Notes on The Decoupling Effect of Digital Disruptors

Rob Flaherty

These are my notes on the research paper, The Decoupling Effect of Digital Disruptors, by Thales S. Teixeira and Peter Jamieson.

Introduction

  • Three types of consumer activity:
    • Those that create value for the consumer.
    • Those that capture value from the consumer for the producer.
    • Those that erode value for the consumer without capturing value for the producer.
  • First wave of digital disruption was about unbundling. iTunes unbundled songs from albums. Google unbundled news articles from publications. Mostly limited to content providers and digital products.
  • Next wave is about decoupling: the separation of consumer activities that have traditionally been done together. Example: Tivo decoupled watching shows and watching commercials.
  • Examples of decoupling activities:
  • Primary stages of consumption: Search > Purchase > Use.
  • Disruptors: (1) find ways to provide value-creating activity without the other parts; (2) find ways to capture value.
  • Two opposing forces:
    • Integration Force: “One-stop shopping”.
    • Specialization Force: Multiple vendors providing better value for specific needs.

Solutions and Responses

  • Two options: Recouple and Rebalance
  • Recouple:
    • Example: Impose ads over content so the two can’t be decoupled.
    • Example: Charge in-store customers $5 for browsing but not buying.
    • Works when firms can strengthen the Integration Forces and weaken Specialization Forces.
  • Rebalancing:
    • Example: Best Buy charges manufacturers for preferred showroom placement. Capture value from previously value-creating activity (browsing).
    • Example: Telefonica rebalanced so both connectivity and communication created and captured value.
  • How decoupling is being used to disrupt markets:
    • Birchbox: removes search cost
    • Rent the Runway: removes ownership cost
    • SaaS: removes ownership cost
    • Sharing Economy: decouples using (value-creating) from owning (value-eroding)
    • Freemium: Decouples usage from payment
  • Question for established businesses: “Can another firm profitably deliver only the value-creating portion to the consumer at a lower cost by charging less, by reducing effort, or by letting them skip a non-value creating activity?”
  • Two ways incumbents can protect themselves:
    • (1) Increase bind, strengthen integration forces, weaken specialization forces. This may only be a short-term fix.
    • (2) Best approach: preemptively decouple.