21 Nov 2014Working Paper Summaries

The Decoupling Effect of Digital Disruptors

by Thales S. Teixeira and Peter Jamieson

The first wave of Internet disruption enabled purely digital products to be sold and delivered online. New digital players grabbed the opportunity to distribute news, music, movies, and so on online and deliver only what people wanted to consume, even if that meant just a portion of the full content. In recent years, a new wave of digital disruption has been taking over the web. This second wave is characterized by the separation of consumption activities that traditionally went together, hand-in-hand, such as TV shows and advertising. The authors term this process of separating jointly consumed activities as "decoupling." Decoupling is the breaking of links between consumer activities that have traditionally been done together. This article first identifies value-creating activities and non-value creating ones in a wide range of consumption activities. The authors then examine how a variety of firms, both incumbents and startups, are using technology to break the bonds between what activities consumers want to do and what they previously had to do. The article closes with a framework for analyzing which businesses are likely to be threatened by decoupling and the two strategies they can use to respond to this threat. Key concepts include:

The most successful approach to defending a business from the risk posed by decoupling is to preemptively decouple the activities being offered.
Competitors will try to insert themselves into every step in the process between a value-creating activity (e.g., browsing) to a value-capturing activity (buying), and so make sure to claim value every time you create it.

Author Abstract

While the Internet's first wave of disruption was marked by the unbundling of digital content, the second wave, decoupling, promises to generate more casualties in an even broader array of industries. Digital start-ups are disrupting traditional businesses by inserting themselves at every juncture in the customer's consumption chain. By decoupling-the act of separating activities that people are used to co-consuming-new digital businesses are disrupting retailing, telecom, and other industries. Decoupling allows consumers to benefit from the value created at a lower cost or effort compared to what is delivered by traditional businesses. For those companies, the only solutions are to either recouple activities or rebalance to create and capture value (i.e., revenues) from both activities separately. Here, digital technologies can be seen as an instrument that will both disrupt traditional business models and potentially preserve them.