In a digital world, things are

infinite. The possibilities are

infinite. The opportunities are

infinite. The ability for

inclusion is infinite. The

ability to actually make money

is infinite.

That's Ray Wang, the founder,

chairman, and principal analyst

of Constellation Research, a

leading technology research and

advisory firm based in Silicon

Valley. In his role at

Constellation, Ray covers

cutting-edge trends in big data,

the future of work, technology

optimization, and more. Ray's

also the co-host of "DisrupTV,"

a weekly enterprise technology

and leadership webcast and

writes a popular business

strategy blog. Ray is an

undisputed thought leader in the

technology industry. He's

spoken at almost every major

tech conference and his

groundbreaking, bestselling book

on digital transformation, "

Disrupting Digital Business,"

was published in 2015. Ray's

latest book, called "Everybody

Wants to Rule the World" was

released in July of 2021. There

are only a handful of people who

have much insight into the

massive digital disruption that

has shaped the last 20 years as

Ray does. In this episode, Ray

talks about the biggest lessons

he's learned and how companies

can learn to thrive in a world

of digital giants or how to

become giants themselves. This

is Daniel Saks, co-CEO of

AppDirect, and it's time to

decode digital dominance.

Welcome to "Decoding Digital," a

podcast for innovators looking

to thrive in the digital economy.

I'm your host Daniel Saks and

I'll sit down with other

founders, CEOs, and changemakers

to decode the trends that are

transforming way we work. Let's

decode. Ray, thrilled to have

you on the show today.

Hey, thanks for having me. I'm

looking forward to it.

Of course. Before we decode,

let's talk a little bit about

your background. I know in 2010,

you founded Constellation

Research, a Silicon Valley

research firm that focuses on

the tech sector. What led you to

launch the research firm?

We were looking at these trends

around digital, and digital

channels, and digital business.

We realized there was a hole in

the marketplace for a research

advisor in this, and so we

started talking to some of our

early adopted clients and people

I'd worked with in the past. I

was in another firm called

Altimeter. Before that, I was at

Forester Research. We saw this

hole in the market for high-end

early adopters' innovation. We

went after that research market.

I originally actually had a

whole bunch of theses set up.

The week after I founded the

firm, I got an offer from

Harvard Business Press to write

a book. It turned out that at

the same time I was building the

firm, we were writing the book.

That's when we launched the

first book. It was actually

they started the firm because

all the principals were there.

We finally got around to writing

the book. That was the first

book.

Tell us about the first book.

The first book is Disrupting

Digital Business. We really

looked at where business models

were forming and how you

actually built digital

businesses. We realized that

just getting a digital channel

was not enough. "Hey, I've got a

website. I've got mobile. I can

do this in some kind of

augmented reality." That wasn't

going to work. It needed a lot

more. You really had to rethink

what a business model looked

like. You really had to think

the role of data and how that

played into the equation.

Culturally, a lot of

organizations just weren't ready.

They didn't have digital

artisans. They didn't have folks

that could balance the right

brain and left brain

capabilities. They couldn't

figure out science, tech,

engineering, and math had to get

paired with empathy, and

ethnographers, and design, and

creatives. It was a big

struggle up until about 2015,

2016 when the book launched. We

are still early in the world of

digital business. Then

everything picked up from 2017

till about 2020. You could see

that people finally got it.

Boards were getting excited.

People were like, "Let's go do

this."

It was interesting because you

founded Constellation in 2010,

which was right around the time

that I moved to the Valley in

2009. A lot of our

underpinnings for founding

AppDirect, which also focuses on

digital business and digital

channels, as you know, was born

out of the Great Recession and

looking at how businesses on

Main Street were

disproportionally disadvantaged

because they didn't have the

typical access to technology and

capital. As the service

business models and digital

channels, it gave opportunities

to businesses, big and small, to

be able to capitalize on digital

tech. Can you speak to the

undercurrent of what you

observed in that time, in 2010,

and what drove the catalyst to

accelerate through 2015 and then

obviously 2020?

It's a great point. It was like

the worst time to found a

company. We were in the middle

of a recession. People were like, "

We're in trouble. This is all

going to be chaos." People were

leaving the Valley instead of

moving into the Valley.

Congratulations on your end.

They were leaving because the

opportunities that they thought

they had gone away. The

underlying current was different.

We were going direct to consumer.

We were moving to cloud. We had

subscription business models.

