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Digital Strategy: what is it

Digital strategy is probably the hottest topic in strategy today. Everyone from Disney to AT&T, McKinsey, GE, Wells Fargo, etc., is pursuing a digital strategy. Strategy firms have pivoted themselves to become digital savvy by buying analytics firms, advertising shops, and app development boutiques. Yet, it is hard to find a definition of digital strategy anywhere that is consistent and useful. And consulting firms have different definitions.

Let’s begin by posing a question: What is a digital strategy?

Can you answer this question without examples and with an answer that applies to all types of businesses? Since digital strategy is a function like corporate strategy and corporate finance, any definition you use should apply to all situations. If the definition used applies to just a few companies in a handful of situations, it is probably not the best definition.

Digital Strategy test

Before reading this article, it may be useful to test your understanding and ability in digital strategy. This is a case designed by one of our partners, Michael, and it is used in our case interview and executive coaching programs. The answer will be at the end.

The Boston Bugle is a major regional newspaper. It derives 95% of its annual revenue from print subscriptions and print ads. Print revenue is declining 5% / annum. The 5% digital revenue is derived from ads on the website and there is no paywall encouraging customers to sign up to read articles. Articles are now free online. There is no app for the newspaper. Digital revenue is growing 15-18% / annum.

The Boston Bugle has looked at major competitors like the New York Times, The Wall Street Journal and the Washington Post and admires their digital strategy of building a paywall and apps to read articles. The Boston Bugle wants to develop a digital strategy. What should be the Boston Bugle’s digital strategy?

Try to complete this case before reading on. Think about the rough strategy the Boston Bugle should follow.

The Boston Bugle should … by doing these 3 things …

Digital Strategy definition

For anything to be digital, it must exist as bytes of 1s and 0s. It must be in a digital format. We can say an Elvis Presley record has been digitized if we convert the old vinyl record to a file that exists as data that can be moved around as a non-physical asset. Like an MP3 file.

If that is the definition of digital, a digital strategy is the plan for controlling the flow of data, and generating profits.

This sounds very simple but it has tremendous implications and applications. And it is also important because it opens up new ways to think about opportunities in digital strategy.

Digital strategy as practiced today

Most companies, consulting firms, and executives mean a shift from B2B to B2C when they think about going digital. When AT&T’s WarnerMedia talks about going digital it really means bypassing network TV (Fox, NBC & ABC) and cable networks to build an app to serve customers directly.

When Disney talks about going digital it is setting up an App to compete with Netflix, and to cut out all cable and network competitors, and other apps to go to customers directly.

Digital strategy has become a synonym for the shift from B2B to B2C, which is a very narrow definition and limits what companies can and should do.

You know you are in the B2C space when you have the contact details of your customer, can engage them directly and track their usage. P&G, Nestle, Unilever, JAB Holdings would love to go B2C and know who is buying their products. They would love the ability to customize services and cut out the middle man because it is assumed this will save tremendous costs and increase revenue.

Right now, they have to rely on retailers, wholesalers, and Amazon to tell them what is happening with customers since most companies have no direct access to customers.

Digital strategy today is about using an app to cut out the middle man and go directly to consumers. That is, unfortunately, just one way to go digital.

There is enormous room in the B2B space for creative digital strategy but most of the news seems to revolve around B2C and the mistake we make is to assume this is the only strategy available.

Digital strategy and digitization

The first step of a digital strategy is to convert either the product itself and/or the customer interaction with the product to a digital format. This is digitization. The simplest form of digitization is scanning, for print copies. This means that companies have different degrees of maturity in digitization.

A comic book publisher can scan old comics, place them online and charge a fee for online access. That is what a lot of comic book companies do. It’s not the greatest reading experience but it works.

In the next step, the same company can convert each page to richer imaging and graphics by replacing the scans with coded pages.

It can go further and make some pages interactive.

The next step may focus on the interaction with the customer by email updates on new comics.

Then the company could send an email reminder if the customer stopped reading a comic book.

The next step could be mining customer preferences to email a recommendation for another comic to read based on the reading history of similar customers.

You can see how this arms race in product and interaction can go on and on. There is no limit to what is possible on the product and customer interaction side. And the company can do the same on the supplier side and even the production side.

You can imagine a 2 x 2 matrix here:

100% physical product to 100% digital product (y-axes)

100% physical customer interaction to 100% digital customer interaction (x-axes)

Amazon wins by having an incredible level of digitization of the customer experience of physical products. Amazon wins in digital by completing rethinking the customer experience side. They thankfully do not deliver paper, or gift baskets, with Michael Scott and Dunder Mifflin.

