Notes on The Decoupling Effect of Digital Disruptors

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.

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