The fundamentals of how we

actually distribute services and

offerings had changed because

the efficiency was there. I

think a lot of startups in 2009,

2010 have eventually become

unicorns. They were able to

bypass that, think big, be able

to build long-term views, and

they got the capital behind them

to go do that. I think that's

the backdrop. While we were

doing that, we also noticed

there were a series of folks

that could figure out how to

bring the business and the tech

together. More importantly, they

realized that every startup, we

joke as kind of a cult. You had

to believe in where it was going

to go. That's how these

organizations succeed. It's like, "

We're going to dominate this

market. We're going to do food

delivery apps. We're going to do

ride-hailing services. We're

going to re-transform the world

of space." All these things

happened during that period of

time. A lot of those ideas were

there. I imagine, with the

pandemic, there's going to be so

many awesome startups in the

next 12 to 18 months that we're

going to be hearing about. Ideas

that got formed, capital

creation was already there. This

time around, people were

actually active. It's not that

people weren't working. They

were probably working twice as

hard.

I know you're releasing a new

book called "Everybody Wants to

Rule the World -- Surviving and

Thriving in a World of Digital

Giants." Where did the idea for

the book come from? What are

some of the important takeaways?

I was watching "Real Genius."

Towards the end of the credits...

No, I'm just kidding. That's

where the "Tears for Fears"

kicks in. Here we are, talking

about digital transformation in

2018. We have a list of

executives called the Business

Transformation 150. Dion

Hinchcliffe and I put that

together. We try to figure out

who are the top digital

transformation experts and the

project that they'll be doing.

We have the world's largest

digital transformation case

study live. We've got a thousand

stories of people that have done

it, the ROIs, and the metrics,

and so we looked back to some of

these folks and said, "Hey, how

are you doing? What's going on?"

Well, their digital

transformation projects were

successful, but the overall

strategy of turning digital

around wasn't, and we couldn't

figure out what it was. These

were great projects. They were

well-funded. You had the right

governance. You had the right

amount of funding. You had the

right level of technology

platform, but they were still

losing. It turned out there's a

new class of companies called

digital giants. Yeah, we know

them as Facebook, Apple, Netflix,

Microsoft, Google, Amazon, but

there's also a new class like

Airbnb, Roblox. If you think

about Stripe, if you think about

Coupon, if you think about eToro,

if you think about Robin Hood,

something was different about

these companies. All the food

delivery apps, DoorDash, Uber

Eats. Something was going on. We

realized there were a couple of

patterns that people were

missing. We started looking deep.

I started looking deep into this

and trying to figure out why

companies weren't succeeding. A

great example is our favorite

poster child for digital

transformation, which is

Domino's Pizza. Love it, hate it,

order the pizza or not. The

point being is they won the

battle for digital

transformation. You can order

pizza from any device, any

digital channel. You can call

Alexa up and say, "Hey, I want a

pizza." The app is so good. It

reminds you every week, "Hey,

you ordered one last week. Do

you need one this week?" You can

track the order. The pizza's in

the oven. The pizza is 10

minutes away. The pizza is 5

minutes away. By the way, take a

picture of the pizza and our AI

engine will tell you how good

the pizza is and what the

quality's like. They won, right?

But in the world of food

delivery apps, what happens?

What happened during the

pandemic? The food delivery apps

helped out small businesses.

That would be the positive spin.

The reality is those small

businesses gave all their

customers to the food delivery

app companies, who then took the

payment information and learned

the preference data from these

customers to build really large

networks over time to create new

digital monetization models.

Whether it's ads, search,

placements, or even ghost

kitchens to the point where they

can lose hundreds of millions of

dollars, these small businesses

can and Domino's can't at all.

What does Domino's do in a world

of food delivery apps where

digital giants are trumping them?

Think about that. It's huge.

It's huge. Do I need Domino's

anymore? You order from a food

delivery app, not Domino's. They

just lost the war. They won the

battle but they just lost the

war. Now, they could be saved.

Here's how I would do it. You

would actually create a separate

entity at Domino's called

Delivered by Domino's and help

all the small businesses and

give them the infrastructure

that they use for pizza, which

is a small market compared to

food delivery apps, which is 15x.

That would allow them to play in

both markets and leverage their

expertise to help small

businesses succeed. They're not

there yet. They haven't invited

me over to talk to them, but my

point being is they're not there

yet. That's something they

should think about. That's what

this book is about. Digital

giants do five things really

well. They disintermediate

customer account control. They

compete for data supremacy. They

build the largest networks. They

understand digital monetization.

They're in it for the long haul.

Super powerful. Let's go to the

Domino's example, right? We all

know that over the last 10 years

there's been a lot of narratives

around I'm a taxi company. I'm

going to fight Uber. I'm a hotel.

