"The internet of the next 20 years is in the 3 S's: Servification, Subscription, and Separation"

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The world in general and companies in particular are experiencing a profound transformation. In the opinion of Pablo Foncillas, expert in business innovation, this revolution is based on new technologies, but its progress depends above all on the digital maturity of company professionals who must answer two basic questions: Why do I have to change and who do I have to change for?

In the interview he responds to this and many other questions we ask ourselves as individuals, professionals, and companies.

Digital transformation (DT)

DT means doing business in a different way. Of the two words, the easy one is "digital" and the complicated one "transformation." Technology is designed to do what we ask of it; on the other hand, humans are designed to do whatever we want. That's why it's easy to digitize and very hard to transform, as this process has to do with the professionals involved. Technology never stops changing – we see this every day –, while we professionals change very slowly. This is an unfair race that professionals are bound to lose against technology. For this reason, I believe in putting much more emphasis on the professionals than on the digitalization of companies.

Professional maturity

I often say that digital transformation is a lie because it's neither transformation – it's maturity –, nor digital – it's about people –. So we aren't talking about digital transformation, but rather professional maturity. I was able to verify this after completing a study for AECOC (Spanish Commercial Coding Association) which considered more than 30.000 answers of professionals from many countries.

Over the last few years we've focused on understanding the objective questions about the digital transformation of companies: Online invoicing, number of hours connected, number of apps used, number of processes digitized... While this is still relevant, it ignores something far more important and has to do with the perceptions of professionals, to which we’ll have to pay much more attention, trying to answer the two key questions people ask ourselves: Why do I have to change and who do I have to change for?

Why change?

The digital strategy of a company has to be well defined and communicated to all employees in an adequate way. Most companies and managers think that they communicate adequately, but employees often don't see it that way. They neither understand the plan, nor know that it exists, nor have they participated in it. Not even the managers themselves – members of the steering committee – are clear on the plan.

I once asked a manager I interviewed how much he paid the digital talent of his company compared to other professionals and he said: "I pay them less." "What do you mean you pay them less?" I answered. He responded that it's usually the youngest people of the company who know the most about digitalization, mostly the interns. This in itself demonstrates the lack of will to adequately address the digital world.

I was also struck by the fact that not one company among those interviewed had a plan to develop managers and especially board members in relation to the concept of digital transformation. In fact many employees view the steering committee as a block to digital transformation. General management has to know that thanks to digital transformation the employee feels more involved in the work they do.

Digital vision

The larger the company, the more likely it is to have developed a "digital vision," a reflection on where it wants the company to go. But there are managers who tell me: "I have this digital vision, that's why I'm installing Salesforce, I've contracted IBM and Oracle and invested 10 million dollars in these companies." Next, they point out that they now have a problem because the teams, professionals, and processes aren't aligned with the systems. And they realize that they should have begun by defining the vision, later work on the skills of the employees, then modify the organization, adjust processes, and lastly, change the systems. Does this mean that the systems aren't important? No. It means that people are also very important. It means that if you and I don't understand why we have to change and for whom, it will be very difficult for the organization to change. And given that technology never stops advancing, we professionals are going to have to constantly change and train.

A world that's off and on

Selling on the internet doesn't mean that you've transformed digitally, in the same way that eating fruit every day doesn't make you a farmer. E-commerce, omni-channel strategy, and digital transformation represent three different degrees of development.

What the pandemic has done is change the minds of many people who had little belief in this journey. Does this mean that we have to understand the world from a binary perspective, black and white, online versus offline? No. This isn't about extremes. It's about understanding that we are now more dynamic and promiscuous in our relationship with companies, and that we'll do things on and off, indistinctly. We live in a world in transition. Not everything will be online in the short term.

Remote work

Remote work is here to stay. When the pandemic is over – and my theory is that we are about half way – we'll go back to the office. Before the pandemic the office was like an all-day pass with everything included; a place to concentrate, learn, socialize, and share. Now "every teacher reads his or her own manual" and the office is likely to lose layers, because we have seen that we concentrate better at home and that it’s possible to share remotely, working, for example, on the same document. What's complicated is socializing and learning remotely. Socializing is what we do when we have a coffee with a workmate. And personal contact is fundamental to learning in an informal way. In the office, someone approaches you and asks, "How do you do that?" And you turn around and explain it to them in a minute. This is difficult to do remotely. Perhaps it's more accurate to say that remote work will be balanced with office work, in the same way that not everything will be sold online.

Large versus small companies

During the pandemic many companies have shown that big doesn't mean slow. Large companies have traditionally been classified as slow, clumsy, heavy... However, in the worst possible circumstances they have demonstrated great agility, discrediting that idea. Thanks to their digital muscle, but not only to it, they were able to put thousands of employees to work.

Unfortunately, small companies are at a much lower stage of development. Large and medium companies understood that DT is serious and reacted earlier. Small companies also see this, but their degree of granularity when it comes to comprehending what it will take is more basic, so what they do is transfer processes, incorporate a few tools, and little else.

The internet of today and of the next 20 years

The face of internet is changing as a consequence of new businesses that haven't merely replicated what was done offline in online, but rather embarked on truly new and different business propositions. This is partly because there are already about 4 billion people connected to smartphones. More people are connected than not.

