The end of the beginning: The emergence of next-generation digital innovations
On Jan. 3, 2022, Apple became the first company that reached a market capitalization of $3 trillion. Apple reached this once-unthinkable valuation level only two years after it became the world’s first two trillion-dollar company. It is not just Apple. With a combined market capitalization of $10 billion and more, Apple, Amazon, Alphabet (the owner of Google) and Meta (the owner of Facebook), which built their business models around digital platforms, would be the world’s third-largest economy only behind the U.S. and China, if they were a country. The euphoria with digital innovations is not limited to these global big tech platform players. According to CB Insights, there are around 1000 so-called unicorns with a valuation of over a billion dollars, many of which are focusing on digital innovations.
Indeed, the last twenty years have seen remarkable economic growth through the effective use of digital technology. These digital innovations are all built on the combination of the layered modular architecture of Web 2.0, the generativity of open ecosystems, an unprecedented amount of digital trace data, and powerful analytics capabilities using a centralized data architecture. These platforms could continue to tap into a seemingly never-ending supply of innovative ideas from third-party developers to offer new innovative services to users, who seem willing to share detailed digital trace data in exchange for better services at a lower cost. It seemed as if these platform providers had cracked a secret code for long-term sustainable growth. The explosive surge in digital services during Covid further accelerated the power of these companies. Everyone, big and small, old and new, is rushing to imitate this golden formula in their own vertical before they get disrupted and displaced by these platforms.
However, we are beginning to see signs that suggest the current paradigm of digital innovations that underpinned remarkable economic growth over the last 20 years is coming to an end. The proliferation and massive expansion of digital platforms in the economy led to serious social, technical and economic negative concerns. These range from the stifling competition in digital innovation due to the rising monopolistic power of a small number of platform providers, the ramification of the amplifying power of algorithmic services that can lead to polarization in society and the rapid spread of fake news, and the privacy and ownership of personal data. In fact, on Feb. 3, this year, Meta lost a quarter trillion dollars in market valuation in a single day, the biggest loss in U.S. history. At the moment, Meta is about 50% of what it used to be worth just over six months ago.
It seems as if we are now entering a new period of digital innovation. The crash of Meta is not just about Facebook. I believe it is like a small wave before a tsunami caused by the tectonic shift in society and technology. On Jan. 7, 2007, when Steve Jobs introduced the iPhone at the Macworld Convention in San Francisco, Nokia, Motorola, Samsung, Sony Ericsson, and LG were the top five mobile manufacturers with over 80% of the global market share. Apple’s market share at that time was precisely zero. Everyone in the industry sensed something big was coming, except no one knew where, when, how, and by whom. On the day the iPhone was introduced, I was working with one of those five companies to design the next generation “mobile phone platform.” The project was called Mobility 2.0. The moment we saw Steve Job’s presentation with his two-finger pinch movement on the screen, everyone in the room knew we were witnessing “the next big thing” that we were all looking for. Except, it was not a “mobile phone.” The word “phone” in “iPhone” only added confusion to Apple’s competitors who kept trying to make a better phone when the phone became just an app. Ten years later, only Samsung is still in the business.
The spring of 2022 feels a lot like the spring of 2007. Everyone seems to think the next big thing is coming, except no one knows where, when, how, and by whom. Everyone is trying to imagine the next digital platform. If we learned anything from 2007, the next big thing might look like a digital platform, but the digital platform may very well be just a feature of something entirely new.
Over the next few months, through this newsletter, we will discuss how we see the landscape of digital innovations is rapidly changing. We will discuss the social, technical and economic implications of those changes and how organizations can prepare for such changes. We will also discuss how xLab is evolving to lead the next phase of digital innovations.
