Points of View

Technology, media, and telecom—it’s your time to shine. “Digital transformation” seemed meaningless; now, social distancing makes it matter more than ever.

Mar 31, 2020 Miriam Deasy

The COVID-19 pandemic will spur digital transformation initiatives across the globe. Social distancing has massive implications across the technology, media, and telecom (TMT) sectors. Social distancing impacts 4Ds: disruption, disintermediation, disaggregation, and displacement (see Exhibit 1). These offer a path to digital relevance during the pandemic—and hopefully beyond.

 

 

 

Exhibit 1: The four Ds of social distancing—COVID-19 social distancing creates both opportunities and challenges for TMT

 

Source: HFS Research, 2020

 

 

The Four Ds of social distancing impact work, leisure and supply chains

 

Disruption

 

As our physical locations become temporarily fixed rather than mobile, our sourcing habits are changing to concentrate consumption that was previously scattered across an array of suppliers and locations to individual households. Everyone had to change or cancel outstanding events and travel plans; providers can and should automate this process. Many communications and interactions for both work and leisure activities that had been based on human-to-human contact are going virtual or digital.

 

Communications, collaboration, and messaging are in demand, and this highlights the need for reliable and resilient broadband connectivity everywhere. Microsoft Teams reported an increase of 37.5% in daily users in the week March 11-18 2020, while Zoom is adding infrastructure and hiring to meet the demand for its services. UK’s broadband suppliers are confident of capacity; British Telecom (BT) says it has “more than enough capacity in our UK broadband network to handle mass-scale homeworking.” In the US, providers T-Mobile, US Cellular, and Verizon have obtained temporary spectrum boosts to cope with increased demand for mobile broadband.

 

Disintermediation

 

Consumers and providers are already bypassing the middlemen as business models relying on disintermediation take root. The sectors elevating home delivery, such as retail and restaurant food, will see a massive ramp up as early adopters jostle with the majority (and the laggards) who seek to get more delivered to their homes.

 

For business models based on technology platforms, especially marketplaces, many muscle flexes in the past will pay off now, particularly those companies exerted to meet the challenges of managing spikes in demand (Christmas, Black Friday, Cyber Monday, Valentine’s Day, Mother’s Day). And cash transactions being banned or shunned will test the mettle of cashless transactions providers.

 

Disaggregation

 

We are seeing the unbundling of offerings and experiences; in schools, restaurants, shops, and tuition, the social aspect is being disaggregated and sometimes altered to digital. Disaggregation provides an opportunity for collaboration and communication platforms to fill the void as meetings, social engagements, tuition, and exercise classes all go virtual, many with streaming video. This unexpected demand surge makes the previous communications spikes of Christmas and NYEs past look minuscule in comparison. Unsurprisingly, Nielsen is reporting increased engagement with TV, Netflix, YouTube, Twitch, Facebook, and Mixer. Netflix, Amazon, Facebook, and Disney+ have pulled the first and most obvious lever, reducing quality to cope with increased demand; further lever-pulls will be required.

 

We need access to medical advice that we can trust without visiting doctors. Websites and chatbots can handle frequently asked questions (FAQs). Orbita’s no cost COVID-19 chatbot “has pre-packaged and conversationally formatted question-and-answer screening content from the Centers for Disease Control and other clinically vetted sources.” IPsoft’s Amelia is attempting a similar ramp up for COVID-19 screening. If this can be integrated quickly and effectively, it makes sense, as there are many people with the same questions. Chatbots can handle scale better than humans. However, many challenges exist in interpreting the range of natural language that can be used to describe symptoms and aligning the chatbot to the most relevant and up to date content sources. Now might not be the time to try to train AI in the idiosyncrasies of language around physical symptoms and proximity to others that are ill. FAQ webpages might well be a faster, better option.

 

The digital business models already at scale are facing new challenges. Fake news and misinformation are more problematic than ever, and tech giants (Google, Facebook) stepped up early and still have a battle ahead. Their efforts will put the adaptability of machine learning models to the test to filter out spikes in new COVID-19 misinformation before it hits newsfeeds and search results. Price gouging is rampant, and Amazon has asked customers to cooperate with criminal investigations. Online grocery services are under strain, and queue management, rationing, and limiting quantities must be managed. The agility to respond and adapt quickly is the difference between coping with these sudden spikes and struggling.

 

Displacement

 

Closures mean there is an excess supply of resources, including human capital. Meanwhile, grocery suppliers experience higher demand than they can meet, e.g., Ocado. Toilet rolls’ new “value” is both unexpected and bizarre. We do not require more toilet paper today than yesterday, just more in homes and less in workplaces, pubs, restaurants, etc. There are many marketplace platforms that could support this supply chain shift from Amazon to eBay to online shopping platforms. The gig economy and casual work platforms can expect a surge of activity as more and more home delivery occurs.

 

As people are displaced, computers are similarly displaced for workers, school children, and those who rely on communal spaces like libraries for broadband connectivity. One possible upside will hopefully be the emergence and strengthening of effective platforms to support local communities, most likely on social media, where those who can give are matched to those that need—Facebook and WhatsApp are the most likely contenders.

 

Suddenly, it’s mandatory we switch to digital

 

Definitions abound, but let’s view digital transformation as a removal of the physical aspects of interaction, scheduling, and delivery of goods and services. Netflix is the epitome of digital transformation. While we might be starting to tire of the phrase, there is still much transformation to happen; it’s already an imperative (see Exhibit 2), and COVID-19 further forces the issue.

 

 

Exhibit 2: Enterprises already view the shift from physical to digital as high on the agenda

 

When you look at today’s immediate business pressures, what are the major burning business challenges faced

by your company at the moment? N=355

 

 

 

Source: HFS Research supported by KPMG, “State of Operations and Outsourcing” 2019, Sample: Global 2000 Enterprise Leaders = 355

 

 

The Bottom Line: TMT is under pressure to deliver on the promise of digital transformation. Cloud and connectivity are the cornerstones of the agility that is required to adapt to these rapidly changing circumstances.

 

The prospect of changes taking months to come into production is inadequate. Optimized connectivity matters more than ever. Those that can adapt fast and handle scale will underpin the changes in supply and demand.

 

Hyperscalers are resilient in the face of increased demands that are scattered in time or location. But the scale of new demands on hyperscalers (suddenly and all at once) is already testing capacity limits in the UK and Europe, as predicted in recent HFS post on balancing the need for immediate remote access and chaotic cloud environments. Microsoft Azure is prioritizing new capacity for health and emergency services, government, and teams.

 

Many of us know the Johns Hopkins tracker map on COVID-19 (see Exhibit 3). Now, there is an eerily similar picture taking form on ThousandsEyes‘ website (see Exhibit 4). Internet outages bubble up in the same hotspots as social distancing takes effect.

 

Exhibit 3: Hotspots of COVID-19 infections growing in 2020

 

 

Source: Johns Hopkins University & Medicine (March 26)

 

 

Exhibit 4: ThousandEyes’ black, grey, and red tracker map of internet outages piques our interest

 

 

 

 

Source: www.thousandeyes.com/outages (March 26)

 

 

So much that is still physical is overripe for digital transformation. Why do we still physically go to doctors’ offices, banks, grocery stores, and even educational establishments and workplaces? Some of the things we thought could “never” change suddenly have changed. Some of the friction in existing supply chains now must be removed. One thing that remains to be seen is to what extent we will return to the old ways once we are safely on the other side of the pandemic. Some of these changes will take permanent effect where efficiencies are obtained and eventually preferred.