Creating value in the digital economy Prof Mark Skilton May 2014

Prof. Mark Skilton
Professor of Practice, Information Systems Management
Warwick Business School, UK
m.r.skilton@warwick.ac.uk

Agenda
Physical economy, digital economy and role of
digital ecosystems
Multisided market platforms (MSPs)
Open Platform 3.0TM
Generative Platforms and Modular architecture
Design Lessons
Prof Mark Skilton Copy right 2014 2

Physical Economy, Digital Economy
and role of digital ecosystems
3
Physical
Economy
Digital
Economy
Digital
Ecosystems
Physical markets
Companies, resources
and services that contribute
to GDP and Net worth
The digital ecosystem is a
described boundary of a
market and business activity
that is using connected
technologies to enable a
new kind of market and
business performance and
user experience
Virtual resources and digital
transactions in markets,
Companies, resources and
services that contribute to
GDP and Net worth
Prof Mark Skilton Copy right 2014

Multi-sided Market Platforms
(MSP)s
4Prof Mark Skilton Copy right 2014
Many current academic research activities are focused on MSPs
In principle MSPs provide an “environment” for economic , social exchange of products and
services
Industry Sectors
Products and Services
Types of Consumer and provider Groups,
data , metadata and behaviors
Types of Devices, Systems
and Services
MSP
Types of governance,
Auditors,
Certification and
Security assurance
providers and services

Value, Worth and co-benefits
Value
The intrinsic monetary of an object, relationship or transaction e.g. a cup of tea
is made up of a cup , tea, water (1)
Worth
The associated value between two or more parties for a object, relationship or
transaction. E.g. A cup of Tea is a warm, soothing, pleasant drink (1)
Something that may have value does not necessarily have worth
Co-benefits
The creating and association of shared or individual benefits from the inclusion
and cooperation of two or more entities, parties (2)
References:
1. Creating New Markets in the Digital Economy: Value and Worth
http://www.amazon.co.uk/Creating-New-Markets-Digital-Economy/dp/1107627427/ref=sr_1_1?ie=UTF8&qid=1396527655&sr=8-
1&keywords=irene+ng
2. UN IPCC WGIII AR5 Climate Change Mitigation Report April 12 2014
http://www.ipcc.ch/report/ar5/wg3/
http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-policymakers_approved.pdf
Physical Economy and Digital Economy

Open Platform 3.0TM
Value and Worth co-benefit Drivers
Brands
& Markets
OP3Able to grow
and drive Brand value
Modularity & Tiers
Value & Worth
Able to architect and build
trusted, reliable ecosystems
of Products and Services across
networks and technologies
Able to access and address customer markets to grow
and scale communities to monetize and create sustainable value

Enabling Devices, Communities to
create Value-in-Context
Brands
& Markets
OP3
Modularity
& Tiers
Value & Worth
Industry
Bodies
e.g. Connected Car
Cloud
Platforms
Mobile
Device
Platforms
Supply
chains
Branded
Services
Telecoms
Platforms
Public
Social
Platforms
Enterprise
Collaboration
Platforms
Market
Trading
Platforms
Digital Economies
Digital Businesses
Social and Data
Behaviors
Digital Value
Networks
Trusted Services
Boundaryless Information Flow TM

Massive Scaling era 2015 -2035

Massive internetwork era

Generations of Platforming &
modularity
1980 1990 2000 2010 2020 2030
Platform
1.0
Platform
2.0
Platform
3.0
Cloud management
Multi-Client – Multi-Server
Multi-band Internetworking
Mobile networking
REST, API connectivity
Long tail emergence
Client – Server
Virtualization
Early Internetworking
Large scale clustering
Industrial Internet
Ubiquitous sensors
Internet of things
Quantified Self
Quantified life..
PC era
Ultra large scale Data
Virtual communities
Crowd sourcing
Multi-device, object
Modular OS
Distributed services
Nested services
Massive
Scaling
Internet
Foundations
Web services
& PC era

