Digital Business

Lecture 1: Introduction to the Digital Business

Session 1
 The Team

• Convenor: Prof. Klaus Nielsen

• Lecturer:
• Dr Magda Hercheui

• Part of the material in this course has been prepared by Professor Thierry
Rayna.
Magda Hercheui
• Visiting lecturer at Birkbeck
• Associate Professor Education at UCL
• Visiting professor at Aarhus University
(Summer School)
• PhD in Information Systems (London School
of Economics)
• MSc New Media, Information and Society
(London School of Economics)
• Ten years experience developing software for
media companies and financial services.

[email protected]
Research interests
• Topics
• Social media: society, enterprise, government, democracy and
governance structures
• Collaboration through digital platforms
• Digital business innovation
• AI for business
• Approaches
• Institutional theory and sociological perspectives
• Qualitative and quantitative methodologies
• Social network analysis
Schedule
Week Date
1 26 April Introduction
2 03 May Information, Knowledge and Information Goods
3 10 May Understanding the Nature of Digital Goods
4 17 May Business Models for Digital Business
5 24 May Pricing Models for Digital Business
6 31 May Digital Marketing
7 07 June Digital Collaborative Platforms
8 14 June Enterprise Digitisation
9 21 June New Technological Trends, New Digital Business
10 Reading week

11 Exam (TBC – changes may be necessary because of

Coronavirus contingency plans)
Key texts
• Shapiro, C. and Varian, H. R. (1999). Information Rules: A Strategic
Guide to the Network Economy. Harvard Business School Press,
Boston, MA.
• Turban, E. and King D., Electronic Commerce 2012: Managerial and
Social Networks Perspectives, 7/E, Pearson.
• Weekly further readings are recommended.
Assessment
• 2 Components (individual assessments):
• 2,500-word Essay (due week 7, 10th June 2022): 40%
• Final exam: 60%
Essay topic
• Individual essay (40% of the total mark)
• Deadline: Friday, 10th June 2022

• The topic of the essay is: “Analyse the business model, and/or pricing strategies,
and/or digital product characteristics of a digital business of your choice.
Considering what you have learnt in this module, what recommendations could
you make to improve or develop this digital business further?”. The word limit is
2,500 words.
Essay assessment criteria
• Quality/reliability of the resources used
• Use of the literature review
• Use of concepts and theories presented in the lectures
• Comprehensiveness of the essay
• Originality
• Style and clarity
Research approach
• Prepare for the classes
• Have an opinion
• Have contributions
Teaching mode
• Recorded videos (include preparation for in-class exercise) (90
minutes including some time for preparation activities and watching
third-party videos). Readings are not included in this time.
• 90 minutes of synchronous classes (face-to-face, check your session
time, either starting at 6 pm or starting 7.30 pm).
• You must prepare for the discussions in class otherwise the sync class
will not be useful.
The emergence of the digital
economy
• Products and services become digital
• Processes are intermediated and automated
• Business models change
• Platform businesses emerge
• Knowledge workers may be substituted by AI
• Advancement of robotics everywhere
• Speed up of business innovation in products, services, processes
and business models everywhere
What this course is not about

• It is not about how to use particular technologies

• It is not about learning what particular technologies are about
What this course is about
• It is about uncovering some fundamental rules that drive the digital
economy
• It is about understanding what digital technologies actually change
• It is about being able to apply this knowledge to design effective
digital business strategies
Session 2
IT infrastructure

17
Conceptualising infrastructures
• The Cambridge Dictionary defines infrastructures as “the basic systems and services,
such as transport and power supplies, that a country or organisation uses in order to
work effectively”. Similarly, the Oxford English Dictionary defines infrastructures as
“the basic physical and organizational structures and facilities (e.g. buildings, roads,
power supplies) needed for the operation of a society or enterprise”. Both definitions
reflect fundamental aspects of the concept, and are relevant to the topic and
perspective of this course.
• These definitions highlight that infrastructures form the base for the operations of a
given organisation, society or country. In other words, without particular
infrastructure, those operations either will not be possible or would be done in a less
efficient or different ways. So we can say that infrastructures enable particular ways of
doing things. Sometimes different infrastructures compete as a means of doing things
– for example railways (the railway infrastructure) may compete with air travel (in
Europe at least).