Digital Strategy along a digitization continuum

Once you go fully digital, it does not stop there. It gets harder. When you are 100% digital, it does not mean the quality is perfect or even good. It just means your assets have been converted to a new format. Now comes the difficult process of being the best at being digital.

Think of being digital in either supply, production, customer experience and/or the product as the Barclays Premier League. Once you arrive in this league you still have to be better than competitors. And it is hard.

The list of possible upgrades are potentially limitless and bound only by the imagination and perseverance of the digital and leadership teams.

Marvel wrote comics and sold them in comic book stores.

Marvel converted them to simple online comics.

Marvel improved both the online comic and customer experience to purchase the product and use it.

It does not end there.

Is there a better way to deliver that data? What about holograms, mini-videos, narrated comics?

You now need to understand how to improve the quality of the digital product and the experience of using the product.

It is a continuous arms race. And you get to decide if you want to go from B2B to B2C.

We see this everywhere.

Elvis Presley on recording tapes.

Elvis Presley on vinyl.

Elvis Presley on CD.

Elvis Presley on DVD.

Elvis Presley on streaming.

Elvis Presley on high density streaming recut from the master tapes.

And there will always be a better way to deliver the Elvis experience digitally. You just need to find it.

Imagine the executive who came out with the idea of digitally remastering older movies and releasing them. It was probably a gamble but is now a major business.

And whether those remastered movies are released via the studios own apps directly to customers or through a delivery channel (B2B) is both a tough and costly decision to make. Especially if they get it wrong.

The most important insight is a company does not have to be the most mature at digitization to gain the most profits.

If a comic book publisher took its print comics online it would make its assets available to a far wider global audience and lower its distribution costs. Revenue and profits could surge by hundreds of percentage points. And about 6 months after making the website better may not add much revenue growth.

In this case the maximum value was created in the most immature stage of digitization.

Digital strategy and digitalization

Digitization is the process of converting off-line data to online data. Digitalization is the business model of how you will make money from the digitized product and/or customer interaction with the product.

A company can have a formidable digital product (think of a Marvel movie), an incredible customer experience that has been digitized (think of how easy it is to watch the latest movies for a fee on Amazon) but it may have a terrible way to make money because it needs to give Amazon a huge cut. Companies have choices.

Do we make money from paying someone else to distribute our digital product?

Do we go directly to consumers (B2C)?

Do we charge consumers once off?

Is it a subscription?

Is it free with ads?

The problem with assuming a digital strategy is always about apps and going B2C is because it immediately locks a business into a costly path. B2C is very hard to do, with a significant upfront cost, and significant ongoing costs. Apps that work well are incredibly hard to build.

This is so hard to do that HBO had to initially outsource the development and management of their app and online experience to BAMTECH media, which is coincidentally owned by Disney. The data requirements are so significant that Netflix needs to have Amazon manage their files, which is coincidentally a direct competitor.

Apps rarely work as they are envisioned. Ergo, B2C rarely works as envisioned.

Digital strategy cost structure

It costs a company virtually nothing to have 1, 10, 100, 1,100 or 1,000,000 people watch the same movie at the same time online. The variable cost is very small. Yet to prepare for sale 1,000,000 CDs, sort them and ship them would require a small army. Digitized products are easier to manage.

Yet, companies have huge fixed costs upfront in building Apps and infrastructure if they go B2C. Which means companies must pursue a high-volume strategy to spread the costs. This locks most companies into a volume game, even though their market may not be large. Building out the infrastructure to manage all the data, all the customer requests and server demands are something most companies fail to master.

They assume the best product will make customers tolerate the poor digital experience.

Game of Thrones may be epic, but Game of Thrones on a WarnerMedia app put together in 8 months by a team with little experience in streaming may be a different deal altogether.

Ask Shomi how it ended for them. We truly hope WarnerMedia succeeds but it is a tall order. With many large fixed costs.

Buying back licensing to bring shows exclusively onto their apps.


Commissioning new shows.

Buying the streaming license for new shows.

So digitalization is about how you will make money, but also how you will spend money to send that digital product to a consumer and continuously collect fees.

Does WarnerMedia take $100MM/annum from Netflix to licence Friends, the hit sitcom, or do they, WarnerMedia, build the data center and apps, launch a marketing campaign etc., and collect ~$6/month from millions of customers whose credit cards fail monthly etc., and hope it makes more money than the Netflix deal?

That is the tough call to make. We do not envy them. And they will probably make some mistakes, which is normal.

