Jeff’s 6 Digital Superpowers (Jeff’s Asia Tech Class – Daily Lesson / Update)

I have been giving you lots of frameworks and concepts. And after a while, it can all get kind of confusing.

  • Is this new software critical for my business?
  • Is this new business model going to seriously impact our industry?
  • Is this like Amazon disrupting retail?
  • Is this more like Mobike, which was nice but didn’t put the traditional bike companies out of business?

How do you determine what really matters in digital transformation and disruption?

It’s can be confusing for executives, especially when software and tech vendors are always pitching new stuff and saying they are all critical.

I use a cheat sheet for what really matters, which I call my list of 6 digital superpowers. When I get confused about a business, i just check this list. If a competitor, new entrant or new tool enables anything on this list, I pay close attention.

But first, some thoughts on what is going…

Digital China / Asia is actually 4 big things happening at once.

The first big thing is digital transformation and / or disruption. New digital tools and data technologies keep emerging. There’s big data and AI. There are smartphones, sensors, mobile payments and GPS. There’s the Internet of Things and increasingly digitized and interconnected business processes.

We see this phenomenon sweeping across most industries and geographies. And China is no different in this. Businesses and industries are being transformed and often seriously disrupted by the new digital (and data) tools that keep emerging.

However, there is also a second big phenomenon happening. It is the emergence of digital platform business models.

Platforms are businesses that serve more than one user group. They can be physical platforms, such as shopping malls which serve both customers and merchants. Or mixer bars which serve men and women (usually). These can be labor-based platforms, such as M&A bankers who serve both customers with assets and capital.

But it is the emergence of digital platforms that is really rocking the world. This is Google, Facebook, Alibaba, Tencent, Amazon, Apple, eBay and many others. It turns out digital platforms are really powerful. They scale rapidly and easily (with small marginal costs). They usually cross geographies with little effort. And they can have some powerful advantages.

When a business or industry goes digital (phenomenon 1), this can often enable the emergence of a digital platform business model. For example, when GPS digitized location, ride-sharing platforms like Uber and Didi became possible. When social interactions became digitized, social media platforms like Facebook, Twitter and WeChat emerged. And so on. Much of what is happening in digital Asia is the emergence of digital platform business models (Alibaba, WeChat, Online Gaming, VIPKid, Alipay, etc.).

A third phenomenon happening is the leapfrogging of development of China / Asia.

If you talk about digital transformation in US retail, you will probably compare digital attacker Amazon vs. traditional incumbent Walmart. And it’s a pretty good fight because US retail is already mature and hyper-efficient. Both companies are very advanced.

But retail in China / Asia is still mostly underdeveloped, with lots of mom-and-pop stores and very complicated and inefficient distribution. And when you hit a still developing industry with a digital upgrade, you get you a much bigger bang in terms of user experience and productivity gains. So digital is really leapfrogging a lot of still developing China / Asia industries forward.

A fourth factor is the emergence of AI factories and zero-human operations, which is a big thing in China / Asia financial services (Ant Financial, ZhongAn Insurance, etc.). More on that in another article.

So that’s my first point. There are at least four really big phenomena happening: digital transformation / disruption, digital platform business models, leapfrogging industry development and AI factories.

But within all this, I look for companies that have any of the following 6 digital superpowers.

There are at least 6 digital superpowers a company can achieve.

People keep trying to come up with comprehensive frameworks for digital transformation. They come up with new terms (dematerialized, hyper-scaling, etc.). But there isn’t any grand unified theory for digital. It’s mostly a chaos of use cases.

The best approach I know is to map out the individual use cases in a particular business. Make a long list of what the various tools could do in a convenience store. Or in a hospital. Or a McDonalds. And just keep updating these long lists as new tools and new ideas keep popping up. It’s a brute force approach. It’s not sexy. But it’s accurate.

But bubbling up out of all these use cases some powerful advantages can emerge. I call these the digital superpowers. They are when certain use cases have combined in a way to give the company a really big advantage over its competitors. These are the ones I look for.

Digital Superpower #1: A dramatically improved user experience.

We are seeing this a lot on the consumer side in China right now. Using digital tools, a company re-invents a service, product or business model and makes the existing service or product obsolete, often very quickly.

Bike-sharing was an example of this. It wasn’t sharing. It wasn’t a platform. It wasn’t even that ground breaking. It was basic digital tools (GPS, smartphones, mobile payment) applied to bike rentals.

But it dramatically improved the consumer experience. Suddenly you could just jump on and off a bike anytime you wanted – and just leave it anywhere. It made riding bicycles dramatically more convenient (and cheaper). And almost overnight, it made traditional bike rentals (especially docked bicycles) obsolete. It also made selling bikes somewhat harder.

Some other examples:

  • Youtube, Youku and Netflix made watching videos much more convenient and cheap (basically free). Selling cable packages and DVDs got a lot harder.
  • Steve Jobs launched iTunes and let you buy just the one song you wanted – and without leaving your home (again, super convenient and cheap). Suddenly selling an entire CD at a local retail store became impossible. Spotify later rebundled.
  • New retail is changing how consumers buy groceries in China. Customers are already ordering +60% of purchases on their phones from outside of the stores. They are now used to getting 30 minute delivery. They are also getting cooking and other services. Traditional, non-OMO grocery stores are in big trouble.
  • A counter example is the digitization of retail coffee (i.e., Luckin Coffee). Ordering a cup of coffee on your phone and picking up is helpful but it didn’t really transform the user experience dramatically. I consider it an upgrade but not a superpower.

