It's the data plan, stupid: The dark side of digital transformation

Data costs are now central to the economics of both individuals and the companies they buy things from. Digital strategy has to understand customer mobile data costs and associated mobile back-end development goals and budgeting.

Way back in 1991 Bill Clinton's successful US election campaign hinged on the phrase "It's the economy stupid" (the other main message being "Change vs. more of the same"). In that same era Dancer Fitzgerald Sample had produced their highly successful TV ad for Wendy's I embed here 'Where's the Beef? where three old ladies admired a competitors hamburger and its "big, fluffy bun". One of them isn't satisfied, bellowing the question "Where's the beef?" as the burger inside is so small. The ad was credited with boosting Wendy's annual revenue by a whopping 31 percent, and the tagline subsequently made its way into Walter Mondale's 1984 presidential campaign to (unsuccessfully) attack rival Gary Hart's lack of substance during the Democratic primary.

Life was so simple back then and TV reached everyone, everywhere with election messaging and hamburger sales propositions and branding, sometimes all blurred together. Today we live in a blizzard of always on information, giving and receiving huge amounts of information which spends a far shorter time in our memories.

Mobile data costs are now starting to supercede cable TV cost at the center of our lives. Cable companies are 'unbundling' premium products such as HBO, also recognizing that people are more likely to want to buy a specific media product on their tablet device anytime and anywhere rather than being in front of a TV set at an appointed hour.

Meanwhile some spend more and more time consuming data through our mobile plans on the hoof as we search for the best burrito within our gps range without looking up to see what the evidence our eyes and ears give us on the street.

People are not just 'cord-cutting' and moving to streamed TV, they are watching less and less of it, and the decline is accelerating. Meanwhile everyone with children will be very aware of the perils of unrestrained data consumption away from your fixed rate wifi router on 'always on' mobile devices.

The greatest time waster known the man, Facebook, recognized the opportunity years ago and cut deals in many parts of the world with mobile bandwidth suppliers to allow 'free' Facebook data access from mobile devices in order to get people addicted and off the broader internet.

Windows is now a drag on Microsoft's earnings after being their cash cow for generations and mobile device app interfaces are considered the norm in everyday life to operate everything from your house heating to interactions with the power company that makes it work. Those mobile apps are also generating greater revenue than mobile advertising, according to Mary Meeker.

However, across the board digital consumption has a track record of eating into profits and not replacing it with anything, driving down costs. The music industry, the film industry and now the game industry have seen ubiquitous digital availability eat into product brand building and long term profit. Increasingly the individual will pay large monthly fees for data bandwidth and smaller amounts to digital product distribution locations such as Pandora or iTunes, who then trickle down revenue to the actual creators of the content.

Information and Data Deflation

Despite -- or maybe because of -- these current trends, data harvesting is today the top of the business pyramid holy grail, with untold riches coming to those who can find the most data on you in order to predict your buying triggers. The personal data Facebook/instagram/Whatsapp generates is more valuable than Google search results because it is supposedly creates a more intimate profile of you and the groups of people you are similar to.

I spoke and wrote quite a bit about 'information deflation' a couple of years ago, and the vast and expanding data lake you create and float in is now becoming equally deflationary. The barrier to publishing of personal opinions, thoughts, experiences and enthusiasms was removed with the social networking fashion that has swept the globe, and with it the sea of information created every day has arguably slowly diluted the power and commercial value of your personal information. Just as TV has a reputation for trivializing everything it touches, over sharing on social networks has a stigma around trivializing human intimacy and relationship building.

The old concept of digital 'followers' being valuable - the number of people who have chosen to subscribe to your published thoughts - has considerably deflated, and brings into question for some the cost in your time and energy to accrue large 'followings', many of whom aren't actually paying attention.

Major league baseball can now slice and dice every nuance of every play - but does that ultimately help you predict who will win, crystal ball style, or is this just a great deal more incidental information for digital fan enjoyment? Nate Silver statistically defined the perfect burrito in America as being created in San Francisco, producing long lines out of the door at La Taqueria...but was that moment in time valuable and has it now been superseded?

Sometimes we can't see the wood for all the trees with big data and don't take into account the 'moment in time' snapshot element of detail oriented data gathering and how things change. Meanwhile some spend more and more time consuming data through our mobile plans on the hoof as we search for the best burrito within our gps range without looking up to see what the evidence our eyes and ears give us on the street.

Digital product deflation

Another facet of digital's corrosive march is the console games industry, who are moving inexorably to digital games through the data and broadband bundle into your house instead of the disc based media that enthusiasts kept on their shelf and resold at used video game stores when they have successful killed all their digital enemies.

One of these stores, Gamestop, has pointed out that despite the apparently soaring digital sales for the big game publishers they are actually destroying the profitability of the marketplace:

GameStop published market research from DFC Intelligence showing that 60% of all digital sales last year were free giveaways attached to a hardware bundle. In other words, almost two-thirds of the AAA titles that were digitally "sold" in 2014 were actually delivered as part of a bigger purchase of an Xbox One or PlayStation 4 console.

In the context of all video game buying, full-game downloads represented 12% of sales volume. However, because the majority of those sales came with $0 price tags, the digital channel accounted for only 2% of the industry's sales dollars.

A huge pile of money was left on the table here. According to market research firm NPD, free digital games reduced the industry's software sales by $250 million last year. GameStop estimated that it gave away over $100 million of digital content by itself in 2014.

Stopping the rot

Substituting free products and services for past business models is clearly not an optimum use of digital transformation, yet many get pulled into joining the gravitational orbit of competitor efforts that aim to steal marketshare through attraction of potential customers with cost cutting.

Cutting through all the disruption, transformation and 'how-to' hoopla, the beef in the digital bun is increasing profitability and value. As Drucker timelessly says 'The purpose of a business is to create and keep a customer' - not to give things away in the hope that people will like you in a world with the attention span of a fruit fly.

Special Feature

The Battle for the Soul of IT

It's no secret that the CIO is losing influence in today's corporate world as other executives gain more control over technology decision-making. Can CIOs transform themselves from infrastructure jockeys into digital symphony conductors, or will other executives become the most influential voices in tech?

Since a big chunk of your disposable income is already being consumed in data and connectivity costs, any products we might consider buying on top of these costs need have a very well defined and unique value to justify purchase. Youtube, which has destroyed the niche video business, is merely breaking even ('a billion viewers, no profit') as an example of the type of free digital product we have been trained to expect as a reward for our bandwidth bills.

For digital enterprise strategic planning the challenge is typically to be where customers and employees are and where they are likely to be in the future. Outside of controlling bloated marketing messaging that is typically far ahead of the reality of where typical companies actually are digitally, the main challenge is in budgeting intelligently for achievable goals and outcomes. A mobile app is a fairly trivial thing to create, the 'last mile' in cable tv language. The back end isn't, especially if it is talking to a last century brittle piece of enterprise software that was never designed for this type of functionality. Total cost of ownership of the mobile backend is a good example of heavy budgeting decisions for questionable results that haven't really been thought through in many companies today.

Customer-facing contact centers which can handle digital or voice transactions are an essential replacement for the old call center model in a world where most people would rather interact through an app or web interface than listen to on-hold music and then explain their issues to someone somewhere. Finding cost savings while increasing customer value is the goal and it is often not easy, despite all the 'fluffy bun' digital marketing we are surrounded with and confused by this year.

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