Though disruptions are not inherently negative – if I disrupt what you’re doing to present you with a check for $1 million, I think you would deem that disruption positive – they typically present challenges before they surface opportunities (remember going from A to chaos to B). The three major disruptions in the news today, I would say, are: global warming, the presidential election in the United States (although this is primarily a domestic event for us in the US of A, indubitably our choice will impact world events), and the financial crisis. Leaving out global warming for now, let’s see whether digital technologies are involved in the other two.

New Media and New Campaigns
Unquestionably, the US presidential candidates had to embrace the digital disruption presented by online New Media (New Media is a disruption in the Digital Disruptions report) or risk falling behind in raising money and getting their messages out, as well as risk being deemed out of touch with their increasingly tech-savvy constituencies.

Obama jumped on the Internet early but McCain has come back strong, according to an article in Online Media Daily:

Barack Obama trounced John McCain in online media and advertising during the first six months of the year, according to a new comScore study. The Web ratings service found Obama’s online display ads drew 92 million views monthly on average from January through June 2008, compared to just 7.3 million for McCain.

The Obama campaign appeared to ramp up online efforts in May and June as ad impressions surged to 150 million and 244 million, respectively, while McCain’s fell to a low of 3.2 million in June.

Obama also outstripped McCain in the average number of monthly visitors to their respective campaign sites (2.2 million to 583,000) and searches of “Obama” versus “McCain” (5.3 million to 1.3 million). . . .

One area where McCain turned the tables was video. His site had more than triple the video views of Obama’s at 2.1 million to 612,000. ComScore attributed the Republican presidential nominee’s online upset to video being featured more prominently on the home page of JohnMcCain.com than on BarackObama.com.

McCain has also been closing the gap more recently in video views on YouTube, where Obama has far more ads and original shorts. In the last month he had 6.5 million views to Obama’s 9.8 million, according to video tracking site TubeMogul.

Though one could argue that this does not represent a shift to a new grassroots political model as was initially thought – after all, we increasingly purchase online, so online donations merely reflect that trend (see article) – no one would dispute that New Media technologies represent one of the fastest, most effective ways to bolster a campaign.

Information Transparency and Financial Transparency
As for the financial crisis, I would argue that it was created in part by digital technologies, and I think it will be resolved by them as well. In the late 80s and early 90s I worked on Wall Street for Bankers Trust – often credited with inventing derivatives: customized, complex securities such as mortgage-backed securities and collateralized debt obligations.  I managed the design and implementation of C-Trac, the first collateral management system for these exotic offerings and learned that without powerful computers it would have been impossible to craft, value, pool, strip into traunches, and mark to market all but the simplest of these, not to mention track the collateral that was being rehypothicated on a daily basis – i.e., passed around institutions to back whichever deals’ change in net present value required additional risk mitigation.

What was lacking then is lacking now: information transparency (another of our digital disruptions).  When Bankers Trust’s clients started to lose money on these initially highly lucrative deals that turned corporate treasury departments into huge profit centers, they claimed they didn’t understand the risks they had been taking. Very few outsiders were aware of the huge risks to which the increasingly unregulated investment banks and hedge funds exposed themselves and their investors, and many of those who were aware were profiting handsomely from the risky transactions and weren’t about to blow the whistle.

This is changing. The New York Times started a blog on Merrill Lynch, Lehman Brothers and the bailout. Web sites like factcheck.org and glassdoor.com, which aggregates insights anonymously provided by employees and is consulted by the press and, it is hoped, the Securities and Exchange Commission, are exposing in real time what CEOs and CFOs may be withholding from their shareholders and the government.

Last week the Federal Reserve Bank of New York met with Eurex, NYSE Euronext, CME Group/Citadel, IntercontinentalExchange/the Clearing Corp., representatives from the major dealers who sell Collateralized Debt Securities contracts, buyers of the contracts, and representatives from the SEC, the Commodity Futures Trading Commission, and the European Central Bank to discuss setting up a clearinghouse for the hitherto unregulated $55 trillion market for credit derivatives.  (See article.)