The first years of internet were essentially a mirror of the physical world. I have a travel agency and a newspaper and I'm going to replicate them online. Today the 'yellow pages' are called Google. That’s what we saw in the first years of internet. At that time the two key words were disintermediation, in some cases, and reintermediation, in others.

The internet over the next 20 years has to do with two words that we'll hear more and more: Servification and subscription. Thanks to digitalization businesses are emerging that have nothing to do with those that existed 20 years ago, but that are based instead on knowing really well not the value chain of the company, but the value chain of the customer.

Decoupling

In the coming years we'll be hearing a lot more about decoupling, also known as unbundling or the great divide (separation). Traditionally companies offered an integrated value proposition; on the rise now are specialists who break the integrated value proposition down into small portions that become themselves a value proposition. For example, Sephora offers the possibility of entering the shop and wandering along its aisles, touching products, asking an expert, having our makeup done... And finally we can purchase a product, which they put in a bag with a small sample of perfume, a little lipstick or makeup, or a sample of moisturizer. Fine, but now there are companies that are starting to offer one – and only one – of those value propositions. For example, knowing that the consumer enjoys a variety of those small samples, a company offers delivery of small perfumes to your home every 15 days or once a month. Another company offers the possibility of speaking to a makeup expert, because it's your passion.

We’re probably going to see new business propositions that are leveraged on very clear verticalizations of something once offered in an integrated way.

Shopping cart by subscription

Of 100% of people purchasing products with their online shopping carts, 14% now do it with a subscription.

In fact in China, before the pandemic, 16% of online shoppers subscribed to a supermarket. This means no burning calories by going to the supermarket, but rather having calories delivered to your home every week, fortnight, or once a month, depending on what you have signed up for.

Does this mean that everyone is going to subscribe to this shopping model? No, it means that repeat shopping is on the rise, which will have a huge impact on the world of consumption, because if your brand isn't on those preconfigured lists, you're dead.

Over the next few years, we’re going to see a major investment in subscription models, because any product under digital pressure is likely to be transformed into a service. There will be customers who subscribe and those who don't, just as there are people who buy a car and those who rent, lease, or factor. The world won't be black or white; it's going to be promiscuous, commercially speaking.

Other subscription models

Today entertainment and music are offered by subscription, and sneakers too. When you buy a bicycle from the brand Peloton, you get a subscription to compete with other athletes and an instructor to tell you how to give it a good workout as well. Instead of selling hardware, they sell a service.

Cars are also moving towards subscription models, by which customers pay according to their needs. Only need the car in August? Pay a fee for August. All year? Pay a fee for the year. Want it for life? Pay a fee and a one-off and you have it for life. Everyone is realizing that there is a tremendous opportunity in the capitalization of companies from models that provide revenue stability, such as subscription.

In the midst of the pandemic, with all the world's parks closed, cruise ships in port, and no activity in the cinemas, Disney increased its capitalization when it launched the Disney Plus streaming platform, because investors understood that it was Disney's first attempt to offer products that would provide revenue stability.

Platforms, the winner takes it all

We are moving towards a world of platforms that engender the winner-takes-all economy effect, and we'll have to reflect on whether this is the world we want to go to.

We live in the attention economy. All players want us to dedicate our time to them. So it would make sense for Apple to buy Peloton. Apple bets big on the world of the health with its watches and Peloton has people peddling on their bikes for an hour in front of a screen. Apple wants the screen you have in front of you to be theirs, not someone else's. They can therefore pay a much higher acquisition multiple than any other company, because they wouldn't buy Peloton: They would buy the hour you spend watching the screen while you're peddling like a hamster.

The world of platforms was led by what I call the four “technors,” who at the time were Google – now Alphabet –, Apple, Facebook, and Amazon, to which today must be added Microsoft, Salesforce, Netflix, Alibaba… There are 15 or 20 very big ones, but also other less important ones, like Glovo or Rappi, who have understood that this has to do with the attention economy – once they’ve captured our attention, they can sell us anything.

Network effects

The big ones keep everything. And it makes sense. You don’t want to visit 73 second home platforms for your vacations; you want to visit one where all the second homes for vacation are found. In the offline world you don't want to go to 53 different streets to visit car dealerships; you want to go to that big avenue where all are located: Nissan, Toyota, BMW, Audi, Ford, Volkswagen, Skoda, Seat, Citroën, Renault… And in the online world it's the same, but on a global scale.

The society of the future and the business of data

What type of society do we want to move towards? When we put so many screens in the way, in the end a very considerable erosion of empathy, sharing, of moving towards common values takes place. The first thing we do when we wake up is watch a screen, usually our cellphone's. If we don't go to the office, the cinema, to vote, if we don't take the subway, if we don't experience things together, in the end we'll achieve social distance from everyone, which will end up provoking problems of trust. Unfortunately we weren't born with an instruction manual on how to use so many screens, an area in which we are severely lacking. Using technology a lot doesn't transform us digitally, it simply makes us use technology a lot. We also need to learn to use it from a human point of view. The use we make of the data being generated by technology will become increasingly important. Because data has both a wonderful and a terrible side. I believe we're going to see in the world of data the emergence of a figure like Greta Thunberg in sustainability. I'm looking forward to seeing who it will be. The world of data needs a Greta Thunberg!

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Article published originally in Spanish in Código84: la revista de AECOC.

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