Image of man looking in despair at .com bubbles

Digital transformation and the shadow of dot-com

Is the IT boom and bust of the late Nineties making today’s C-suite cautious about the long-term benefits of digital?

Business surveys across different sectors suggest many in C-suite remain slow to adopt digital ways of working and technology as a key source of their organisation’s competitive advantage. Could the failure of dot-com be causing their hesitancy? Here are some ideas…

Dot-com was pre-Millennial

The “dot-com bubble” broadly occurred between 1997 and 2000; a period that pre-dates today’s young entrepreneurs who are passionately trying to bring their own digital services to market. Yet it is their explicit lack of awareness (or arrogance?) about the lessons learnt from this period that arguably validates a market follower strategy. Many of the failed dot-coms had sound propositions for B2C offerings to market; what killed them was that their ambitious business models were unsustainable. Demand didn’t grow fast enough to deliver the rapid returns expected by investors ( being a notable example where its continued price undercutting on pet supplies and accessories required an unfeasibley massive on-line customer base).

Arguably digital services face similar (harder?) challenges today given they have to compete for increasingly discretionary, disloyal customers who can switch to competitors instantly. This suggests B2C and B2B markets are saturated with digital companies that may have no long-term sustainability – why bet now when you can wait to see who are the real winners? 

The strategic opportunity (and risk, if ignored) is that Millennial entrepreneurs are chasing a customer base that can only grow in size as younger generations continue their embrace of digital (while compelling older groups to accept such services regardless of preference). Whereas in the late Nineties there was limited evidence or insight about market demand for on-line services; today such wants and needs are tangible and measurable as bottom line benefits. Investing now in digital could result in capturing growing revenue streams; choosing to wait risks lost of market share.

Ability to industrialise

Many dot-coms lacked the right supply chain capabilities to fulfil customer orders effectively or efficiently. They focused on optimising the customer experience while failing to put in place an operating model that could scale to demand – for example, couldn’t upscale its grocery delivery operations successfully to meet its commitment to deliver goods ordered on-line within thirty minutes to a customer’s front door; on paper a great customer experience that was practically impossible to fulfil probably even today (perhaps unsurprisingly was ultimately consumed by Amazon).  Many of today’s digital companies are either focused on improving the customer experience through user experience design or by reducing touch points in service delivery – with the exception of IoT it seems there is far less focus on supply chain optimisation and related back-end cost improvements. Like dot.coms, are today’s digital companies focused on realising tactical, cosmetic improvements that deliver short term benefits rather than fundamental end to end transformation required for sustainable competitive advantage?

A converse view is that digital companies are maturating far more rapidly and successfully then their ancestors driven by major investment in such transformation by traditional, older companies across many sectors (especially Retail). Unlike dot.coms these companies aren’t starting such industrialisation from scratch; they already have a deep understanding of their own supply chains and have the resources and commitment necessary to drive the required change to fully realise the benefits of digital transformation. Companies behind this curve may quickly become uncompetitive.

Hype versus profitability

Perhaps the biggest criticism of the “ bubble” was that investors were too willing to buy into any idea or gimmick that was remotely connected to on-line services despite contrary evidence about their commercial viability. This could be seen in the proliferation of internet search engines during this era that had little to differentiate them from each other. Even today it’s not entirely clear if the surviving companies are profitable with, for example, Yahoo generating billion dollar revenues but operating at a loss. Can the plethora of digital companies currently competing for our attention all be successful long-term – the lessons learnt from suggest not?  

But short-term profitability is not necessarily the primary goal of many digital companies today – instead, profits are used as a source of continued growth and expansion. Amazon, one of the biggest and most influential companies in the world, pursues such a philosophy. Rather than suffer the fate of cyclical boom and bust, this approach enables its penetration into other services and sectors to drive sustainability – Amazon was originally a book seller; through such aggressive growth it now provides public cloud services as well as retail and media on demand. Is short-term profitability the wrong metric to assess the performance of digital companies?

Closing thought: although the “dot-com bubble” resulted in too many extraordinary failures, this period industrialised and legitimised the on-line customer channel – without such high risk innovation, digital would not play such a dominant, positive role in our lives today.

What strategic risks and opportunities do you think organisations face as digital continues to penetrate all sectors? Please share your feedback below.

For more information about digital transformation please contact the Sopra Steria Digital Practice.

Published by

Mark Howard

Mark advises on user centric digital service design & transformation with a focus on tangible business benefits realisation. His passion is helping organisations to transform how their people use digital ways of working to interact with users to deliver an seamless, integrated customer experience. Mark’s recent private sector experience includes delivery of a mobile application prototype for a European business services company and advising a major UK high street retailer about using enterprise social media tools to drive competitiveness. Mark has 10+ years consultancy experience advising blue chip Telco, FMCG, Retail and Pharma clients as well as UK Central Government. Mark holds an MBA from Open University.