As we enter the age of artificial intelligence, the emergence of digital operating models is transforming competition. Consider the case of photography. for example.
More than a hundred years ago, the invention of photography had a disruptive impact on the “technology” of painting by greatly reducing the demand for such work. Painters had trouble responding to this threat, but eventually they changed their approaches, inventing new techniques and styles. The important point here is that film-based photography threatened old norms and created new opportunities, but it did not dramatically transform the economy. The battle between film photography and painting resembled the pattern observed across a variety of industries, from disk drives to excavating machines, when one technological trajectory becomes disrupted by another.4 The new overtakes the old, creating challenges for existing competitors, while the rest of the economy continues more or less as it was.
In contrast, let’s look at what happened when digital photography came on the scene.
Digitizing photography did not simply provide an alternative to an older technology the way smaller disk drives disrupted the demand for larger disk drives. Digital representation completely transformed the nature and variety of activities connected to photography. It was suddenly easy and free to share pictures (benefiting from digital automation at essentially zero marginal cost), so people started snapping and sharing many more photos. No event, no activity, no meal is now too trivial to document and post on social media. This practice gave rise to a new breed of companies—Facebook, Tencent, Snapchat, Line, and TikTok are just a few of them—each of them featuring massively scalable digital operating models to help users select, shape, and share digital representations of their lives and of the world around them.
Increasing levels of digitization, analytics, and AI/ML can dramatically improve the scalability of a business, making the value curve increase more rapidly as a function of the number of users or their engagement. As it collides with a traditional company, a digital operating model can overwhelm the status quo. The first losers were the traditional players that could not adapt. Ultimately, Kodak was not killed by Fuji or by a digital photography startup, but by the emergence of smartphone and social network firms. Instead of focusing on industry-level tasks like film processing and marketing, Facebook, Tencent, and Google focused on connecting users and on capturing and analyzing the information that flows through their networks. These firms create value differently, capture value differently, and rely on a completely different kind of operating model from Kodak’s to deliver that value to their customers. The result is a fundamentally different way to compete. These companies never even considered Kodak a competitor; rather the film company was simply collateral damage in the newer companies’ race to acquire users on networks that enabled photo sharing as a core service.
An extract of a book to read... COMPETING IN THE AGE OF AI : Strategy and Leadership When Algorithms and Networks Run the World
MARCO IANSITI KARIM R. LAKHANI
HARVARD BUSINESS REVIEW PRESS BOSTON, MA
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