18
Conceptualising infrastructures 2
• The definitions highlight that infrastructures are systems, services, facilities, including physical and
organisational structures. In other words, infrastructures are the physical materials used to create a base for
operations, but also include the social and organizational arrangements we agree upon to allow those
physical materials to effectively enable particular activities.
• These definitions give examples of things that are considered to be or described as infrastructures, such as
transports systems (roads), power supplies (electricity), and buildings (airports, power stations).
Infrastructures also have the characteristic of working on a large scale and generate benefits because of
their scale and that they are shared among multiple users. We can infer then that scale matters when we
are identifying or thinking about infrastructures, as does the ability to be used or shared by different types of
users. We should also see that people or businesses will in general choose to use infrastructures which are
from their perspective more efficient, cheaper, easier or safer than alternative ones.

19
Infrastructures key concepts
• Common standards (such as TCP/IP, APIs)
• Economies of scale
• Installed base
• Path dependency (legacy systems; lock-in situations)
• Network effects
• Open to new actors
• Evolving
• Shared

20
Hourglass architecture for digital
infrastructures
(layered model - Zittrain, 2008)

21
Hourglass architecture
(layered model)

22
Generative architecture
• A key outcome of a layered architecture with well specified interfaces is that it reduces the need
to comprehend complexity. Developers and innovators can work on individual layers or protocols
within the layers without having to understand in detail the complexity of the whole structure,
and without demanding that the whole structure changes because of their particular
development. With the communication between the parts (the interfaces) well defined,
professionals can specialise in developing a particular protocol or element in a layer.

• For instance, a programmer can develop a new app for a mobile phone just knowing the
communication interface of that device. For developing a new app for an Android device, the
programmer just needs to know the API (Application Programming Interface) of Android. The API
allows the creation of apps which have access to a particular operating system and its datasets
including how to access particular functions and procedures for the interchange of data. This
architecture speeds up the capacity for developing new solutions that use the Internet. In a
similar way, a country can invest in improving the backbone of its broadband infrastructure
without impacting the apps and the content providers in the network.
23
Generative architecture 2
• As Zittrain argues, the layered architecture fosters innovation and constant improvement, as
groups responsible for various parts of a big infrastructure can work on a particular element
without affecting any other. This flexibility comes from the limited interdependency of the parts.
There are of course standards to be followed (we discuss standards further in chapter 8), but their
purpose is as much to allow innovation as to constrain it.
• In addition, the layered architecture allows new users/devices or protocols to easily join an
infrastructure, fostering continuous growth and increasing the influence of a given infrastructure.
For instance, the more people want to use the Internet, the more ISPs (Internet Service Providers)
will join the network to provide services. The more people have smart phones with apps, the
more developers can join the network providing their new apps, or adding new programming
languages which are compatible with the other standards. The layered architecture allows this
sort of growth, in which it is easy to provide additional services and support additional users – to
scale up.

24
Characteristics of a generative
infrastructure
• Leverage: is the capacity for doing useful things. The argument is that the more things a system is capable of
doing, the more chances it has to bring forward change (innovation). Think about the potential of a clean
piece of paper. How many different things can be written or drawn in this paper? Leverage means the
technology allows itself to be used in different ways.
• Adaptability: is the capacity to be adapted easily to a range of different uses beyond the uses envisaged
when developed. The author emphasises that the adaptability depends on how much a tool or system can
go beyond what has been planned originally. Electricity, for instance, is a technology that has great level of
adaptability.
• Easy of mastery: is the capacity a system has to be understood by many people who either want to use it or
want to adapt it to other goals. Aeroplanes, for instance, have low levels of mastery, anyone who wants to be
a pilot must have extensive training. Modern social media software, in contrast, is mastered by billions of
people across the world with almost no formal instruction.
• Accessibility: is the capacity of being accessible to people, and to have information related to the system
available to those who want to learn and explore the possibilities of the system. Costs, taxes and regulations
can create barriers to accessibility. Digital technologies and services become more accessible as costs of
technology have gone down (think of smart phones).
• Transferability: is the capacity of allowing changes and new insights or uses to be transferred easily to
others. Changes made by users and specialists can be transferred to others even when they do not have
much knowledge about the system itself. Software improvements, for instance, are very transferable and
software updates are a daily occurrence on Internet attached devices. 25
Concept brainstorming
• Give examples of digital infrastructures and how they enable digital
businesses.

• 10-minute activities
Strategic brainstorming
• In groups, discuss examples of digital business innovation which have
combined mobile technologies with cloud computing solutions.

• You may prefer to present a new idea too.

