Digital Matters - Issue 35

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.