Creating value in the digital economy Prof Mark Skilton May 2014

Prof. Mark SkiltonProfessor of Practice, Information Systems ManagementWarwick Business School, [email protected]

Agenda

� Physical economy, digital economy and role of

digital ecosystems

� Multisided market platforms (MSPs)

� Open Platform 3.0TM

� Generative Platforms and Modular architecture

� Design Lessons

Prof Mark Skilton Copy right 2014 2

Physical Economy, Digital Economy

and role of digital ecosystems

3

Physical

Economy

Digital

Economy

Digital

Ecosystems

Physical markets

Companies, resources

and services that contribute

to GDP and Net worth

The digital ecosystem is a

described boundary of a

market and business activity

that is using connected

technologies to enable a

new kind of market and

business performance and

user experience

Virtual resources and digital

transactions in markets,

Companies, resources and

services that contribute to

GDP and Net worth

Prof Mark Skilton Copy right 2014

Multi-sided Market Platforms

(MSP)s

4Prof Mark Skilton Copy right 2014

Many current academic research activities are focused on MSPs

In principle MSPs provide an “environment” for economic , social exchange of products and

services

Industry Sectors

Products and Services

Types of Consumer and provider Groups,

data , metadata and behaviors

Types of Devices, Systems

and Services

MSPTypes of governance,

Auditors,

Certification and

Security assurance

providers and services

Value, Worth and co-benefits

� Value

� The intrinsic monetary of an object, relationship or transaction e.g. a cup of tea

is made up of a cup , tea, water (1)

� Worth

� The associated value between two or more parties for a object, relationship or

transaction. E.g. A cup of Tea is a warm, soothing, pleasant drink (1)

� Something that may have value does not necessarily have worth

� Co-benefits

� The creating and association of shared or individual benefits from the inclusion

and cooperation of two or more entities, parties (2)

� References:

1. Creating New Markets in the Digital Economy: Value and Worth

http://www.amazon.co.uk/Creating-New-Markets-Digital-Economy/dp/1107627427/ref=sr_1_1?ie=UTF8&qid=1396527655&sr=8-

1&keywords=irene+ng

2. UN IPCC WGIII AR5 Climate Change Mitigation Report April 12 2014

http://www.ipcc.ch/report/ar5/wg3/

http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-policymakers_approved.pdf


Physical Economy and Digital Economy

Open Platform 3.0TM

Value and Worth co-benefit Drivers


Brands

& MarketsOP3Able to grow

and drive Brand value

Modularity & Tiers

Value & Worth

Able to architect and build

trusted, reliable ecosystems

of Products and Services across

networks and technologies

Able to access and address customer markets to grow

and scale communities to monetize and create sustainable value

Enabling Devices, Communities to

create Value-in-Context


Brands

& Markets

OP3

Modularity

& Tiers

Value & Worth

Industry

Bodies

e.g. Connected Car

Cloud

Platforms

Mobile

Device

Platforms

Supply

chains

Branded

Services

Telecoms

Platforms

Public

Social

Platforms

Enterprise

Collaboration

Platforms

Market

Trading

Platforms

Digital Economies

Digital Businesses

Social and Data

Behaviors

Digital Value

Networks

Trusted Services

Boundaryless Information Flow TM

Massive Scaling era 2015 -2035


Massive internetwork era


Generations of Platforming &

modularity


1980 1990 2000 2010 2020 2030

Platform

1.0

Platform

2.0

Platform

3.0

Cloud management

Multi-Client – Multi-Server

Multi-band Internetworking

Mobile networking

REST, API connectivity

Long tail emergence

Client – Server

Virtualization

Early Internetworking

Large scale clustering

Industrial Internet

Ubiquitous sensors

Internet of things

Quantified Self

Quantified life..