Anyways, on a fairly regular basis, somebody takes a product or service and uses digital tools to dramatically improve the user experience. It is often a game changer. And a digital superpower.

Digital Superpower #2: Creating a digital platform (and getting complements, subsidies and other soft MSP advantages).

Another superpower is the emergence of a platform business model in an industry that is traditionally vertically integrated (i.e., not a platform). Uber and Didi did this to taxi companies. Airbnb did this to hotels. It can be brutal.

As mentioned, when a traditional industries starts to become digitized, a digital platform can sometimes emerge. And these have lots of advantages. In addition to network effects (Superpower #3), they can subsidize prices for one user group (gmail is free because Google makes money on advertising). They can move horizontally into new industries (Alibaba jumping into entertainment). They can be protected by chicken-and-egg advantages. And all this can be devastating against sleepy, non-agile vertically integrated incumbents.

Digital Superpower #3: Network effects, including a data network effect.

Most platforms claim to have a network effect. But many don’t. And not all network effects require a platform business model (depending how you define them). But network effects can be a big deal and can get you a dramatically superior service to smaller competitors.

Note: Not all network effects are not created equal. Some are formidable (hello WeChat, Facebook). Some are easier to overcome (local ride-sharing, infrequently used services).

This also includes data network effects. But this can often be called personalization. Or learning platforms. And data is usually just an advantage, but not a competitive advantage or network effect. More on that in another article.

Digital Superpower #4: Other competitive advantages – especially switching costs and super-stimulated consumer behavior.

Most consumer products and services are blunt, crude instruments against human wants, needs and psychology. Sugar tastes good (and is addictive) so Coca-Cola really loads it up in a can. Physical attraction is pleasant and powerful so companies put pretty women (mostly) on cars and other random products. It’s all done fairly crudely.

It turns out digital and software are particularly sophisticated at addressing such needs and wants. Slot machines have always been good at appealing to people who like to play games (emotional, habit forming) and who like to gamble (very addictive). But digital slot machines have supercharged this. The software can very specifically target consumer psychology and behavior. Digital slot machines get people to drop a lot more quarters in the machine. Electronic gambling and digital screens can be scarily addictive for certain people.

If consumer products and services have traditionally been blunt instruments, digital is very precise. And it is often used to super-stimulate psychology. For example, Facebook and Instagram are currently wreaking havoc on the psyches of young women globally (look up the teen depression numbers). Online news and Twitter are keeping entire populations in a near-constant stage of outrage. And porn is dwarfing all other forms of entertainment.

A lot of the digital story is about software super-stimulating human wants, needs, impulses and behaviors. It is giving us what we want, like all consumer companies. But it is doing it with such sophistication and in such massive doses that the effects can be stunning. Next time you are on the subway, look around. Everyone will be glued to their smartphones for the entire trip. Marc Andreesen famously said “software eats the world”. I think it’s more like “software hacks humans”.

And this can create real competitive advantages for companies. A lot of consumer products and services are about creating habits (drinking coffee every day) and emotional impact (music makes you feel good, fashion makes you happy). Super-stimulating consumer behavior is a digital superpower (for better or worse). That’s one type of competitive advantage. TikTok is a recent example of this.

Software is also good at building in switching costs, another type of competitive advantage. You see this on the consumer side. But it’s usually stronger on the enterprise-side. Think Microsoft operating system and all the digital tools at your workplace. Another example is ride-sharing, where there is actually not that much power on the consumer-side. But on the driver side, you can offer services that let drivers build small businesses on the platform. Didi is currently building out its drivers services (car financing, insurance, government services, etc.). This will create switching costs for the best drivers.

There are lots of other competitive advantages. But these two are common.

Digital Superpower #5: Virality.

This is just a sales mechanism, where the very usage of the product or service brings new customers onboard. So this is you sending a payment to someone, and they need to sign up to PayPal to receive. Or you doing a Zoom call with someone, and they need to sign-up to participate. Or Groupon and Pinduoduo, where group buying gets consumers to recruit their friends and make joint purchases.

Basically, virality turns your users into sales agents for your company. And when you’re talking about millions of users, this can be very powerful.

Digital Superpower #6: Scalability.

The last one is pretty simple. What Netflix, Google, Facebook and TikTok all have in common is their ability to scale globally with little effort. And that is pretty great. Especially when you compare this to education (my area), where the services are very local. And you need classrooms and teachers in every town.

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Ok. That’s it for today. I have covered all of these in other talks and articles. So this is just a quick summary.

Cheers, -jeff

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I write and speak about digital China and Asia’s latest tech trends.

I also teach Jeff’s Asia Tech Class, an online course and daily commentary for busy executives on Asia tech and China’s digital leaders.

  • My online class offers:
    • Deeper insights into workings of the tech giants of China and Asia.
    • Executive training in the strategies and tactics of advanced digital strategy.
    • A unique view from the ground – and behind the scenes – of digital China.
  • And the class is condensed to just 70 minutes a week – so even very busy executives can do it.

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