The internet has really taken off since the early 2000s. In the process, it has brought about huge changes in the way business is conducted, and a company’s function.
Today, many investors count a company’s digital strategy as one of the key things to look at when evaluating the company as a potential investment target. It is well known now that a company without a viable digital strategy is less likely to grow at a fast clip, if it even survives.
I recently started reading a book by Peter H. Diamandis and Steven Kotler titled Bold: How to Go Big, Create Wealth, and Impact the World. In the book, the authors touched on six key areas – they are named as the “6 Ds” – that companies need to address if they want to prosper in an increasingly digital world.
The fifth is Dematerialization. As the author states in the book: “While demonetization describes the vanishing of the money once paid for good and services, dematerialization is about the vanishing of the goods and services themselves.”
There are many examples of this happening around us. One of the better examples in my opinion is the rise and death of MP3 players. When MP3 players first came to the market, they were some of the hottest devices to own.
But have you noticed that hardly anyone owns a MP3 player now? The main reason for this is our smartphones have taken over the MP3 players’ job. The smartphones we own now have sufficient capacity for us to upload music so we have access to them on the go.
Taking a step forward, there are now even music streaming websites which allow you to listen to music on the go without the need for storing any music on a device. It’s amazing how in 10 years, we have seen the rise and death of a technological product. This is truly dematerialization in play.
The last is Democratization. Democratization happens when hard costs drop so low they become available and affordable to just about everyone. Let’s look at this in context of the photo industry.
In the past, after a picture is taken with a film camera, you had to get it developed and that was costly. Add in the fact that you wouldn’t know which picture was good, and you quickly realise that photo-taking is very expensive. All this changed when the digital camera was invented.
The market for developing photos disappeared and together with it, the excess you paid for pictures that you did not like. Now with digital photos and cameras, you know instantly which pictures are worth keeping and you could get those printed if you wanted to. However, even printing pictures is now not a very popular thing to do. Uploading photos onto social media sites is the “in” thing – and it’s free.
Having looked at the six D’s which companies need to be aware of to survive in the digital world, when you evaluate companies as potential investments, make sure you spend time thinking about the six D’s and what the companies are doing about them.
For more investing insights and updates on what's happening in the world of finance, you can sign up here for a FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.
Like us on Facebook to keep up to date with our latest news and articles. The Motley Fool’s purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.