experience of that phenomenon will define the future of branding.

Rule 8: There's nothing that digital technology doesn't touch. I suppose that there is a restaurant or a gas station somewhere that remains unaffected by digital technology. But consider Domino's Pizza. Its franchises are located in communities all across the United States and its drivers get a pizza to your home in less than an hour. If Domino's were a publicly traded corporation, it would be one of the most highly valued stocks on Wall Street. Why? Because then Domino's could compete head-to-head with Federal Express, UPS, and the U.S. Postal Service. Overnight, it could become the delivery system of the digital economy. On paper, Domino's is a pizza business. In digital terms, it has the potential to add billions of dollars to its valuation.

Digital technology soon will transform education, medicine, the legal system, health care, politics, and government. The notion that the transformation "won't happen here" or "can't happen here" is not just wrong — it's dangerous.

Now, you tell me what you think. Visit the Fast Company Web site, and let the discussion begin.

John Ellis (jellis@fastcompany.com) is a writer and consultant based in New York City.

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