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Wrapping your Firm in an Ever-Thicker Digital Fabric

Disruption has clearly been the dominant IT buzzword of 2014. But as impressive as Uber, Airbnb and others have been, they are really just a by-product of a longer-term shift that continues to gain momentum. An ever more capable digital infrastructure is absorbing much of what individual industries have historically done for themselves. As many of the boundaries between traditional sectors break down, important new sources of innovation, value and disruption are emerging.

Digital Fabric

Significant chunks of the traditional vertical industry stack are being replaced by an ever more powerful digital fabric of horizontal services.

Over the course of the 20th century, each industry developed its own vertical stack – research, design, development, production, marketing, sales, service, etc. Although there were essential forms of shared business infrastructure – electrical utilities, transportation systems and telephony services – most industry sectors were much more different than alike. Many executives and employees spent the bulk of their careers in a single industry because that is what they knew.

But today, significant chunks of the traditional vertical industry stack are being replaced by an ever more powerful digital fabric of horizontal services – the IT infrastructure equivalents of energy, transportation and telephony. When Marc Andreessen says that “software is eating the world”, this is what he means. However, as shown in the figure and discussed below, these shifts are not just about software. There are at least four main layers of digital fabric activity today:


Computing and data storage are becoming utility services that can be dialled up or down as needed, with greatly reduced system administration requirements. Amazon currently dominates this marketplace. Similarly, various device and network suppliers provide connectivity, bandwidth, GPS/location, mobility and Bluetooth-like capabilities. New firms take these services for granted, but they make launching and scaling a start-up faster by at least an order of magnitude.


Information security, identity management, payments, authentication and overall digital trust are (slowly) becoming more outside-in. Rather than every firm managing its own separate set of user forms, names, passwords and company firewalls, trusted identity, encryption, detection and authentication services will be increasingly shared across society. Similarly, payment systems are steadily moving outside of the traditional banking industry stack via services such as PayPal, Apple Pay and others. Digital currencies such as Bitcoin promise even greater transaction processing shifts.


Text messaging, email and social media suppliers as well as information aggregators such as Amazon, eBay, TripAdvisor and Yelp provide platforms for messaging and information publishing that cut across traditional industry stacks. As user-generated content becomes the most powerful driver of sales, marketing, support and innovation in many industries, these shared platforms are becoming the dominant source of marketplace communication and brand reputation.


Historically, most Big Data as well as virtually all forms of artificial intelligence have been domain/ industry specific. But this is changing, as collective intelligence increasingly becomes a shared horizontal capability. Consider Google Trends, and the way our virtual profiles of individual interests, reputation and behaviour are becoming increasingly portable across industries. Looking ahead, people, robots, machines and software agents will all have real-time access to everything that Google and Watson know. This layer of intelligence will likely prove the most disruptive of all.

All of this may sound a bit abstract and perhaps even obvious, but the consequences are profound. More and more of what we do and who we are is becoming part of a shared digital fabric. Since most of these capabilities are coming from Silicon Valley, the vertical vs horizontal model above is also a good proxy for the competition between the general-purpose technology sector and traditional industry-specific incumbents. The suppliers of these horizontal capabilities are well on their way to establishing powerful (and profitable) value chain positions.

As shown in the figure, just about every industry now features firms that are essentially riding on top of this infrastructure and not worrying too much about what goes on below. This approach has delivered compelling improvements in speed, agility, cost and innovation – advantages that will only strengthen in the future. Consider the way the task of building a self-driving car is really a digital fabric project leveraging GPS, digital maps, sensors, software, car-to-car communication and decision- making algorithms, all of which will also be used extensively by other industry sectors. Such shared capabilities are the main reason why the digital fabric will increasingly blur traditional industry boundaries.

Leading the ecosystems of the future

We believe this model can also help clients structure their strategic conversations. Obviously, incumbent firms need to watch how start-ups are leveraging these developments and determine whether new entrants will become a disruptive threat. But this is actually the easy part, as it is where most of the media and market attention will naturally go.

To what extent can your firm ride on top of this ever-improving digital infrastructure?

The more subtle task will be for incumbent firms to determine how they can leverage – and ideally contribute to – each of these horizontal layers. To what extent can your firm ride on top of this ever-improving digital infrastructure? Perhaps more importantly, what is happening in each of these layers that you can use to your advantage? For example, should the major banks embrace a digital currency such as Bitcoin, or should they resist it? Every industry faces similar challenges and opportunities.

In short, although we won’t know the full extent of today’s various industry disruptions for many years, the competition between traditional vertical stacks and shared horizontal platforms is well under way. This is where the overall structure of the 21st-century digital economy is being determined. But since the value chains of the future are not pre-ordained, there will be huge advantages for those firms – new and incumbent alike – that can shape and leverage these increasingly powerful dynamics. Tracking the spread of this ever-more capable digital fabric will be a major area of LEF research in 2015 and beyond.


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Research Commentary

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David Moschella
Research Fellow
David Moschella, based in the United States, is a Research Fellow for Leading Edge Forum.  David's focus is on industry disruptions, machine intelligence and related business model strategies.  David was previously Global Research Director of the programme. David’s key areas of expertise include globalization, industry restructuring, disruptive technologies, and the co-evolution of business and IT.  He is the author of multiple research reports, including Disrupting the Professions through Machine Learning and Digital Trust, 2016 Study Tour Report: Applying Machine Intelligence, There is Now a Formula for Machine Intelligence Innovation,  Embracing 'the Matrix' and the Machine Intelligence Era and The Myths and Realities of Digital Disruption. An author and columnist, David’s second book, Customer-Driven IT, How Users Are Shaping Technology Industry Growth, was published in 2003 by Harvard Business School Press.  The book predicted the shift from a supplier-driven to today’s customer-led IT environment.  His 1997 book, Waves of Power, assessed global competition within the IT supplier community.  He has written some 200 columns for Computerworld, the IT Industry’s leading publication on Enterprise IT, and has presented at countless industry events all around the world. David previously spent 15 years with International Data Corporation, where he was IDC’s main spokesperson on global IT industry trends and was responsible for its worldwide technology, industry and market forecasts.    


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