This is a first step in exposing to players, investors, industry and government the day-to-day market value of these complex assets, and the leverage that players and investors have taken on. I envision something like a software RFID-like tag for securities that allows the world at large to track every detail of what is going on in the financial markets, in the same manner that Wal-Mart tracks products from initial order to production, sale and restock. This follows, too, the much publicised example of information transparency, the Goldcorp turn around.

When in March 2000 the mining company Goldcorp exposed all of its geological data to the world and launched the Goldcorp Challenge, with prize money for those who provided the best methods and estimates for mining Goldcorp’s property, it was a huge success.  More than 1,000 virtual prospectors from 50 countries helped propel the “under-performing $100 million company into a $9 billion juggernaut while transforming a backward mining site in Northern Ontario into one of the most innovative and profitable properties in the industry.” (See article.)

Similarly, by leveraging some of the technologies reviewed in our Digital Disruptions report, and others, a new level of information transparency and collective expertise can be brought to bear on the financial markets, making them once again the safe and liquid engines that finance and reward innovation.

In this blog I expect we will come up with some guidelines for understanding the plethora of digital disruptions we are facing and will face, as well as for managing them to advantage in our respective businesses. When we do, let’s highlight the former in bold at the latter in italics. I’ll start us off.

You can’t stop disruptive technologies. About five years ago, the price of powerful hardware dropped so precipitously, and a myriad of software productivity tools became so widely available through consumer channels that, while employers struggled to evaluate and integrate it all, employees quickly outfitted themselves with state-of-the-art home offices and leading edge communications gear. These very tech-savvy employees, many of whom never knew a world without the Internet or cell phones, were not content to leave their gadgets at home, and brought them into the corporation, policies prohibiting them notwithstanding. These technologies – instant messaging, Internet e-mail, cell phones, PDAs, flash drives, GPS, portable hubs and MP3 players,* to name a few early ones** – were helping employees get more work done faster, and get it done anywhere, anytime. If the corporation was withholding support for all this unauthorized equipment, so be it. The employees could and did support it themselves. What’s a corporation to do?

One of our clients decided to decouple tried-and-true-but-slower-moving IT from early-adopter employee purchasing by giving employees a budget to buy their own equipment, with the provisions that a) they could not call the help desk for support; b) anything that disrupted the corporate network would be shut down, and c) employees were required to sign an agreement saying that to the best of their ability they would use the technology securely and responsibly. This arrangement, they say, has been working well. Lesson learned: Plan to give up some control, and trust your employees to move your company forward in the digital age – though stay involved to make sure the infrastructure you do provide is not compromised.

Again, expect some chaos as you move from business model A to business model B. For example, commenting on the illegal use of a laptop in Notre Dame’s coaching box, the New York Times reported, “…the N.C.A.A. appears more reluctant than professional sport leagues – and even some high schools – to welcome the latest available technology.” The article observed, “In many aspects, football keeps technology at arm’s length, particularly at a time when it might be most useful – on game day.” You can bet this will change. You can’t stop the technology, so be creative in figuring out the best way to harness it.
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*Note the blurring distinction between entertainment equipment and productivity tools.  MP3 players, first used to listen to music, were quickly adopted to replay corporate briefings and seminars.

**See the Digital Disruptions report for the latest innovations you can expect to see soon.

Before they will power 21st century business, technology innovations will first disrupt 20th century business models. As NYU media pundit Clay Shirkey puts it, disruptions don’t typically take us cleanly from current business model A to new business model B, but from business model A to chaos to business model B. It is often the case that before we can progress in a new direction we must retrace some steps and take time to map out a new route, and this likely will be the case in spades in the digital millennium.

Strikes and law suits are often signs of disruption.  When they are prompted by innovative digital technologies that threaten the status quo, defensive maneuvering by the establishment is not only expected but called for – until a new order emerges that capitalizes on the advantages brought by unstoppable innovations yet assures their fair and responsible use.