The Industrial Internet era 2020..
Industry sectors, multi-disciplines and Internet of
things (IoT) driving sustainability and climate
economics
Industry Sector targets
○ Energy Supply - generating and distribution
○ Transport
○ Buildings
○ “Industry”
○ Agriculture, Forestry and Other Land Use (AFOLU)
○ Human Settlements, Infrastructure and Spatial Planning
○ ICT - practices
Greenpeace March 2014 Your Online World: #ClickClean or Dirty?
http://www.greenpeace.org/usa/en/media-center/reports/clickingclean/
UN IPCC WGIII AR5 Climate Change Mitigation Report April 12 2014
http://www.ipcc.ch/report/ar5/wg3/
http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-policymakers_approved.pdf

Industrial Internet, the Quantified
Self and the Quantified Life
OP3
Sensors and Internet of Things …
Industrial Internet
Quantified Self, Quantified Life..
Crowd sourcing, funding , Open Innovation
New mechanisms
New information
models
New
objects
New
Markets

Digitization in context
Societal Level
Organizational Level
Object Level
- Digital inclusion
- Ethics and Privacy
- Legality, trust, competition law
- Shape of organization
- Social organizations –
formation & evolution
- Reprogrammable, reflexive
- Embedded
- Augmented

Concepts of digital architecture
Generative structure
Temporality of
design
=
Temporal sequencing and pace
Subjective experience of time
Source: Yoo 2014
Outcome Architecture
Scenario
“ Reduce X by 50% “
Change Architecture

Example: Apple iPhone Architecture
& Modularity generativity
June 29 2007
1st
Gen
Quad-band GSM
with GPRS and
Edge
2nd
Gen
July 11 2008
iPhone 3G
“Obsolete”
June 11 2013
3rd
Gen
4th
Gen
5th
Gen
6th
Gen
7th
Gen
8th
Gen
iPhone 5C, 5S iPhone 6iPhone 5iPhone 4
dual-core
64-bit A7
processor
TouchID
Fingerprint
higher-resolution
960×640 "Retina
Display“ + Front
facing VGA
5 M Rear facing
+ Record 720p
3G network
A-GPS Location
iPhone 4S
Dual-core A5
Natural
Language Siri
8 M Rear facing
+ Record 1080p
Thinner,
lighter, 4 inch
Display
dual-core A6
processor
iPhone 3GS
Faster CPU
Record 480p
iPhone 2G
June 19 2009 June 24 2010 October 14 2011
September 21
2012
September 20
2013
September..
2014
Memory 128MB 256MB 512 MB 1 GB LPDDR2 1 GB LPDDR3
OS 3.1.3 iOS 4.0 (Facetime) iOS 6.0 (Map..) iOS 7.0
GPU 150MHz 150 MHz 200 MHz 2-core 3-Core 4-Core (5S)
iWatch?
Started 2004
Development steered
away from tablet to phone
“Project Purple” 1000 employees
Secret collab with Cingular Wireless
(AT&T Mobility)
Dev Cost Est $150 million over 30 months.
3-4
Yrs
3-4
Yrs

“Apple’s iPhone Revenue Exceeds All The Money
Made By Microsoft And Amazon” Sept 2013
Apple only has 7% of
phone market (huge)
(Steve Jobs said he
would be happy with
1% ..)
Phone brings in 60%
Market profit ... A
“ubiquitous Luxury”
product
$88.4 billion in
annualized revenue …
http://www.statista.com/statistics/263401/global-apple-
iphone-sales-since-3rd-quarter-2007/
http://elitedaily.com/news/business/apples-iphone-revenue-
exceeds-all-the-money-made-by-microsoft-and-amazon/
5C, 5S
4S
5

iPhone if it were a company or
Apple a country…..
http://elitedaily.com/news/business/apples-iphone-revenue-
exceeds-all-the-money-made-by-microsoft-and-amazon/
Apples cash reserve $147 Billion is 58th richest country
Higher than Vietnam GDP. ( Australia + UK Reserves)
Apple is 1st place most valuable Global Brand (interbrand)http://www.huffingtonpost.co.uk/2013/10/02/apples-cash-hoard-
is-147-billion_n_4028576.html
September 2013