PC era

Ultra large scale Data

Virtual communities

Crowd sourcing

Multi-device, object

Modular OS

Distributed services

Nested services

Massive

Scaling

Internet

Foundations

Web services

& PC era

The Industrial Internet era 2020..� Industry sectors, multi-disciplines and Internet of

things (IoT) driving sustainability and climate

economics

� Industry Sector targets

○ Energy Supply - generating and distribution

○ Transport

○ Buildings

○ “Industry”

○ Agriculture, Forestry and Other Land Use (AFOLU)

○ Human Settlements, Infrastructure and Spatial Planning

○ ICT - practices

� Greenpeace March 2014 Your Online World: #ClickClean or Dirty?

http://www.greenpeace.org/usa/en/media-center/reports/clickingclean/

� UN IPCC WGIII AR5 Climate Change Mitigation Report April 12 2014

http://www.ipcc.ch/report/ar5/wg3/

http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-policymakers_approved.pdf


Industrial Internet, the Quantified

Self and the Quantified Life


OP3

Sensors and Internet of Things …

Industrial Internet

Quantified Self, Quantified Life..

Crowd sourcing, funding , Open Innovation

New mechanisms

New information

models

New

objects

New

Markets

Digitization in context


Societal Level

Organizational Level

Object Level

- Digital inclusion- Ethics and Privacy- Legality, trust, competition law

- Shape of organization- Social organizations –

formation & evolution

- Reprogrammable, reflexive- Embedded- Augmented

Concepts of digital architecture


Generative structure

Temporality of design

=Temporal sequencing and pace Subjective experience of time

Source: Yoo 2014

Outcome Architecture

Scenario “ Reduce X by 50% “

Change Architecture

Example: Apple iPhone Architecture

& Modularity generativity


June 29 20071st

Gen

Quad-band GSM with GPRS and Edge

2nd

Gen

July 11 2008

iPhone 3G

“Obsolete”June 11 2013

3rd

Gen4th

Gen5th

Gen

6th

Gen

7th

Gen

8th

Gen

iPhone 5C, 5S iPhone 6iPhone 5iPhone 4

dual-core 64-bit A7 processorTouchIDFingerprint

higher-resolution 960×640 "Retina Display“ + Front facing VGA5 M Rear facing + Record 720p

3G networkA-GPS Location

iPhone 4S

Dual-core A5Natural Language Siri8 M Rear facing + Record 1080p

Thinner, lighter, 4 inchDisplaydual-core A6 processor

iPhone 3GS

Faster CPURecord 480p

iPhone 2G

June 19 2009June 24 2010 October 14 2011

September 21 2012

September 20 2013

September.. 2014

Memory 128MB 256MB 512 MB 1 GB LPDDR2 1 GB LPDDR3OS 3.1.3 iOS 4.0 (Facetime) iOS 6.0 (Map..) iOS 7.0

GPU 150MHz 150 MHz 200 MHz 2-core 3-Core 4-Core (5S)

iWatch?

Started 2004Development steered away from tablet to phone“Project Purple” 1000 employeesSecret collab with Cingular Wireless(AT&T Mobility)Dev Cost Est $150 million over 30 months.

3-4Yrs

3-4Yrs

“Apple’s iPhone Revenue Exceeds All The Money

Made By Microsoft And Amazon” Sept 2013


� Apple only has 7% of phone market (huge)

� (Steve Jobs said he would be happy with 1% ..)

� Phone brings in 60% Market profit ... A “ubiquitous Luxury” product

� $88.4 billion in annualized revenue …

http://www.statista.com/statistics/263401/global-apple-iphone-sales-since-3rd-quarter-2007/

http://elitedaily.com/news/business/apples-iphone-revenue-exceeds-all-the-money-made-by-microsoft-and-amazon/

5C, 5S

4S

5

iPhone if it were a company or

Apple a country…..


http://elitedaily.com/news/business/apples-iphone-revenue-exceeds-all-the-money-made-by-microsoft-and-amazon/

