How digitization is shaping the next era in business?
Not so long ago a digital revolution in business meant making a legacy model obsolete. The principle driver behind making something obsolete was “if the offering could be digitized it can be replaced”. The media industry was the one most impacted by this digital revolution. From music to movies to a publication of any kind, if a piece of media could be converted into a binary code it was at risk. This phenomenon has pretty much maxed out. Anything that could be sent to the annals of history has already been done with. Today we see a new kind of model that is not replacing the old way of doing things but rather evolving it using the power of digitization, and in doing so is fundamentally changing the way business is done. That fundamental difference is in the nature of the relationship. Service industries aside which are primarily relationship driven, most product purchases are inherently transactional.
This digital evolution aims to transform models which were typically transactional to an on-going relationship that continues to exist post purchase. In the old world this simply would not have been possible, especially for large enterprises. What am I talking about? I’m talking about the kind of relationship that is possible by bringing internet connectivity to legacy products. With connectivity comes data and with data comes insight into usage behavior. Data that can be used to not only engage current users but to enhance the product experience for everyone, especially new users. And one great example of this is Peloton – a company that makes fitness bikes. It’s a new age company that has turned the idea of a legacy transactional-based relationship with their customer on their head. What do I mean? If you look at a fitness equipment manufacturer of yesteryear, the idea was to simply sell you a bike. Through whatever means if I the customer reached the conclusion that a fitness bike is one for me I go and get myself one. End of relationship. Unless of course the bikes break down or something you are unlikely to interact with the fitness bike’s manufacturer ever again. Peloton on the other hand sees the sale of its fitness bike as the start of a relationship not the end, because a purchase of their bike means joining the Peloton Community that is geared to not only helping you achieve your personal fitness goals but helping your organize your life in a way that ensures fitness stays part of it. The number one reason why three weeks into a new gym membership or purchase of a fitness machine usage declines is lack of motivation. The individuals who stick to their routines are ones who are part of instructor-led programs. Instructors make working out fun and motivating. Add to that the sense of community and participation and you have a winning formula for sticking to a workout routine. But committing to such an instructor-led routine is neither convenient nor affordable for everyone. Peloton solves this problem by connecting each user of their fitness bike with a community of coaches leading regular workout sessions streamed live from their studio in NYC straight to your bike. By bringing the community to you without leaving the comfort of your home and letting you engage with them just the way you would if you were part of a physical workout group Peloton solves a major motivational challenge of sticking to your fitness goals. At the same time, Peloton is learning everything about how you use their product and using that data to evolve their content and further engaging you with your bike. Buying a Peloton bike is like buying into their digital ecosystem that is ever-evolving. The result, Peloton customers on average are exercising more today than when they first bought the bike. No wonder Peloton sees themselves as a tech company and not a fitness company. The fact that after five years of existence they are valued at $4.1 billion is testament to what they have achieved.
Looking at Peloton what other legacy businesses do you see being evolved through the power of digitization today?