I'm going to compete against

Airbnb. It's crazy that, as

much talk as they had about

digital innovation and hiring a

chief digital officer, we all

know how that played out a few

years later, especially on

market cap and market value. Do

you still think there's hope for

a lot of incumbents? I guess

traditional incumbents that

haven't innovated yet. How do

they fight to thrive?

There definitely is hope. That's

part of why we wrote the book.

We wrote the book to say, "Hey,

how do you figure out digital

giants?" Then we wrote...The

second part is, "How do you

compete against digital giants?"

Then, we wrote the last part

talking about regulation and the

regulatory framework. Yeah,

you're a small company. You're

going to partner. If you're an

existing company, you're going

to have to rethink what your

company is about. Using the

Domino's example, let's go

deeper there. If they opened up

that capability to create a

brand-new startup, work with a

whole bunch of partners, from

payment providers to companies

that can actually provide

logistics and automation the

back end, they could create a

brand-new entity that's worth a

billion dollars, two billion

dollars of market cap on day one

and then invite all the small

businesses to be part of it.

Put in $50,000. Get the small

businesses or other enterprises.

Put $50,000 in. We'll give you

shares of the company. Here's

what we're going to give you, as

well. We have the ability to

leverage the capabilities to

compete against a GrubHub or a

DoorDash. That's where you want

to be. I'm seeing a lot of

joint venture partnerships, as

well, at the enterprise side

where companies can partner with

other cloud entities to build

these coalitions, what we call

joint venture startups, to be

able to then compete. There are

typically four themes. One is

compete a common enemy. Maybe

the common enemy's Amazon, or

WeWork, or another digital giant.

Take the whole value chain.

Maybe you want to go into the

entire food delivery business

and bring people together.

Sometimes cross-industries.

Comms, media, entertainment, and

telco are really the same

because it's all about getting

content. It's all about getting

to distribution networks. It's

about getting the technology

platforms and then building the

customers. That's the same

business of moving digital IP

and assets around. Then, of

course, there's thing they can

do that are good for a non-

profit or a public sector where

people can actually share that

information. You can share that

data and actually get better

outreach and accomplish their

mission.

What's a case that you would

speak to, let's say in the

incumbent space, of someone who

has done this really well?

I think Walmart has finally

figured it out. When they first

created Walmart Labs in San

Bruno, Bentonville and San Bruno

never got along. It was kind of...

Here's this entity trying to

build the future Walmart. Here's

this entity that says, "Hey, we

don't like what you're building

and we're never going to use it."

Then they bought Jet. Once they

bought Jet, I think they figured

out they were missing something,

but it wasn't until I saw them

make a purchase for TikTok that

I realized they got in the game

finally. They have 200 million

shoppers every week and they

never saw them as members. They

never saw them as being part of

something. When they realized

they needed a digital ad network

through TikTok when they started

creating Walmart+ and the

ability to be a member... When

they started understanding that

they could actually use their

membership base to create this

massive network effect to

deliver health care, to deliver

other types of services, that's

when they got it. That's where

you can see an interesting

turnaround over there, where

they realized it's not just a

tech play. They're not just

competing against Amazon for

commerce. They're really turning

into a digital business over

time.

Decoding Digital talks a lot

about transformation stories. I

know a lot of your research is

around digital transformation.

What would you say are the most

effective strategies that a

traditional business can take to

transform?

That's a great question. We

actually start with this one

chapter talking about how

organizations have to transform

their life cycle. The life cycle

of organization goes like this.

When you're a company and you

first start out, you focus

completely on getting the best

idea out there. You answer the

question, why? What's my mission?

What's my purpose? How do I get

there and be successful? Then,

you start focusing on brand

value. This is all happening

because you have a dynamic

founder. Then, when you go out,

you go hire the biggest team you

can. Let's go find the top

talent. Let's become the best

place to work. Let's take in our

talent networks. Then you use

design. You create the best

offering. What's our minimum

viable offering? Your metric of

success, as Alice reports. From

there, you build out the markers.

How do we win market share? How

do we win customer satisfaction?

How do we get the top customers

in each market in every industry?

The problem is you go public.

Now, let's maximize the

deployment of capital. Profit

per sale, revenue per employee,

EBITDA, right? Over 30 to 40

years, these companies get stale

and forget even why they exist

and what they're building. You

need some turnaround catalysts.

You have to hit all five of

these -- purpose, team, offering,

markets, and capital. This is

the secret behind it. The

turnaround catalyst for purpose

is an owner-operator, someone

who comes in willing to make the

investments turn around the

company. The turnaround

catalyst for team is reset the

cap tables to get stock upside.