Most companies will go digital via the B2C route, alienate previous distributors and wonder why their revenue is not up, why customers are not happier and why their share price is flat. Managing distribution is hard. If it was easy to do, everyone would do it.

There is a reason Amazon has used UPS and the USPS for so long to deliver its goods. There is a reason P&G uses WalMart and Amazon. By going digital via the B2C route a company is deciding that not only will they become a distributor, but they will master distribution and be able to stay abreast of the latest trends and technologies in digital distribution.

That means committing time, money and people to research and develop new techniques in distribution. Unfortunately, most companies do not think this way. They believe the presence of an app is the culmination of their digital strategy. They fail to make the necessary investments to see it through.

Digital strategy and apps

Everyone is talking about apps. Apps are also a synonym for digital strategy.

We recently have been working on digitizing the production process of a gold mine. The team had the idea of developing an app which could track a miner underground and send him tips, ideas, and short videos depending on where he was. Digitizing the workforce is a critical step to increase productivity. Without this step, the mine cannot be profitable.

For example, if a miner was at the mine face and about to drill into the rock, the app would track his location and send him a 5-point summary of best practices and possibly a video of correct drilling techniques.

A Singaporean app boutique quoted the team a fee of USD$2MM to USD$5MM to custom build the app. Depending on the changes requested and the degree of features requested, the fee with peak out at around $5MM.

This is why an obsession with apps is a bad idea.

Apps do not work like you think they would. The Nest app by Google, with all of Google’s formidable engineering skills, takes forever to open and close. It takes a good 7 seconds to open up and only then can you activate your alarm or deactivate your alarm. Is it possible that this boutique firm could do better?

The word custom is usually code for we-will-make-this-so-unusual-that-no-one-can-ever-take-over-and-you-will-need-pay-us-lots-of-money-each-year-to-keep-it-running. Anything custom is being hand-built. Why do we need something custom built? Why can we not use existing code, best-practice and designs?

The aim of the app is to deliver a message. Why not just SMS the message and send a link to the video? And that is exactly what we did. By linking to the API (think of this as the rules to connect to an app) of a mileage tracking app on each workers’ phone, we could track worker movements and by building in rules into a customer relationship platform that cost $100/month we could create rules for when to send messages as the workers moved across the site.

This was very hard to think up and set up the rules, but more accurate, more stable, less of a safety issue (you don’t want a mine worker fiddling with a buggy app when he is working with explosives) and far cheaper.

An app should be built only if it is needed. Usually, it is not. And you certainly do not need an app to send a message. WhatsApp, SMS etc., are all fine for that.

Digital strategy and new dimensions

I was recently working with Bill Matassoni and the other partners on the upcoming Season 2 and 3 of the The Bill Matassoni Show, and Netflix is a big discussion point.

Bill and Michael consistently make the point that Reed Hastings first decided Netflix would compete on the time dimension. Netflix allows you to watch as much as you want when you wanted to watch it. You do not need to set your viewing habits around a schedule designed to please advertisers.

What’s interesting about this discussion is they both figure out the dimension together and only then discuss the digital strategy, digitization model and finally the technical tools, assets, and investments needed to compete on that dimension.

They explain that competitors are simply throwing money at scripts, apps, streaming bundles, etc., but they do not understand how Netflix competes along the time dimension. Competitors are forgetting that technology is a tool. And it must serve the strategy. And the strategy is exploiting a dimension.

If WarnerMedia and Disney do not understand the dimension along which Netflix is competing, what is the outcome they are trying to achieve by deploying so many resources? How will these tools be used? Do they have a new dimension they are pursuing? Are they trying to be better than Netflix at the time dimension?

These are just examples. Disney and WarnerMedia may very well know exactly what they are doing, but since they are yet to launch, we are posing different hypotheses.

Digital strategy and data analysis

In a major study, we teach step-by-step the issues and process to develop a new strategy for a financial services giant in the US. In that study, the digital team has built sophisticated apps that link to the Apple iPhone health feature to produce a stream of real-time health data that is fed back to the insurer daily.

The organization and customers are pushing hard to use real-time data to provide real-time updates to insurance benefits and features.

For example, if you walk extensively in the day, week or month, shouldn’t your insurance rates drop and/or other benefits be awarded to you?

As that study lays out the thinking and analysis in a very entertaining way, we learn that the model the company uses to calculate premiums works by running huge extrapolation models once a year. They would need to rebuild their core actuarial models to work with real-time daily data, versus projected data per annum. The model would have to compensate for using data from a pool of clients, where the data is not the same between clients and where clients may try to game the system.

