The Winner Take All Digital World

During the last years, we all have become aware that, in the digital world we live in, oft the winner takes it all (call it Google, Amazon, Facebook or Uber) or at least, a very, very significant share of those markets they have helped defining and currently they control. And yes, de facto, is so.

The BCG report from Gabrielle Novacek, Bob Black, Karl Walsh, Jaime Rooney and Leslie Hinchcliffe, explore some of the most striking challenge for the food, beverage and consumer packaged goods industry (which generates sales of $2.1 trillion annually only in the United States) in an scenario where the a 1% penetration rate of e-commerce will most likely expand to 5% but could quickly accelerate to 10% and even more in certain categories and location.

As the report clearly states, this new, winner-take-all digital world is being shaped by four factors. First, while multiple business models are emerging, a few are disproportionately influential. Second, the game is increasingly played by new rules requiring new skill.s Third, early-adopter consumers are already settling into patterns of digital buying behavior. Fourth, and most important, success breeds exponential success. Let me summarize some of the key findings of those four points.

  1. Influential Digital Business Models. There are now myriad variations and permutations in all phases of the business, including product offerings, the ways in which products are sold and bought, and companies’ interactions with consumers. Consumers move back and forth between digital and traditional channels, often mixing the two. All that said, the various Amazon e-commerce models are by far the most influential with regard to consumers and how they shop in the US today. And looking at the CPG industry, the most important and most disruptive will be the click-and-collect model, under which consumers order online or on their smartphones and pick up their groceries at a store, a dedicated facility, or a locker late in the day.
  2. New Rules, New Skills. A large brick-and-mortar market share does not guarantee online sales. And the skills and capabilities to build big shares in traditional channels don’t have the same impact online. In the winner-take-all world, skills like digital-media targeting, online-content management, social-media shaping, search engine optimization, mobile advertising and app development are not only requirements but also the new differentiators.
  3. Digital buying behaviors. In the grocery sector (but also in a lot of other product categories), more and more consumers are locking into online subscription services, such as Amazon Subscribe & Save, for regularly purchased items. Convenience and emerging habits are the biggest drivers of Amazon’s business, whose estimated market share of the online grocery market rose from 24% in 2012 to 29% in 2014. Furthermore, millions of consumers have committed to platforms that charge annual membership fees in return fro free shipping and other benefits. Amazon has some 41 million Prime members –approx. 35% of US households. Although many of those shoppers might still try other options from time to time, once they lock in, the barriers to actually switching, in terms of money, effort, familiarity and habit, can be very high. A social media counterpart is Facebook, which wins by being the primary, but not necessarily the exclusive, social network in people’s life.
  4. Success breeds exponential Success. Search engines serve up results that are broadly based on keyword relevance and user popularity. First-page search results on e-commerce sites as Amazon are typically based on keyword relevance and sales. Because of the ways that most search-engine algorithms work, and the predilection of many consumers to follow the trail blazed by early adopters, brands that are fast and aggressive online often establish positions that are stronger than those of their slower competitors – frequently much stronger than could ever be achieved in traditional retail environments.
    As the well-thought reports puts it in his last paragraph: in the Winner-Take-All world, the competition is as quick and nimble as traditional players are deliberate. Companies need to alter the way they play-speed is an ally, hesitation means falling behind.