• 10-minute activity
Session 3
The power of networks
Ubiquitous computing

…that may become large corporate-wide networking infrastructures…

29
The power of networks 2
Ubiquitous computing

…or may become the Internet infrastructure.

30
The Internet infrastructure
Enabling business and interaction

• Major Internet services:

• E-mail
• Usenet groups (discussion groups)
• Chatting and instant messaging
• Telnet (logging to one computer and working on another)
• File Transfer Protocol (FTP) (+ standards)
• World Wide Web (Domain Name System; hypertext links); search engines
• Internet telephony (voice over IP) (Skype)

31
Metcalfe’s Law and network
economics
• The value or power of a network grows exponentially as a function of the number
of network members (positive network externalities)
• As network members increase, more people want to use it (demand for network
access increases), with benefits (and dangers) to all members of the network
• Examples:
• Electricity and transport grids
• Telegraph, Telephone, Mobile
• Internet
• Reduction of costs for all (economies of scale)
• More value to standards, driving compatibility between networks (hardware,
software, protocols etc.)

32
Global digital population as of
April 2020

33
Individuals using the Internet

34
35
Session 4
The emergence of platforms
• Industry platforms are building blocks (products, technologies or services) that
act as a foundation upon which an array of firms (sometimes called a business
ecosystem) can develop complementary products, technologies or services.
• Google multiple services (Google Maps, Google Earth, Google Chrome, Google
Gadgets, Google Docs), Android, Apple and Windows mobile operating systems,
Facebook social network, Amazon e-commerce platform, SalesForce platform for
applications.

Gawer, A. (2009). Platform dynamics and strategies: from products to services. In A. Gawer, ed.
Platform, Markets and Innovation. Cheltenham: Edward Elgar, pp. 45-76.

37
Platforms and innovation
• Platforms facilitate the innovation of complementary products and
services. The more innovation is aggregated to a platform, the greater
the value of the platform. Thus, the interest of big players to open the
code of their platforms to allow more innovation.
• However, the stronger the platform, the bigger the barriers to entry of
new competitors, somehow reducing the potential of competing
innovation.

38
Enabling innovation 1/2
• Digital business platforms enable more innovation in products and
services, through adopting a modular architecture which allows the
creation and recombination of blocks. This favours innovation because
it allows complex systems to be broken into manageable components,
which interact with each other through standardised interfaces within a
defined architecture.
• Innovation can also come from the recombination of modules in
different formats, sometimes guided for a new business model. The
modularity facilitates innovation as designers do not need to know
about the whole system, which would be too complex to manage. In
focusing only on communication standards (interfaces such as the APIs
of mobile platforms), developers focus on the innovation instead of
having to invest in learning the whole architecture of the platform.

39
Enabling innovation 2/2
• In having a modular architecture, platform components can be used and
reused across the many products, services and technologies within the
same platform, bringing economies of scope for the platform itself and all
who participate in the same structure. The economy of scope means that
the cost of producing new combinations of components are reduced
relatively to the alternative of producing the same combination from
scratch outside of the platform.
• For instance, a hotel owner can benefit from Google Maps service, adding
to the hotel webpage a map with its location. The alternative of finding a
suitable map or building a map would be certainly more expensive.
Similarly, using Amazon as a platform for e-commerce is a cheaper solution
for small and medium business than having their own website, with proper
security and payment procedures.

40
Michael A. Cusumano presents the
idea of platforms (book Staying Power
)

• A second longer video on the topic.

41
Machine, Platform, Crowd
Erik Brynjolfsson

42
Andrew McAfee and Erik Brynjolfsson, "
Machine, Platform, Crowd"

43
Network externalities
• Positive externality: The more members and usage the platform can
attract the more valuable it becomes for its participants, as it allows
access to more people and businesses, to more information, to more
collaboration, to more information etc.
• After reaching a critical mass, platforms sustain themselves for creating
considerable surplus to those using them in any way. However, it also
may create a situation in which business becomes effectively locked
onto the platform, being very difficulty to move to alternatives, even
when these alternatives are better innovation (high switch costs).
• Network externalities may also be negative, such as the increase in
cybercrime activities.

44
45
46
47
Challenges
• It is very difficult to build a platform; generally, it involves a lot of investment till
the platform has a critical mass to benefit from monetization. The quality of the
innovation is relevant, but there are other reasons why a platform may gain
momentum (such as Facebook).
• Platforms need to create value for users and monetize the value for their owners.
Google and Facebook monetize value through selling advertisements, for
instance. iOS allows the creation of applications which are them sold, benefiting
programmers and Apple.
• Platforms compete against similar ones or against others.
• The complementor (those companies which provide services to complement one
platform) may become the competitor of tomorrow and even dislodge the
original platform (Facebook has bought Instagram to avoid such a competition).

