KEY ISSUES FOR DIGITAL TRANSFORMATION IN THE G20

Recommendations

Info

But even as digitalisation leads to greater competition in many markets, it has also demonstrated a potential to tilt others towards greater concentration, market power and even dominance. That is especially true in online platform markets, where network effects and the possibility to achieve “scale without mass” can drive winner-take-all or winner-take-most outcomes. Examples include markets such as social networks, Internet search and advertising, and mobile phone operating systems. While network effects – the phenomenon that some products, such as the telephone, become more useful as the number of users increases – are widely understood, scale without mass refers to a feature of many digital markets that allows companies to add new users at virtually no cost. These firms do not have to invest in building new plants or doubling raw materials orders if their customers double. This is because they are not producing physical products, so they have no manufacturing plants per se and their raw material takes the form of digital bits, not atoms. Bits are far less expensive to scale up quickly than atoms because bits can be reproduced and distributed at almost no cost, so firms in digital markets can expand their customer bases vastly and rapidly while their physical capital expands at a far slower rate. While network effects – the phenomenon that some products, such as the telephone, become more useful as the number of users increases – are widely understood, scale without mass refers to the ability to add new users at virtually no cost. Scale without mass benefits purely digital firms such as social networks quite powerfully because they are not producing physical products, so they have no manufacturing plants per se and their raw material takes the form of digital bits, not atoms. Bits are far less expensive to scale up quickly than atoms because bits can be reproduced and distributed at almost no cost, so firms in digital markets can expand their customer bases vastly and rapidly while their physical capital expands at a far slower rate. Scale without mass can also benefit a range of other firms, albeit to a lesser extent, that do business online even if their services or goods are delivered offline. When a firm operating in a digital market is very successful, scale without mass in combination with network effects can lead to hypergrowth that is all but impossible for even very innovative companies to achieve in physical product markets. Facebook, for example, reached 100 million users just 4.5 years after its launch. Its wholly-owned mobile app, WhatsApp, reached that mark within 3.5 years. In comparison, it took 16 years for mobile phones to gain 100 million users, while wired telephones needed 75 years to reach that mark (Figure 47).
Digital technologies have a huge reach … ... and are spreading more and more quickly For every 100 people in the world, there are … Telephone Time to reach 100 million users worldwide 75 years Year of launch 1878 … 95 mobile-phone subscriptions Mobile phone World Wide Web 16 years 7 years 1979 1990 … 40 internet users iTunes Facebook 6 yrs, 5 mos 4 yrs, 5 mos 2003 2004 … 32 active mobilebroadband subscriptions Apple App Store WhatsApp 3 yrs, 3 mos 2 yrs, 4 mos 2008 2009 … 25 social media users Instagram 2 yrs, 2 mos 2010 Candy Crush Saga 1 yr, 3 mos 2012 0 20 40 60 80 Years Source: OECD, based on BCG (2015). Although the factors that can create hypergrowth in digital markets (network effects and scale without mass) may bring considerable consumer welfare benefits in the form of affordable and innovative new services, those same factors may also stifle competition by entrenching the market positions of the powerful firms they helped to create. Specifically, a first-to-market firm that benefits from network effects and scale without mass can sometimes become so strong so fast that it quickly leaves subsequent entrants far behind and facing a more challenging set of obstacles to their growth. The entrants’ path is more difficult because, unlike the first firm, they are trying to enter a market that already has a large and growing incumbent that is benefiting from scale economies and network effects. Furthermore, some incumbents in digital markets benefit from high switching costs, which can lock customers in and make it even harder for entrants to gain a foothold in a market. The more consumers use online services, the more they grow accustomed to them and are reluctant to switch away from them. In addition, the more data customers provide to the service and the harder or more costly it is to transfer that data to a competing service, the less likely the customer is to switch, even if prices rise, quality declines, or the service provides less privacy. And when their data is not tied only to a particular type of service, but to a whole ecosystem of which that individual service is but one part, customers are even less willing to switch. This may happen, for example, with respect to cloud service providers. Thus, network effects, scale without mass, and lock-in effects may combine to reduce competition in digital markets. Nevertheless, if an entrant has a substantially superior product or service, the advantages of network effects and scale without mass may move from the incumbent to the new entrant and overwhelm any lock-in effect that had previously protected the market leader. When that happens, the incumbent can be dethroned even faster than it had once ascended. Google displacing Yahoo in Internet search and Facebook toppling MySpace are two examples of this phenomenon.