The catalyst for offering is a

brand-new exponential technology

comes in and you use that to

actually say, "Hey, let's put

that into the cloud. Let's use

AI here. Let's figure out a new

type of augmented reality

challenge were talking about

earlier." Then, of course, the

catalyst for markets is building

partner ecosystems with multi-

sided trading networks against

data. Then, the last piece

around capital is you're

basically refreshing investment

cycles and communicating that to

investors so they understand

that long-term nature of how you

actually get there and why you

have to invest 10x in order to

do that. Innovation in your

technology and, of course, in

your teams because that's what

the digital giants are doing.

You've consistently mentioned

this concept of the importance

of the human element or people.

That's a philosophy that we have

at Decoding Digital and at

AppDirect. We call them digital

heroes, people who take the

transformative change to make a

difference. One of the things I

know you do beyond Constellation

and all of your research is

you're the co-host of DisrupTV.

You feature some incredible

business leaders that are making

huge transformations. What are

some of the similarities that

you see across these successful

transformative entrepreneurs?

They understand empathy. They

understand. They start from that

point. I think that's really

important because every year I

watch your Digital Heroes. It's

awesome. This is where you guys

go celebrate folks that are

winning in the digital economy.

These digital champions are out

there. I think that's awesome

because we need more of that in

this business. What I also

notice about your Digital Heroes,

and the people that we celebrate,

and the folks that show up on

DisrupTV, and my co-host Vala

Afshar is that we live in a

culture of abundance, not a

culture of scarcity. A culture

of scarcity is where you're

dividing the pie and you're

thinking that, "Hey, if I do

this then I only get this piece.

Someone else gets that piece."

It's like, "No. I'm trying to

build the pie." In a culture of

abundance, you're building the

pie. You know that. In a digital

world, things are infinite. The

possibilities are infinite. The

opportunities are infinite. The

ability for inclusion is

infinite. The ability to

actually make money is infinite.

That perspective, I think,

underlines that. The third part

is, these are change agents. You

know that. You select change

agents as your winners, I'm

guessing. I'm making the

assumption. You select change

agents, people who are forces of

nature, people who are open to

actually helping others succeed.

I think that's important. The

last piece is they're digital

artisans. They blend the right

brain/left brain piece that are

out there. They understand that

hard science is important, but

you also have to understand the

humanities and your role in

playing out what the

implications of that change is

going to be, not only just on

your employees but also your

other stakeholders. I see that

as all the other characteristics.

We've touched a wide variety of

topics, but I really want to

double-click and decode the

intersection of digital channels

and digital monetization. I know

you've spoke to the term digital

monetization quite a bit. We see

the whole fintech and payments

ecosystem penetrating every

aspect of our economy. Can you

speak to some of the trends in

digital monetization and how

every company can be a part of

that shift?

A great example of this, and

people don't necessarily realize

what's in the news is, "Oh, evil

tech companies, those monopolies.

We need to break them up." When

you actually sit down and think

about business models, and

channels, and monetization, you

realize those are three

different things. In the

digital world, in monetization,

there's only six things you can

do. It's ads. It's search. It's

services. It's goods. It's

memberships. It's subscriptions.

We can drill in on any one of

those if you want. Let's take

an example of monopolies or big

tech giants. Google, $130

billion in digital ads, 4.1

billion users. They're the

dominant player in search.

They're the 21st company to come

out for search. It took them 10

years to get to that dominance.

It took them 24 years to be a

trillion-dollar market cap. All

right, fine. Let's look at

Facebook. 2.8 billion users, $70

billion in digital ad revenue.

It took them 10 years to be

dominant in their place,

depending on the date that we

actually broadcast this, this

year they became a trillion-

dollar market cap. Definitely

dominant players. They all

compete in digital ads. There's

only two players. We're in a

market of duopolies, right? If a

third player were to emerge and

to compete, and if we were to

look at this five years ago, the

only other player there was

Microsoft at one billion. Google

was 70X the size of Microsoft's

revenue in digital ads. Today,

that next player's Amazon, which

is the dominant player in

commerce. $14.1 billion in

digital ad revenues. The only

company Facebook and Google are

worried about in digital ads. Is

that a competitive market or

what? Between three monopolies?

The business models are

monopolies. They've got

monopolistic power in there, if

you want to look at that way,

even though they haven't

exercised monopolistic abuses.

Their business models are so

different. Their channels are so

different, yet they're all

monetizing its digital ads. In

the digital world, there's only

six places to monetize. We're

going to see a massive amount of

competition, different business

models to get to monetization.

