Lecture 1: Introduction into digital innovation
Historical developments
● The PC revolution
○ Moore’s law: the number of transistors in a dense
integrated circuit (IC) doubles about every two years
● The internet revolution: from 1960-2000
● The mobile revolution: from 1997
● Smartphone revolution
○ The 3 elements (camera+ GPS+APPS) became
integrated in one technological infrastructure
Digitization
● Digitization= the process in which you turn analogue information into digital format
(bits of 0 and 1)
○ E.g. sounds, visuals (camera), printed text (google books) , medical
information (health-apps, implants)
○ Dominant visions for the future: Voice recognition, virtual reality, internet of
things (most objects are part of internet, IP), internet of bodies (medical,
pacemaker)
● Digital and physical
○ Digital technology is not just virtual, but also physical.
○ digital always rely on Physical basis (energy, artefacts), physical location
(wifi, data centres, jurisdiction) and with physical effects (electricity use,
waste)
○ The combined digital/physical aspect of DI generates new inequalities,
geographically and socially (between high and low educated people)
○ To use digital information you still need physical carriers. Such as keyboards,
but also energy.
Digital innovation
● Definition
○ = new combinations of digital and physical components to produce novel
products (Yoo et al., 2010)
○ Focus lies on product innovation, not process innovation
■ “The miniaturization of hardware, increasingly powerful microprocessors,
inexpensive and reliable memory, broadband communication, and efficient
power management have made it possible to digitize key functions and
capabilities of industrial-age products including cars, phones, televisions,
cameras, and even books”. (Yoo et al., 2010)
■ “With embedded digital capability, such products offer novel functions and
remarkably improved price/performance ratios that transform their design,
production, distribution, and use.” (Yoo et al., 2010)
○ Some process innovation build on product innovation (e.g. robotics)
● Characteristics digital innovation
, ○ Re-programmability: physical carriers can be used for many purposes
( traditionally a product can hardly be changed when it is produced.)
○ Homogenization of data; Data is independent of physical carriers →
transformed into 0 and 1, you can combine data and categorize
them → can be analysed, edited, sold etc.
○ Self-referential; digital innovation feeds itself, it becomes better the more it is
used
■ Network externalities; each adopter of digital
innovation increases the value of use for other
adopters, both directly (social media) and indirectly
(via development of complementary innovations)
Architecture
● Layered architecture
○ Contents ; sound, pictures, texts
○ Services: Apps such as search social media, downloading a
movie
○ Network; physical, logical (tcp/is)
○ Devices: Physical, logical (OS)
● Modular architecture
○ Components in layered modular architecture are not just
modular, but product Agnostic (you don’t know, in this case you are
agnostic how one of the 4 components are combined with other, e.g. google
maps) rather than product-specific (e.g. aircraft engine)
■ aircrafts are really modular, because parts can be replaced/adjusted
without the entire aircraft being changed
○ A physical device like iphone is both a traditional modular product and digital
platform offering other firms to develop complementary devices, apps and
content using Software Development Kits (SDKs) and Application
Programming Interfaces (APIs)
● Power
○ Traditional industry: Firms higher in the product hierarchy are generally
larger and have more power (volkswagen)
○ In digital industries, firms in each layer can function independently. Power
resides in platform firms, which can be located in the device layer (Windows,
iOS, Android, Tencent), network layer (Amazon cloud), or service layer
(Google, Facebook, Amazon/Alibaba)
○ The big 5 (amazon enz) become more active in all the layers. They vertically
integrate creating their own ‘ecosystem’
● Digital vs traditional innovation
○ Trial and error
■ R&D is not so much science-based in a laboratory, but trial-and-error-
based ‘in the wild’
● beta testing with continuous feedback from users
, ● Online controlled experiments (A/B): You give 2 different
groups of versions and look at the results (people stay longer
on the website)
■ DATA comes in large volumes. Data feed into AI to analyse opinions
and behavior, develop incremental innovation, give automated
feedback
○ Scale fast; Fixed cost extremely high and variable cost low
■ Zero marginal cost; is basically zero
■ Venture capital; High-risk, high-gain
■ Freemium; Free version to generate network effects and premium
version for extras
■ Regulation: ‘Don’t ask permission, ask forgiveness’ (not like a plane
that has to go through all the checks)
○ Ecosystem is key
■ Multi-layered nature of digital technologies
■ Increased dependence on Big tech, e.g. app store, Google Map
■ Plug-and-play: Basic modules can be outsourced (sales, marketing)
■ Profiting from innovation; Software can be patented and data are
proprietary. However, the concept underlying an innovation can be
easily copied. Making money from an innovation also depends on
brand name, interoperability, collaboration
● Digital innovation impact
○ Productivity paradox
■ Despite the fact that digital tech can do for us, we do
not become a lot more efficient/ productive
■ Labor productivity decreases over the years
■ Explanation:
1. Productivity increases are offset by negative
effects including cybercrime (so we need to pay extra for
security), loss of concentration, information overload
(sometimes less information is better to make faster decision),
consumer addiction
- We become more efficient in some things, but also less
in other things because we can’t multitask.
2. Productivity increases are not well measured ( in economic
statistics) as many products are now for free and services are
quicker
3. It takes a generation long to unlearn old and learn new
organizational practices, so the productivity will increase in the
near future
● ICT for sustainability
○ The transformational power of digital innovation can make production and
consumption more sustainable, but not automatically so!
Advantages:
○ Sustainability in ICT: Making ICT goods and services more sustainable over
their life cycle, mainly by more efficient use of energy and materials.
