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insurance policies without relying solely on the services of intermediaries. At the same time, developments in Big Data are facilitating access to rich stores of information about customers, which insurers can use to enhance sales and marketing strategies. Buoyed by more ef cient distribution models, digital transformation is helping insurers become more customer-centric.
2. Music and Entertainment
About a decade ago, a not-so-quiet revolution occurred in the music industry when, on April 28, 2003, Apple rolled out its iTunes Store. Apple’s digital distribution model was disruptive on two levels: it granted users instant online access to individual songs (rather than albums) at a low price point of just 99 cents. Apple’s iTunes-powered iPods freed listeners from the tether
of their home entertainment systems, car stereos, and boom boxes, allowing for on-the- y mobile listening from anywhere, anytime.
By 2010, iTunes was the largest music retailer on Earth. Today, it has 435 million registered users in 119 countries and recently served up its 25 billionth song. In addition, powered by an uber-ef cient digital distribution model, the iTunes store now sells more than music; it offers movies, TV shows, games, books, podcasts, and other digital media.
3. Energy
Coal power plants are responsible for nearly 40% of energy production worldwide; however, traditional power grids often distribute energy inef ciently. Over the past decade, utilities have been switching to smart grids, using digital technology to improve transparency and increase reliability and ef ciency. Smart grids allow for better monitoring and control of grid components, as well as improved data capture to better manage outages, and more ef cient energy routing to optimize energy usage.
These ef ciencies in turn reduce the need for excess capacity and increase power quality and security. The net effect of digital distribution in the energy grid, then, is the ability to deliver energy more predictably and securely, all at a lower cost.
Micro-Case Study: Nest
In January of 2014, the world was provided evidence that digital distribution had reached the consumer end of the utility chain when Google bought digital thermostat and smoke detector company Nest for $3.2 billion.
The Nest thermostat digitizes the entire home- temperature-control process, from heating, ventilation, and air-conditioning, connecting it to Nest’s cloud data
services. The thermostat compiles its data on real-time energy consumption and shares the data with utilities, allowing them to improve their energy consumption forecasts and therefore achieve greater ef ciency. Moreover, Nest can relate cost data back to end customers, reducing their energy bills.
By creating value for all of its stakeholders, Nest offers an exemplary model of the positive net effect of ef cient digital distribution on multiple levels. To begin with, Nest’s retail prices are double or triple those of conventional thermostats. In addition, Nest is able to pro t from electric utilities on the basis of outcomes: Google can aggregate data on energy-consumption patterns and offer the utilities a service in return for
a percentage of their savings. Finally, it can then take a portion of these savings and pass them on to end consumers.
Given Nest’s ef cient digital distribution model and ready ability to interface with parallel home products and services, it’s easy to see how this innovative product may play a key role in shaping the $6 trillion energy sector in coming years. For example, the Nest platform now connects with advanced Whirlpool laundry systems to schedule wash and dry cycles during nonpeak hours; it is able to connect with the wearable-technology company Jawbone to detect when someone has awakened and then dynamically adjust the home temperature; it also can be programmed to interface with home security systems and myriad other consumer electronics devices.
Three Critical Questions
These cases bring forth three critical questions for the c-suite/senior leadership:
Is your company anticipating the profound impact of digital technologies on media interactions, cost ef ciencies, changes in distribution, and customer experience and expectations?
Are you prepared for more ef cient, customer –centric companies to enter (and eventually dominate) your market, fueled by novel digital distribution models?
Are you agile enough to draw on your expertise and market position and adjust your business models to leverage the power of digital distribution for competitive advantage in today’s global digital marketplace?
Authors: Ira Kaufman, Phd, is a marketing strategist, digital transformation consultant, and professor. Chris Horton is a content creator and digital strategist for Minneapolis-based integrated digital marketing agency, Synecore. Ira and Chris co-authored Digital Marketing: Integrating Strategy and Tactics with Values, published by Routledge in October of 2014.
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