The use of every single channel

you can possibly get to optimize

that monetization. That's the

inversion that's occurred

because traditionally you sell a

car. You have your own

dealership. You sell the good.

That's kind of it. No one else

is selling cars unless they run

a car business. Now, I'm selling

you a subscription. I'm selling

you an option. I'm selling you a

membership. I'm building ads on

top of that. I'm monetizing the

search against that. You know

what? It's kind of interesting.

It's kind of exciting.

It's super powerful. All these

transformations are game-

changing in terms of the overall

economy and competition. One of

the things that we've observed

across our commerce platform is

that there's five pillars that

can be enabled in terms of the

digital transformation. One is

the digital ecosystem, which is

really opening up your product

to others and creating a

partnership environment. Two is

digital supply chain, so taking

operations that would have been

done in the physical world or

manually and digitally

automating them. Three is a

digital hub, which is enabling a

unified customer experience

across all the products and

services that you offer. Four

is digital channels, which we've

spoke quite a bit to, but

enabling your customers to buy

where they want when they want.

Five is becoming a true digital

platform where you're turning

data into a core asset. You

spoke to all of these different

components. I would love to get

your perspective on how to bring

these different themes together

to augment your business and

ultimately your bottom line.

I like your framework there. I

think those are the core

components for where digital is

headed. What's missing for

companies is not just the

execution of that framework.

What's missing is the boardroom

conversation about what do we

want to do. This is the biggest

challenge because let's just put

it this way, the investors of

highly profitable companies are

pretty much stripping them of

their cash through share

buybacks and dividends and

asking for growth through

mergers and acquisitions.

What's really happening over

time is that the money that's

available for innovation is

being stripped away. Even worse,

they're taking that cash and

investing in startups in the

same businesses to disrupt the

companies they're invested in.

They're basically hedging

against the companies that they

own. In order to make any of

these numbers work, they want at

least a 15 percent return on

margin. Otherwise, they feel

like they're going backwards.

They're expecting 30 to 50

percent growth. You have to be

able to reset the expectations

in the boardroom about how to

compete against digital

businesses and what kind of

runway you need for those

investments to pan out.

Otherwise, they're just going to

be ATMs for other people's

investments. That fundamentally

is the piece that's missing for

a lot of companies. Once you

have that in place and you've

got a charter and a mission to

go after it, what you really

want to think about is building

what we call a data-driven

digital network. These DDDNs

are the 100-year platforms that

allow you to create multi-sided

networks that allow you to

compete on data value chains.

More importantly, that help you

start building what we call the

business graph. The business

graph is like the social graph.

The social graph in social

networks, that tells you, "Hey,

this person's connected to this

person. Here are their actions.

Here's what they're going to do."

The business graph is, "Here's a

stakeholder, a customer, an

employee, a supplier, a partner.

How do I connect that

stakeholder to an action with an

object? What do we learn about

those patterns?" That becomes

the competitive moat. You have

to have that mindset of building

that 100-year platform to get

there.

Last question. When you talk

about the world of digital

giants, and you mentioned the

FANGs, and Facebook, and Google,

and Amazon, do you think they're

the giants to stay? Do you think

that over the next couple waves

they'll get disrupted by others?

That's a great question. We look

at the life cycle of what

digital giants are going to be.

We've seen the dawn of digital

giants. We're in the middle of

the rise of digital giants.

There will be a decline and a

dusk of digital giants. When

that happens, their technologies,

their capabilities are going to

be critical infrastructure

that's a public good. There's no

patent on the wheel. Everyone

gets onto the Internet. There's

common standards on the HDMI

cord. Those things are all

going to be back to where we are.

You're not going to expect them

to forever be in their place.

Along the way, you're going to

see shifts. You're going to see

acquisitions. Some companies

fail. These companies are going

to become middle-aged and flail

for a little bit and then find

their footing again. Some might

never find their footing and

you'll see that complete decline.

We'll go through life, just like

all life cycles of companies.

Ray, thanks so much for joining

us. Everyone, check out his book,

Everyone Wants to Rule the World --

Surviving and Thriving in a

World of Digital Giants. Thanks

again.

Thank you so much for having me.

I can't wait to engage.

On the next episode of Decoding

Digital...

You hope that if you build it,

they will come. That's where you

start out in the early days.

Without having the APIs and

having that capability, nobody's

ever going to come. Nobody wants

to partner with somebody that

has a closed ecosystem and is

really difficult to interface

with.

CEO of Mindbody, Josh McCarter.

Thanks for listening to Decoding

Digital. Make sure you never

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visit decodingdigital.com. Until