Historical developments
● The PC revolution
○ Moore’s law: the number of transistors in a dense
integrated circuit (IC) doubles about every two years
● The internet revolution: from 1960-2000
● The mobile revolution: from 1997
● Smartphone revolution
○ The 3 elements (camera+ GPS+APPS) became
integrated in one technological infrastructure
Digitization
● Digitization= the process in which you turn analogue information into digital format
(bits of 0 and 1)
○ E.g. sounds, visuals (camera), printed text (google books) , medical
information (health-apps, implants)
○ Dominant visions for the future: Voice recognition, virtual reality, internet of
things (most objects are part of internet, IP), internet of bodies (medical,
pacemaker)
● Digital and physical
○ Digital technology is not just virtual, but also physical.
○ digital always rely on Physical basis (energy, artefacts), physical location
(wifi, data centres, jurisdiction) and with physical effects (electricity use,
waste)
○ The combined digital/physical aspect of DI generates new inequalities,
geographically and socially (between high and low educated people)
○ To use digital information you still need physical carriers. Such as keyboards,
but also energy.
Digital innovation
● Definition
○ = new combinations of digital and physical components to produce novel
products (Yoo et al., 2010)
○ Focus lies on product innovation, not process innovation
■ “The miniaturization of hardware, increasingly powerful microprocessors,
inexpensive and reliable memory, broadband communication, and efficient
power management have made it possible to digitize key functions and
capabilities of industrial-age products including cars, phones, televisions,
cameras, and even books”. (Yoo et al., 2010)
■ “With embedded digital capability, such products offer novel functions and
remarkably improved price/performance ratios that transform their design,
production, distribution, and use.” (Yoo et al., 2010)
○ Some process innovation build on product innovation (e.g. robotics)
● Characteristics digital innovation
, ○ Re-programmability: physical carriers can be used for many purposes
( traditionally a product can hardly be changed when it is produced.)
○ Homogenization of data; Data is independent of physical carriers →
transformed into 0 and 1, you can combine data and categorize
them → can be analysed, edited, sold etc.
○ Self-referential; digital innovation feeds itself, it becomes better the more it is
used
■ Network externalities; each adopter of digital
innovation increases the value of use for other
adopters, both directly (social media) and indirectly
(via development of complementary innovations)
Architecture
● Layered architecture
○ Contents ; sound, pictures, texts
○ Services: Apps such as search social media, downloading a
movie
○ Network; physical, logical (tcp/is)
○ Devices: Physical, logical (OS)
● Modular architecture
○ Components in layered modular architecture are not just
modular, but product Agnostic (you don’t know, in this case you are
agnostic how one of the 4 components are combined with other, e.g. google
maps) rather than product-specific (e.g. aircraft engine)
■ aircrafts are really modular, because parts can be replaced/adjusted
without the entire aircraft being changed
○ A physical device like iphone is both a traditional modular product and digital
platform offering other firms to develop complementary devices, apps and
content using Software Development Kits (SDKs) and Application
Programming Interfaces (APIs)
● Power
○ Traditional industry: Firms higher in the product hierarchy are generally
larger and have more power (volkswagen)
○ In digital industries, firms in each layer can function independently. Power
resides in platform firms, which can be located in the device layer (Windows,
iOS, Android, Tencent), network layer (Amazon cloud), or service layer
(Google, Facebook, Amazon/Alibaba)
○ The big 5 (amazon enz) become more active in all the layers. They vertically
integrate creating their own ‘ecosystem’
● Digital vs traditional innovation
○ Trial and error
■ R&D is not so much science-based in a laboratory, but trial-and-error-
based ‘in the wild’
● beta testing with continuous feedback from users
, ● Online controlled experiments (A/B): You give 2 different
groups of versions and look at the results (people stay longer
on the website)
■ DATA comes in large volumes. Data feed into AI to analyse opinions
and behavior, develop incremental innovation, give automated
feedback
○ Scale fast; Fixed cost extremely high and variable cost low
■ Zero marginal cost; is basically zero
■ Venture capital; High-risk, high-gain
■ Freemium; Free version to generate network effects and premium
version for extras
■ Regulation: ‘Don’t ask permission, ask forgiveness’ (not like a plane
that has to go through all the checks)
○ Ecosystem is key
■ Multi-layered nature of digital technologies
■ Increased dependence on Big tech, e.g. app store, Google Map
■ Plug-and-play: Basic modules can be outsourced (sales, marketing)
■ Profiting from innovation; Software can be patented and data are
proprietary. However, the concept underlying an innovation can be
easily copied. Making money from an innovation also depends on
brand name, interoperability, collaboration
● Digital innovation impact
○ Productivity paradox
■ Despite the fact that digital tech can do for us, we do
not become a lot more efficient/ productive
■ Labor productivity decreases over the years
■ Explanation:
1. Productivity increases are offset by negative
effects including cybercrime (so we need to pay extra for
security), loss of concentration, information overload
(sometimes less information is better to make faster decision),
consumer addiction
- We become more efficient in some things, but also less
in other things because we can’t multitask.
2. Productivity increases are not well measured ( in economic
statistics) as many products are now for free and services are
quicker
3. It takes a generation long to unlearn old and learn new
organizational practices, so the productivity will increase in the
near future
● ICT for sustainability
○ The transformational power of digital innovation can make production and
consumption more sustainable, but not automatically so!
Advantages:
○ Sustainability in ICT: Making ICT goods and services more sustainable over
their life cycle, mainly by more efficient use of energy and materials.