Apple 2007 - 2013
http://www.macrumors.com/2013/07/23/apple-reports-q3-2013-
quarterly-results-6-9-billion-profit-on-35-3-billion-in-revenue/
http://en.wikipedia.org/wiki/File:Apple_revenue_breakdown_2007
Q4.svg

Innovation cycles of Architecture
Generations and modularity
Time
Generations
Core
Architecture
Adjustments
Adjustments
New Core
Architecture
Adjustments
Adjustments
Change
Architecture
Design evolves in a series of activities and events
Temporality of Work
Source: Yoo 2014
Communitization
Communitization
Co-value
Creation

Platforming and modular Architecture
In the Case of Apple there were platform and modular changes in
Hardware and Software simultaneously that created several step changes
to enable new scaling capabilities and generative performance. Many of
these were baked into the Operating System updates to create
architectural changes to enable these advances. Example:
GPS location based services
Touch and Movement sensors (for tactile use and gaming)
Front and back cameras for video chat
itunes music store (modular scaling and monetization)
Apps Store ( “ “ )
Book store ( “ “ )
Siri natural language voice recognition
This was a platform and modular architecture strategy working at
hardware, software, OS and content and networking levels.

Quantum Strategy of Apple
http://www.wbs.ac.uk/news/quantum-strategy-at-apple-inc/Source: Heracleous 2013
“Apple has achieved its outstanding
performance through effectively
implementing an unconventional
strategy: differentiation through
innovation (along various dimensions
that include serial, strategic and
incremental innovation), with
simultaneous intense levels of
efficiency, leading to the lowest costs
in its peer group.”

But is this sustainable in the future
Internet of (All) Things ?
Examples of partial contextual worth
AMAZON dynamic Pricing
The variability of prices is flexed depending on demand availability
GOOGLE in-webpage dynamic Advertizing
Contextual look-up and targeting
APPLE integrated account and payment
Consumer profiling and services
UPS / Retail /providers integrated supply chain
RFID, GPS Vendor Management Inventory
All these are vertical value ecosystems – there is very little horizontal
connectivity - NOT CONNECTED WORKSPACES

The “Smart Hotel”
Loyalty cards, services
In room services
Maintenance services
Room facilities
Reception services
Room Cleaning Services
Travel and Boking
services
Connections and
Transport
Rooms &
Facilities
Reordering
and
Brands

What is the impact of the Internet of
(All) Things ?
• Ethics, Privacy,
Security, Trust,
Rights ?
o How to
federate
Identity to
many
ecosystems
o How to
assure
services –
the value of
trust and
assurance.
THE CONTEXTUAL SELF
• Value propositions?
o TeleHealth
o Lifestyles
o Social preferences
o Location proximity
knowledge ..
o Protection
services
o Medical services
o Insurance services
o Societal value
o ….

Towards a connected society
Mobility
value
Social
value
Big data
value
+ +
Sensors
value
+Cloud
value
+
Machine
Intelligence
value
+ +
THECONTEXTUALSELF
Industrial Internet
Connected Spaces
Connected workspaces
- objects, bodies, rooms
- Transport, buildings, cities…
Connected industries
- Legislation, interoperability
- Bandwidth, Governance

Connected spaces – augmented value
Social
Mobility
Sensors
Big data
Cloud
Machine
Intelligence
Digital Ecosystems
value
value
value
value
value
value