Page 1 and 2:
KEY ISSUES FOR DIGITAL TRANSFORMATI
Page 3 and 4:
Key Issues for Digital Transformati
Page 5 and 6:
Figures Figure 1. Fixed broadband s
Page 7 and 8:
As the cost of data collection, sto
Page 9 and 10:
Open, voluntary standards, grounded
Page 11 and 12:
Digitalisation is changing the worl
Page 14 and 15:
It is useful to start with a brief
Page 16 and 17:
In the past, there has also been un
Page 18 and 19:
Having established a positive relat
Page 20 and 21:
However, despite the rapid spread o
Page 22 and 23:
160 % 140 120 100 80 60 40 20 0 Not
Page 24 and 25:
% 100 90 80 70 60 50 40 30 20 10 0
Page 26 and 27:
show that large firms have much gre
Page 28 and 29:
% 2011-14 2006-09 60 EUIPO USPTO 50
Page 30 and 31:
component may include repatriated i
Page 32 and 33:
computers will rather increase). At
Page 34:
The risk related to cybercrime and
Page 37 and 38:
% 100 Gap 1st and 3rd quartiles Ave
Page 39 and 40:
Research has shown that the availab
Page 41 and 42:
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Not
Page 43 and 44:
Recent research points to a set of
Page 45 and 46:
knowledge sharing by upholding the
Page 47 and 48:
skilled labour. Thus, trapping reso
Page 49 and 50:
wireless access, the two technologi
Page 51 and 52:
network infrastructure sometimes ha
Page 53 and 54:
separation of infrastructure and se
Page 55 and 56:
other network on the Internet (CIDR
Page 57 and 58:
Certain policies promote good use o
Page 59 and 60:
Francisco Project”, for example,
Page 61 and 62:
Encourage the deployment of more fi
Page 63 and 64:
In telecommunications, both fixed a
Page 65 and 66:
sufficiently compelling for operato
Page 67 and 68:
However, data provides additional c
Page 69 and 70:
deductions on investments in seed a
Page 71 and 72:
early-stage investment can affect i
Page 73 and 74:
The development of standards and st
Page 75 and 76:
A positive example of co-operation
Page 77 and 78:
As actors navigate the IoT space, t
Page 79 and 80:
The private-sector-led standards pa
Page 81 and 82:
Co-operation among standardisation
Page 83 and 84:
Fixed-line communications, wireless
Page 85 and 86: the ICT sector tends to outpace reg
Page 87 and 88: Digitalisation is associated with f
Page 89 and 90: end user (European Commission, 2016
Page 91 and 92: The Internet model of traffic excha
Page 93 and 94: G20 economies could develop strateg
Page 95 and 96: technologies, and in particular the
Page 97 and 98: in the United States where criminal
Page 99 and 100: about digital security risk and how
Page 101 and 102: conduct of cybercrimes and digital
Page 103 and 104: The G8 Deauville Declaration outlin
Page 105 and 106: To ensure that everyone can engage
Page 107 and 108: ICT specialists have been among the
Page 109 and 110: Initiatives to promote consumer edu
Page 111 and 112: All Welding Processing Handling Dis
Page 113 and 114: economies and societies need to per
Page 115 and 116: The development of strategies that
Page 117 and 118: The use of digital technologies is
Page 119 and 120: These adoption gaps between large f
Page 121 and 122: Figure 44 (Panel B) illustrates a s
Page 123 and 124: Frontier firms Laggards Frontier fi
Page 125 and 126: Despite the steady increase busines
Page 127 and 128: YouTube to watch media content; Ube
Page 129 and 130: Platforms are often criticised for
Page 131 and 132: The potential and pitfalls of digit
Page 133 and 134: Cross-border commerce has long gene
Page 135: Digitalisation is changing the worl
Page 139 and 140: One approach is to accept the fact
Page 141 and 142: and income opportunities. Becoming
Page 143 and 144: South Korea has opened numerous “
Page 146 and 147: The ongoing digitalisation of our e
Page 148 and 149: Developing tools for assessing the
Page 150 and 151: data across borders, transportation
Page 152 and 153: BCG (2012), ”The Internet Economy
Page 154 and 155: Deloitte (2015), “Connected Healt
Page 156 and 157: Karachalios, K. and K. McCabe (2016
Page 158 and 159: OECD (2016m), “The Internet of Th
Page 160 and 161: OECD (2012d), Connected Minds: Tech
Page 162 and 163: The Economist Intelligence Unit (20
Page 164 and 165: 1. Chapter 2 discusses policies for
show all

KEY ISSUES FOR DIGITAL TRANSFORMATION IN THE G20

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?