The distribution system would also break down. The insurer uses brokers to sell their policies and those brokers earn a commission each time a policy is sold, renewed and/or upgraded per annum.

Would broker commissions paid out at the beginning of policy renewal, for the full year of the policy, be clawed back if the rates changed each day or month?

This is a very fascinating example where simply having more data does not only change the digital strategy since it requires the insurer to rethink their business model and the way they calculate risk. It changes their distribution model as well. The entire business changes just from moving from yearly calculations to daily calculations. This is an example of digital changing the corporate strategy.

Note, I said digital changing the corporate strategy and not the digital strategy changing the corporate strategy. The board will need to consider all these changes and develop a new corporate strategy which the new digital strategy must enable.

And the insurer needs to develop a new dimension along which to compete. It is a truly fascinating study to see how the partner unpacks all of this and convinces the client to make the necessary changes.

Boston Bugle’s digital strategy

In this case, clients usually focus on estimating the break-even point and return on investment of The Boston Bugle installing apps and an article paywall. They make the classic mistake of assuming all digital strategy is B2C and largely apps.

They should be looking at:

(a) Suppliers/supply

(b) Production of the product

(c) The product

(d) Delivery (customer interaction)

This should be their rough structure and it loosely mirrors the value chain. The Boston Bugle could roll out a digital strategy in any of these areas.

Roll out a digital strategy to shut its printing presses, sell the building and outsource all printing to digital printers who print for rivals. This would lower costs and deliver a one-time benefit from the sale of the building and printing assets.

Digitize the entire newsroom and convert all old articles, images, clips etc. into digital versions so journalists could easily access older output. Drafts, notes etc., could all be shared digitally within the team.

The customer would never see these changes but the time to do the work would drop and the need to keep the originals in hardcopy onsite on expensive real-estate would be eliminated. The originals could be moved to a cheaper location in less expensive real estate thereby lowering storage costs.

Let’s think about the product.

If the articles are of poor quality, taking them online would not help at all. In fact, the decline in print subscriptions is a function of product quality problems plus the general shift to online reading. The Boston Bugle must fix the quality of journalism to both slow the print cancellations and ensure readers sign up when the articles go online.

This a major blind-spot when developing a digital strategy. Digital is a channel delivering a product. The product must be great and making the product great may have little to do with anything digital.

Game of Thrones drove HBO subscriptions for the HBO app. Making Game of Thrones great required some digital skills like CGI, but mainly great writing, acting and storytelling. The latter three have little to do with digital skills and no one would have watched the show only because Drogon was believable.

This case calls on the case interviewee to figure out three other critical strategy elements.


Boston is a relatively smaller market. The NYT and WSJ cover national and international interest topics. That huge volume of potential readers and subscribers allow the NYT + WSJ to spread the fixed costs of going digital.

If the Boston Bugle went digital, is it indirectly proposing targeting more readers than the Boston metropolitan area could ever supply? Does this mean its coverage of Boston is no longer its primary selling point? That is a major strategic decision and implies fielding reporters in new bureaus to cover more regions and that drives up fixed costs. It also means it is no longer a Boston paper.


Why should the Boston Bugle get into distribution? Can it build an app and experience to match that of the WST, NYT etc.? Will customers be willing to put up with a poor app just for the unique content. Yet, pursuing this strategy guarantees the content is no longer unique because the Boston Bugle would cover the same items as its competitors.

And this is the crux of the issue.

To go B2C requires a large upfront fixed cost. To cover the costs the Boston Bugle needs more subscribers. To entice more subscribers it needs to cover non-Boston issues. But can it ever cover these issues better than the WSJ or NYT? In the new strategy, the Boston Bugle is no longer a Boston paper but, potentially, a very weak international paper.


Digital products are not cheap. Initially, a digital strategy tends to appear cheaper. This is because most digital strategy business cases assume the product is not the problem and it is simply the channel that needs to be fixed. So the business case eliminates the costs related to physical printing, physical offices etc., and assume a tiny increase in costs to build a website and apps.

Sometimes the entire product needs to be scrapped and redesigned for the digital age and not just by making them digital, but by improving their quality. It is expensive to code, build enticing interfaces, shoot content, license content and so on.

We see this strategy mistake today when older magazines are being sold and bought. The new owners assume a name like Sports Illustrated is enough to make money off a simple and pared down website with a smaller support team. The product will always cost money to make, even if the costs of the channel go down when the channel is now digital. And it will take a lot of money to make the brand relevant again.

And that starts with making the product/content relevant again and a new website cannot by itself invigorate old content.

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