48
User-generated content
• Users aggregate value contributing with the content to the platform, such as
social networks, files sharing (Flickr, SlideShare), blogs and Wikipedia.
• In this examples, users benefit from the platform (functionalities); however,
their content (and interactions) bring much of the value to the platform.
• People have many reasons to contribute content, from interest in building
reputation and strengthening the social ties, to the wish of doing the ‘right’
thing, such as giving the gift of knowledge for those who otherwise could not
have access to it.

49
Free products and services
• Giving products and services for free is an important strategy to gain
momentum in a platform.

• Social networks and most social media tools adopt this strategy of
giving the platform for free to users, in exchange for their content
(user-generated content) and audience (which is then ‘sold’ to
advertisers).

50
Yahoo buys Tumblr
• Big companies are struggling to build large platforms, with large
audiences/users, many times through buying applications and other
platforms, to consolidate their position.
• In May 2013, Yahoo bought Tumblr, a blog service (110 million
blogs) for US$ 1.1 billion. Previous cases: Google bought YouTube in
2006, and Facebook, Instagram in 2012.

51
What is an API?

52
Introducing Amazon API Gateway

53
Case: Apple and iOS 1/3
• Apple has reinvented itself as a platform, migrating from a more product-
oriented strategy to a combination of products, services and technology.
• Apple has its core on the sale of hardware – computers (Macintosh), mobile
phones (iPhone) and tablets (iPad), television sets (Apple TV), wearables (Apple
Watch), and music players (iPod).
• Apple creates its own software, supported by proprietary operating systems,
OS X for Macintosh and iOS for Apple mobile devices.
• On top of these hardware and software layers, they offer services such as
iTunes, App Store, Apple Pay, iCloud, Apple Mail and Apple Remote Desktop,
among others.

54
Case: Apple and iOS 2/3
• Relying on the perceived quality of its products and a loyal customer base, Apple
has been able to expand the sales of both, hardware and services, changing its
role in the digital industries.
• An important move in this direction was the creation of the service iTunes,
associated with the iPod product (carrier of digital music and audio files).
However, the real value added by the iPod is the possibility of buying songs
through the iTunes platform, which uses cloud services to store and manage
music, videos, television shows, audiobooks, podcasts and movies rentals.
• iTunes has opened the door to a new business perspective for Apple. The
company adopted a business model of intermediating the business between the
final consumer and the recording companies, offering a platform to sell
individual songs (instead of CDs) (a new business model).

55
Case: Apple and iOS 3/3
• In order to leverage the level of innovation in its platform, Apple has opened the
APIs of the web browser Safari and of the iOS for mobile devices.
• In doing this, Apple has benefited from thousands of developers around the world
who have developed software solutions to run on top of Apple devices and
software.
• In a further move, Apple has launched the App Store for selling the apps created
by these developers, thus on the one hand organising the offer of apps in its
platform, and on the other hand making viable a market to match final users and
developers, which would not be easily possible without Apple intermediation. The
company gets a percentage of the value of all sales through the App Store.

56
Strategic brainstorming
• Drawing upon the concepts of the power of networks and the
emergence of platforms, discuss how a company/ benefits from large
networks and platform strategy:
• Amazon
• Google/Android
• Facebook
• Any other of your choice

• 15-minute activity
The value chains of digital
business: who creates value?
• 15-minute activity.
Davos 2017 - Preparing for the Fourth Industrial Revolution
World Economic Forum

59
Thanks
Sync class
Introductions

• Name
• Why are you attending this module?
• Have you worked with digital products and services?
Concept brainstorming
• Give examples of digital infrastructures and how they enable digital
businesses.

• 10-minute activities
Strategic brainstorming
• In groups, discuss examples of digital business innovation which have
combined mobile technologies with cloud computing solutions.

• You may prefer to present a new idea too.

• 10-minute activity
Strategic brainstorming
• Drawing upon the concepts of the power of networks and the
emergence of platforms, discuss how a company/ benefits from large
networks and platform strategy:
• Amazon
• Google/Android
• Facebook
• Any other of your choice

• 15-minute activity
The value chains of digital
business: who creates value?
• 15-minute activity.
Thanks