defining digital | 8 Minute Read

What is Digital Business?

Digital businesses use technology to create new value in business models, customer experiences and the internal capabilities that support its core operations. The term includes both digital-only brands and traditional players that are transforming their businesses with digital technologies.

Growth of the Digital Economy

Today, people are spending more money online, which has shifted business emphasis to digital sources of revenue and digital channels. The growth of the digital economy has made people more familiar with digital products and services, which has driven companies to seek new competitive advantages in the digital space.

But digital business has evolved into more than selling online; according to Accenture, “Digital businesses create competitive edges based on unique combinations of digital and physical resources. They do things that others cannot and in ways that build comparative advantage.”

Common Elements of a Digital Business

There are several views on the exact definition of digital business from industry experts. Gartner says that digital business is the creation of new value chains and business opportunities that traditional businesses cannot offer. McKinsey emphasizes that “digital should be seen less as a thing and more a way of doing things.”

Most digital businesses fit one or both of these points; they focus on creating value at new frontiers for their core business, or they use digital technology to drive growth, revenue and performance in ways that were impossible with traditional models.

It may be helpful for companies to review common elements of digital business and compare them against their own business models. These are some of the trends that differentiate digital from traditional processes.

Common Elements of a Digital Business
  • Use existing technologies
  • Embrace the concept
  • Explore new business models
  • Use existing technologies to cut costs, gather data and provide a better customer experience. Digital businesses focus on the competitive advantages that technology gains them, whether that’s reducing overhead or providing new value to their customers.
  • Embrace the concept of digital transformation and the cultural shifts that requires. The implementation and management of digital services can necessitate organizational restructuring, especially as new roles are created and IT is given greater input into strategic decisions.
  • Explore new business models that put customer experience at the center of digital strategy. People are often willing to spend more for an exceptional customer experience, making it a key differentiator in the digital economy. Business models that align with this hyper focus on customer satisfaction will eventually center on digital services, since digital is increasingly the experience that people prefer.
Digital business is changing the way organizations use and think about technology, moving technology from a supporting player to a leading player in innovation, revenue and market growth.

Digital Business vs. E-Business

Digital business is distinct from e-business in that e-business typically leaves existing business models intact, merely using technology to gain efficiency or eliminate redundancies. Having customers fill out a credit card application form online reduces the inefficiencies of a paper application process, but it doesn’t provide an experience that is new or different. Digital business focuses more on how technology allows companies to create new value and experiences that differentiate companies and give them a competitive edge over their peers.
Digital business focuses more on how technology allows companies to create new value and experiences that differentiate companies and give them a competitive edge over their peers.

Examples of Digital Business

Uber capitalizes on the widespread adoption of smartphones and utilizes a business model that allows them to maintain relatively low capital assets. A traditional taxi company must own and maintain vehicles, as well as contribute overhead to recruiting and managing employees; an e-business version would allow customers to schedule a taxi online and perhaps view past trips, but the essential experience would remain the same.

Uber cements its place as a digital business because it is, at its core, a platform that connects people and drivers at a massive scale through the internet, while creating an experience that improves on what was previously available to people.

Netflix is a good example of a company that switched from e-business to digital business. Originally, Netflix used technology to manage an inventory system and mail people DVDs, providing an experience that was more convenient, but ultimately fairly similar to movie rental stores.

However, once it gave customers the option to stream video on demand, it disrupted itself and transformed the way that people view film and television media. The ability to consume movies and TV shows at any time or place is impossible without the widespread internet access that most consumers have today.

Disney is one traditional business that has embraced digital technology in order to enhance experiences in its theme parks. The goal of its MagicBand, a wristband that uses RFID and radio to connect with sensors in the park, is to improve five key elements that are part of every Park experience: going to an attraction, staying in a hotel, dining at a restaurant, taking a photo and sending it to friends or family, and buying merchandise as a souvenir.

Guests receive the MagicBand a few weeks before the visit and can use it to enter the park, buy food or merchandise, reserve attractions, and watch real time data on wait times. At the end of the day, guests have an experience that moves fluidly between digital and physical.

Where to Start

Many characteristics of digital business overlap with the concept of digital transformation, which uses a customer-centric focus to guide the implementation of digital technologies in operational systems and business models. Digital business is the end goal, and digital transformation is the process that companies undergo in order to get there.

Gartner has also identified six key steps to building a digital business. Because digital business requires deep organizational change, the work that needs to be done can quickly become unwieldy. Clearly identifying priorities and milestones will help businesses make the most of the advice and best practices available online today.

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