Digital Value reinforcement cycles
Social
Mobility
Sensors
Big data
Cloud
Machine
Intelligence
value
value
value
valuevalue
value
Create
co-presence
Creates
location context
services
Multiplicity
access to
apps & content
Creates real time context
and feedback responsiveness
Creates multi sense rich
event awareness
“wearables”
Creates “long tail”
federated services
Create
Real Time
Experiences
& responses
Augmented ML
H2M experiences
Access
& connectivity
Create
data “memory”
persistence
& record
Loyalty,
Gaming behavior
Provides uniqueness
profiling
Data quality insight
Targeting advice
Contextual data
Creates insight
Decision quality

Value contextualization
Social
Mobility
Sensors
Big data
Cloud
Social contextualization
Presence
contextualization
Meaning &
affectation
contextualization
Temporal event
contextualization
Machine
Intelligence
Capability access
contextualization intelligence
contextualization
Digital Ecosystems

Digitization
Changes physical to virtual properties of objects, places, events, locations,
rooms, building, resources, relationships and environments.
Digital objects have characteristics that do not exist inherently in physical
objects
can to reprogrammed, replicated, self-referential and reflexive
Enables interoperable and portable contextualization
Products and service experience can to “emulated” and “moved around”
Creates contextualized value
Can share experiences between participants that are not necessarily in the same
physical space but can
Value-in-use
Value-in-context

Contextual and out-of-contextual
Non-contextual
The product or service options and choice are not specifically
contextualized to the consumer or mediator needs, wants, behaviors or
situational preferences
Contextual
Offering contextual choices taking account of situational factors, needs,
wants and behaviors
Note: The Situational factors could be based on past, current or future
predicted locational and relative outcomes

Value creating outcomes
Digitalization creates alignment between
attributes and outcomes
Attributes
Price
Speed
Size
Weight
Connectivity e.g. wifi
Ambience
-
Outcomes
Enjoyment
Socialized
learned
Gained Knowledge
Saved time
-
-
-
C
O
N
T
E
X
T
U
A
L
I
Z
A
T
I
O
n

Platforming and modularity to
enable Value Creating outcomes
Digitalization creates alignment between
attributes and outcomes
Attributes
Price
Speed
Size
Weight
Connectivity e.g. Wi-Fi
Ambience
-
Outcomes
Enjoyment
Socialized
learned
Gained Knowledge
Saved time
-
-
-
CONTEXTUALIZATION
OUT-OF CONTEXTUALIZATION
Commodification offers
Personalization offers

Conclusion - Lessons in Digital design
digitization has consequences – ethics, privacy, trust,
competition, social & societal threats
Paradox 1. Cost and Performance is by design
Paradox 2. Privacy and monetization is a trade-off
between consumers and providers
Paradox 3. Need for connectivity but cost of
operation scaling affordability

Paradox 1. Cost and Performance is
by design
Technology Cost per Outcome
Progressive technology innovations
Price per
unit of technology
Cost to
achieve
Outcomes
by Industry contexts
Market
Contexts
Paradoxical
Variation
Scenario A
Scenario B

Paradox 2. Privacy and monetization
is a trade-off between consumers
and providers
Provider dominant Market Model
External – Markets driven
Your Data
Self Monetization
Mechanisms
- Advertising
- Links to
merchandizing
Out-of-context
Search,
Collection
Aggregation
Computation
Collected
and derived
data
Strong association
Weak association
context
domain Personal
Data
Meta
Data
(Some Contextual)
Value exchange
Right to use
my information?
How I can use
my information
for my value
(in-context) ?
Right to be
Forgotten?

Paradox 2. Privacy and monetization
is a trade-off between consumers
and providers

Paradox 3. Need for connectivity
but cost of operation scaling
affordability
O-DA (Trusted Assuredness , FACE (Open controlled Connectivity)

Conclusion - Lessons in Digital design
Lesson 1. Understanding digital platforming and
modularity can create monetization scaling
Lesson 2. Digitization on contexts enables value-in-
context
Lesson 3. Digitization has the potential to reinvent
any object and its value offering

Creating value in the digital economy Prof Mark Skilton May 2014

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Creating value in the digital economy Prof Mark Skilton May 2014