A Brief History of Digitalization

Digi­tal­iza­tion: Hard­ly any oth­er buzz­word has been used so much in recent years. And as so often with buzz­words, their uti­liza­tion is inverse­ly pro­por­tion­al to their under­stand­ing. Every­thing is some­how con­nect­ed with dig­i­tal­iza­tion, but it is not clear what this dig­i­tal­iza­tion is all about. Of course, it has some­thing to do with com­put­ers and com­put­ing pow­er. How­ev­er, it can­not be that alone, as com­put­ers have been around for too long. A deci­sive aspect of dig­i­tal­iza­tion is net­work­ing. Smart­phones made dig­i­tal devices suit­able for every­day use and net­work­ing the stan­dard. And this increas­ing­ly dense net­work of ever more pow­er­ful and ubiq­ui­tous com­put­ers is the bedrock for plat­forms that will then even­tu­al­ly dis­rupt tried-and-test­ed rather ana­log busi­ness models.

Moore’s Law: Exponential Growth of Computing Power

Ever small­er, ever more pow­er­ful com­put­ers are the basis for dig­i­tal­iza­tion. As ear­ly as 1965, Gor­don Moore put for­ward the the­sis that the com­put­ing pow­er dou­bles every year and Moore’s law is still valid today. Even if the obser­va­tions show that com­put­ing pow­er does not dou­ble every year but rather every 18 months, this is clear­ly expo­nen­tial growth. This rela­tion­ship can be seen in the fol­low­ing dia­gram (source: Wikipedia), in which the num­ber of tran­sis­tors on inte­grat­ed cir­cuits is shown on a log­a­rith­mic scale, i.e. an expo­nen­tial rela­tion­ship is shown as a straight line. 

Most peo­ple under­stand that ratio­nal­ly. But when it comes to imag­in­ing the future, we usu­al­ly extrap­o­late lin­ear­ly. We look back at what has changed over the last five years, for instance, and assume that it will devel­op at a sim­i­lar speed. But it doesn’t.

This mis­con­cep­tion can be quick­ly detect­ed in a thought exper­i­ment. The film “Back to the Future” is about a jour­ney through time between 1985 and 1955 and part of the film’ s fun­ny sto­ry is based on the fact that the world devel­oped and changed tech­no­log­i­cal­ly between 1955 and 1985. If one were to make the same leap in time of 30 years between 1985 and 2015, one would quick­ly rec­og­nize that the change in dig­i­tal­iza­tion is not lin­ear, but much greater. In those 30 years, the first com­put­ers like the C64 have evolved into a per­ma­nent­ly net­worked smart­phone that is a cam­era, nav­i­ga­tion device, walk­man, portable TV and much more. There is a clear over­lap between the world of 1955 and that of 1985, and as a time trav­el­er you can still find your way around. From 1985 to 2015 the tech­no­log­i­cal leap is much greater and one would prob­a­bly be com­plete­ly lost as a time traveler. 

The Platform Makes The Difference

Com­put­ing pow­er alone is not enough for dig­i­tal­iza­tion. It allows you to cre­ate all kinds of infor­ma­tion in dig­i­tal form, con­vert it into dig­i­tal form and edit it in dig­i­tal form, but every­thing remains local and with local effects. The music indus­try has itself pushed ahead with dig­i­tal­iza­tion and dig­i­tized music in the form of CDs. And MP3 per se was no prob­lem for the music indus­try either. It only became a prob­lem with the ever bet­ter net­work­ing of com­put­ers and the result­ing file shar­ing plat­forms such as Nap­ster. This made the local­ly avail­able dig­i­tal infor­ma­tion acces­si­ble to every­one and every­where. The music indus­try was trapped in its old busi­ness mod­el, which was sell­ing records, and had to be res­cued from this trap by vision­ar­ies like Steve Jobs with the iTunes Store and then stream­ing ser­vices like Spotify.

If you dig­i­tal­ize a crap­py process, you have a crap­py dig­i­tal process.
Thorsten Dirks, for­mer CEO of Tele­fóni­ca Ger­many AG

Net­work­ing the devices is the basis, but plat­forms make the dif­fer­ence. Both Nokia and RIM with the Black­ber­ry had great prod­ucts at the time Apple intro­duced the iPhone. Look­ing pure­ly at the hard­ware with its iso­lat­ed oper­at­ing sys­tem, the iPhone was per­haps a lit­tle bet­ter designed and a lit­tle more usable, but the sweep­ing suc­cess can­not be explained by this nar­row per­spec­tive. One major dif­fer­ence was that the iPhone focused rig­or­ous­ly on mobile Internet. 

The for­mer mobile phones, which also fea­tured some e‑mail and poor mobile Inter­net capa­bil­i­ties, became full-fea­tured smart­phones with a per­ma­nent Inter­net con­nec­tion. But that prob­a­bly would­n’t have been enough either, because there were not enough use cas­es for mobile Inter­net besides e‑mail and surf­ing the web. The deci­sive dif­fer­ence was Apple’s App Store (and at the same time Google’s equiv­a­lent for Android). Apple (and Google) made the smart­phone a more or less open plat­form for third-par­ty appli­ca­tions. Apart from Apple also mak­ing sig­nif­i­cant prof­its with the App Store, every new appli­ca­tion on this plat­form led to an increase in the val­ue of the iPhone.

Since then, on the basis of ubiq­ui­tous net­work­ing via smart­phones, more and more new dig­i­tal plat­forms have emerged on which sup­pli­ers and cus­tomers find each oth­er. Dig­i­tal­iza­tion is thus also reach­ing into areas and mar­kets that do not appear to be dig­i­tal at first. Uber attacks the busi­ness mod­el of taxi com­pa­nies with­out a sin­gle taxi of his own. And thanks to dig­i­tal­iza­tion world­wide. Airbnb com­petes with estab­lished hotel groups with­out own­ing a sin­gle hotel. Of course also world­wide. This is the real digitalization. 

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