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Digitization and virtualization

Digitization is the conversion of analog or physical products to digital resources. Companies may transition their products and processes to the cloud or a virtual network for the opportunity to reach more customers. Doing so can also result in cost savings or reduced environmental impacts. Digitization is a form of dematerialization.

Examples include:

  • Selling MP3s (digital music files) instead of compact discs
  • Conversion from physical to virtual servers
  • Telecommuting (reducing travel time, pollution and required office resources)
  • Asset tracking and performance monitoring

Converting to digital allows companies to capitalize on emerging trends like big data or the Internet of Things (IoT).

Example

Netflix: Video streaming

Situation:

  • When Netflix started, the video rental industry operated with asset-heavy brick-and-mortar locations and large operating costs as a percentage of revenue.
  • Netflix had 93.8 million members total with over 47% of its total members outside of the United States in 2016.
  • Amazon Prime, HBO Go, Hulu and other competitors race to diversify into complementary services for their online streaming business, like content development.

Challenges:

  • Global online piracy and illegal streaming continues to challenge trademark security.
  • Establishing trust with production companies and studios to join an industry-disrupting business model.
  • Persistent DVD customers, mostly niche and rural markets with slow broadband.

Solution:

  • Netflix started as a disruption to the video rental industry, offering DVDs delivered to residences instead of requiring customers to visit brick-and-mortar stores.
  • Netflix’s services have evolved to providing TV shows, developing content and streaming online in over 190 countries.
  • Customers no longer need to physically buy movies or TV shows and stream online instead.

Key benefits:

  • Reduction in CD/DVD manufacturing costs (economic and environmental).
  • Reduction in transportation costs required for pick-up and drop-off.
  • Instant download and streaming saves customer time.
  • In April 2017, the company exceeded more than 100 million subscribers.