Apples cash reserve $147 Billion is 58th richest countryHigher than Vietnam GDP. ( Australia + UK Reserves) Apple is 1st place most valuable Global Brand (interbrand)http://www.huffingtonpost.co.uk/2013/10/02/apples-cash-hoard-

is-147-billion_n_4028576.html

September 2013

Apple 2007 - 2013


http://www.macrumors.com/2013/07/23/apple-reports-q3-2013-quarterly-results-6-9-billion-profit-on-35-3-billion-in-revenue/

http://en.wikipedia.org/wiki/File:Apple_revenue_breakdown_2007Q4.svg

Innovation cycles of Architecture

Generations and modularity


Time

Generations

Core

Architecture

Adjustments

Adjustments

New Core

Architecture

Adjustments

Adjustments

Change

Architecture

Design evolves in a series of activities and events

Temporality of WorkSource: Yoo 2014

Communitization

Communitization

Co-value

Creation

Platforming and modular Architecture

� In the Case of Apple there were platform and modular changes in

Hardware and Software simultaneously that created several step changes

to enable new scaling capabilities and generative performance. Many of

these were baked into the Operating System updates to create

architectural changes to enable these advances. Example:

� GPS location based services

� Touch and Movement sensors (for tactile use and gaming)

� Front and back cameras for video chat

� itunes music store (modular scaling and monetization)

� Apps Store ( “ “ )

� Book store ( “ “ )

� Siri natural language voice recognition

� This was a platform and modular architecture strategy working at

hardware, software, OS and content and networking levels.


Quantum Strategy of Apple


http://www.wbs.ac.uk/news/quantum-strategy-at-apple-inc/Source: Heracleous 2013

“Apple has achieved its outstandingperformance through effectivelyimplementing an unconventionalstrategy: differentiation throughinnovation (along various dimensionsthat include serial, strategic andincremental innovation), withsimultaneous intense levels ofefficiency, leading to the lowest costsin its peer group.”

But is this sustainable in the future

Internet of (All) Things ?Examples of partial contextual worth

� AMAZON dynamic Pricing

� The variability of prices is flexed depending on demand availability

� GOOGLE in-webpage dynamic Advertizing

� Contextual look-up and targeting

� APPLE integrated account and payment

� Consumer profiling and services

� UPS / Retail /providers integrated supply chain

� RFID, GPS Vendor Management Inventory

� All these are vertical value ecosystems – there is very little horizontal

connectivity - NOT CONNECTED WORKSPACES


The “Smart Hotel”


Loyalty cards, services

In room services

Maintenance services

Room facilities

Reception servicesRoom Cleaning Services

Travel and Bokingservices

Connections and Transport

Rooms &Facilities

ReorderingandBrands


What is the impact of the Internet of

(All) Things ?


• Ethics, Privacy,

Security, Trust,

Rights ?

o How to

federate

Identity to

many

ecosystems

o How to

assure

services –

the value of

trust and

assurance.

THE CONTEXTUAL SELF

• Value propositions?

o TeleHealth

o Lifestyles

o Social preferences

o Location proximity

knowledge ..

o Protection

services

o Medical services

o Insurance services

o Societal value

o ….

Towards a connected society


Mobility

valu

e

Social

valu

e

Big data

valu

e

+ +Sensors

valu

e

+Cloud

valu

e

+Machine

Intelligence

valu

e

+ +T

HE

CO

NT

EX

TU

AL

SELF

Industrial Internet

Connected SpacesConnected workspaces- objects, bodies, rooms- Transport, buildings, cities…