The billion-dollar law suit for “massive intentional copyright infringement” brought last year by Viacom against Google/YouTube for providing access to Viacom content illegally uploaded by fans is a case in point. To address the issue, Google introduced a copyright identification system called Video ID, which tracks unauthorized videos. It enables a copyright owner to either block the clip, leave it up, or enable YouTube to sell ads linked to the material and share the revenue. According to a CNET News blog post, “Google said on its blog… that copyright owners were choosing to turn a buck from unauthorized clips 90 percent of the time.”

The CNET News post quoted Google, “It’s clear to our (more than 300) Video ID partners that our technology has created a framework that allows copyright holders to sanction the creativity of their biggest fans…These partners now have a new way to successfully distribute and market their content online.” The CNET News post went on to report, “Several start-ups are working on technology that will track unauthorized videos wherever they exist on the Web and then insert an advertisement into the clips.”

Digital content actually allows for tighter owner control then ever. In the past, media giants whose terms of sale legally prohibited certain personal uses of content could not discover such illegal uses nor enforce their claims, but now copyright owners can do so via the Internet. The Digital Millennium Copyright Act (1998) supports this new-found ability, a result of the powerful lobbying muscle of the media industry. Ultimately, though, the consumer will not be put back in his box, and a win-win solution, such as Google/Viacom’s, will be hashed out for the Writers Guild strikers in Hollywood (they so far won minor concessions for Internet distribution), the New York City cab drivers (they so far lost their battle to shun imposed GPS devices in their cars), and countless conflicts to come.

The immense disruptive potential of digital innovation, however, will take much time to address – 50 years, according to a gathering of prominent CEOs at the 2008 World Economic Forum in Davos – and I agree.

What do you think?

Digital Disruptions: Technology Innovations Powering 21st Century Business

Complete with its own blog by Alex Fuss, 2008 LEF Associate on Digital Disruptions, and all of you who contribute to this dialogue on disruptive technologies—those technologies that, per Harvard professor Clayton Christensen, introduce to the market very different value propositions than were previously available.

But I am getting ahead of myself. Let me (Alex, here) kick this blog off with an excerpt from a presentation I gave in April at an LEF Client Forum:

The digital disruptions begun with the Internet’s launch at the end of the 20th century and responsible for a tremendous spike in global productivity promise a second-round impact in the 21st century that we can only begin to imagine.  At CSC we have identified seven categories of digital disruptions that are rapidly impacting today’s business models:

1. New Media
2. Augmented Reality
3. Social Power
4. Information Transparency
5. Digital Spectrum
6. Platform Makeover
7. Smart(er) World

The year-long research effort by CSC’s LEF to identify these categories and delve into the implications of specific technologies they comprise will result in the Digital Disruptions research report, to be released in October 2008. 

Looking back, having worked on the Digital Disruptions report for over a year has undoubtedly broadened my horizons, deepened my research and analysis skills, greatly expanded my network of technology innovators and pundits, and left me with some new habits that should serve me well long after the report is officially released.  Foremost among these habits is the tendency to scour the news daily for any and all technology breakthroughs and filter the announcements and pronouncements through the prism of the report, defracting them through the gradients of its seven themes.

Leveraging the blog, I will, in true Web 2.0-fashion, share my personal thoughts on the implications of relevant industry events as they occur, and solicit your personal and professional comments. I am by no means an expert on the subject – “Digital Disruptions” is too broad and too fast-changing a topic for anyone to master – and look to the collective wisdom of all to help us understand the technology landscape forming before us, and how to best use that shared knowledge to advantage.

Though the report is not out yet, if you would like to familiarize yourself with the report’s themes, you can listen to the podcast of the research preview I gave in April by subscribing to the LEF RSS feed (http://www.csc.com/lefpodcast) and adding the podcast from the LEF Forum, April 2008, podcast 12 “Digital Disruptions.” In addition, Clayton Christensen’s book The Innovator’s Dilemma provides a good foundation for understanding disruption in the context of technology innovations.

I’m looking forward to a stimulating collective discussion, an actualization of theme 3 above: Social Power.

À la prochaine (until next time)…