The digital revolution creates a lot of angst for organizations and businesses. There is worry that it really fundamentally changes the basis of competition. And while there's a little truth to that, it's important to recognize that our strategist challenge still holds. That valuable competitive positions that provide a competitive advantage emerge out of the values, the opportunities and the capabilities that an organization faces. But it is very true that the digital age creates a set of unique circumstances that create unique things we need to think about when we consider the strategist challenge. I find the following typology useful, thinking about three phases of digitization. The first is value. Very simply, the ability to digitize data that exists. Think about the music industry. In the early stages of the music industry, we had analog. We had records. We had cassettes, but then there was a fundamental change when we created CD. What was these analog waves were now turned into 0, 1 bit digitization of that underlying data and that allows you to replicate and scale that data, that music quite easily. The second thing that happens is connectivity. Being able to share that data easily on maybe the internet or other platforms when we think about the music industry soon after the rise of the internet, we started to see things like Napster. And then ultimately, Apple with their iTunes store, making it very easy to take digitized copy of music and to download it onto your devices. The third phase is what we call aggregation. Now that we have taken all this data and we're connecting it to different users, we can collect data about their behavior and create additional value to those consumers. In the music world, this is what has happened with streaming services like Spotify. Now that they know about what you prefer and what music you're listening to. They can begin to create value on top of that by suggesting playlists and the like. If we take a look here at the evolution of the music industry, you see exactly what I've been talking about. The light blue is records, then we move into the phase in the 1980s with cassette tapes in the dark blue. We have a long run with CDs through the 90s and the early 2000s and then we start to see the emergence of, for example, download singles in the yellow there. They had a relatively short time period. And now have been replaced by and large, by streaming services. Now, why this is interesting from a competition standpoint is because each one of these transitions represented a disruption to the existing business models and the existing value chain within the industry. In fact, certain businesses, certain companies would go out of business when facing these types of changes. So as the competition had changed, as the technology evolved, various business models would change as well that affected throughout the value chain. One way to think about this is in the following way. If we start with the ability to generate more data, again, digitizing music as the beginning point in our story here. Once we begin to generate that data, it creates improvement in our algorithms, these machine learning and other approaches to be able to leverage that data to create greater value. Ultimately, we can think about this value being realized in lowering transaction costs. Maybe that for the same dollar spent, you get a lot more value as a customer. And now to get the same value, you can spend less money. But the end result of this is that we see increasing transactions. People wanting to consume that good or service more, now given the additional value created by leveraging data and this is where the process completes itself. Because those increasing transactions generate yet even more data, improving algorithms further lowering transaction costs further. This becomes critical, because it starts to drive scalability and that creates some very interesting competitive concerns and outcomes. For one, it tends to drive what we call winner take all markets where there might be a dominant player who comes to dominate the industry. Think about Google and search or Amazon and online retail, they're leveraging the dynamics of data and these positive reinforcing loops to create dominant competitive positions and industries that are very hard for other companies, other organizations to dethrone them from their position. It's for these reasons that when we think about the digital age, we have to think about the changing basis of competition, the emergence of new business models and how in this new world do we continue to create competitive advantage.