Connected industries- Legislation, interoperability- Bandwidth, Governance

Connected spaces – augmented value


Social

Mobility

Sensors

Big data

Cloud

Machine

Intelligence

Digital Ecosystems

valu

e

valu

e

valu

e

valu

e

valu

e

valu

e

Digital Value reinforcement cycles


Social

Mobility

Sensors

Big data

Cloud

Machine

Intelligence

valu

e

valu

e

valu

e

valu

eva

lue

valu

e

Create

co-presenceCreates

location context

services

Multiplicity

access to

apps & content

Creates real time context

and feedback responsiveness

Creates multi sense rich

event awareness

“wearables”Creates “long tail”

federated services

Create

Real Time

Experiences

& responses

Augmented ML

H2M experiences

Access

& connectivity

Create

data “memory”

persistence

& record

Loyalty,

Gaming behavior

Provides uniqueness

profiling

Data quality insight

Targeting advice

Contextual data

Creates insight

Decision quality

Value contextualization


Social

Mobility

Sensors

Big data

Cloud

Social contextualization

Presence

contextualization

Meaning &

affectation

contextualization

Temporal event

contextualization

Machine

Intelligence

Capability access

contextualization intelligence

contextualization

Digital Ecosystems

Digitization

� Changes physical to virtual properties of objects, places, events, locations,

rooms, building, resources, relationships and environments.

� Digital objects have characteristics that do not exist inherently in physical

objects

� can to reprogrammed, replicated, self-referential and reflexive

� Enables interoperable and portable contextualization

� Products and service experience can to “emulated” and “moved around”

� Creates contextualized value

� Can share experiences between participants that are not necessarily in the same

physical space but can

� Value-in-use

� Value-in-context


Contextual and out-of-contextual

� Non-contextual

� The product or service options and choice are not specifically

contextualized to the consumer or mediator needs, wants, behaviors or

situational preferences

� Contextual

� Offering contextual choices taking account of situational factors, needs,

wants and behaviors

Note: The Situational factors could be based on past, current or future

predicted locational and relative outcomes


Value creating outcomes

� Digitalization creates alignment between

attributes and outcomes


Attributes

Price

Speed

Size

Weight

Connectivity e.g. wifi

Ambience

-

Outcomes

Enjoyment

Socialized

learned

Gained Knowledge

Saved time

-

-

-

C

O

N

T

E

X

T

U

A

L

I

Z

A

T

I

O

n

Platforming and modularity to

enable Value Creating outcomes

� Digitalization creates alignment between

attributes and outcomes


Attributes

Price

Speed

Size

Weight

Connectivity e.g. Wi-Fi

Ambience

-

Outcomes

Enjoyment

Socialized

learned

Gained Knowledge

Saved time

-

-

-

CONTEXTUALIZATION

OUT-OF CONTEXTUALIZATION

Commodification offers

Personalization offers

Conclusion - Lessons in Digital designdigitization has consequences – ethics, privacy, trust,

competition, social & societal threats

� Paradox 1. Cost and Performance is by design

� Paradox 2. Privacy and monetization is a trade-off

between consumers and providers

� Paradox 3. Need for connectivity but cost of

operation scaling affordability


Paradox 1. Cost and Performance is

by design


Technology Cost per Outcome

Progressive technology innovations

Price per

unit of technology

Cost to

achieve

Outcomes

by Industry contexts

Market

Contexts

Pa

rad

oxica

l

Va

riatio

n

Scenario A

Scenario B

Paradox 2. Privacy and monetization

is a trade-off between consumers

and providers


Provider dominant Market Model

External – Markets driven

Your Data

Self Monetization

Mechanisms

- Advertising

- Links to

merchandizing

Out-of-context

Search,

Collection

Aggregation

Computation

Collected

and derived

data

Strong association

Weak association

context

domain Personal

Data

Meta

Data

(Some Contextual)

Value exchange

Right to usemy information?

How I can usemy information for my value (in-context) ?

Right to be Forgotten?

Paradox 2. Privacy and monetization

is a trade-off between consumers

and providers


Paradox 3. Need for connectivity

but cost of operation scaling

affordability


O-DA (Trusted Assuredness , FACE (Open controlled Connectivity)

Conclusion - Lessons in Digital design

� Lesson 1. Understanding digital platforming and

modularity can create monetization scaling

� Lesson 2. Digitization on contexts enables value-in-

context

� Lesson 3. Digitization has the potential to reinvent

any object and its value offering
