In the previous posts I made some unpleasing statements, like the fact that the Digital Transformation is decreasing the overall value of a value chain, by increasing its efficiency and eventually moving the benefits to the end consumer that will be paying a lower price. Obviously, if the price is lower the total revenue will also be lower and so the value generated by that value chain.
Yes I know, you might object that a lower price will lead to an increased market and that may offset the decrease in price per unit.
Yes, you may say that but it is not true (in general, particularly when the Digital Transformation is applied to a mature market). Take the example of the music industry or the one of the newspaper industry, two areas where the Digital Transformation took place (actually is not completed as of 2019 but it is getting closer and closer and worse and worse for the incumbent leveraging on atoms). Their overall value today is lower than the one they had 20 years ago.
Back in 1995 the music market had a value of 21.5B$, in 2015 it was down to 6.9B$ (in these last few years it is slightly increasing but we are well below 10B$ (over 50% of the value chain value has disappeared!).
More than that. By 2017 the old value chain, the one based on atoms (CD, vynil, cassette) generate less than 1B$ in revenues, the rest is generated by the digital part of music and this new part is basically controlled by new players.
Back in 2002 Napster fuelled the Digital Transformation. It was fought by the incumbents that eventually won the battle against Napster and but lost the war to the Digital Transformation.
The world of Newspapers has been hit hard by the Digital Transformation, with the revenues generated by ads in their printed copies falling from over 65B$ (in the US) to less than 15B$ (in the US). The uptake of digital advertisement is a drop of water in the ocean of losses generating less than 5B$ revenues. Hence the total value of the advertisement on the newspaper value chain went down from the 65B$ to less than 20B$ of today.
This is happening fast in many areas, and it usually follows a pattern of growth followed by a plunge that is the result of the Digital Transformation disruption.
Even areas that in theory should benefit from the Digital Transformation, like the Telecom Operators, given that their networks are carrying more and more bits (absolutely true) because of the ongoing shift from atoms to bits, are feeling the decreasing value of the atoms related value chains (in case of Telecoms they are still tied up with costly infrastructures and heavy labour cost). As the Digital Transformation will progress in their area as well (with flatter infrastructures much more based on sw than hardware, as it will happen once 5G will be in full swing -10 more years probably), we will see a sharper decline of atoms based revenues.
More in the next post.