The digital and physical worlds – and their supporting industries – differ widely. When it comes to production and transport, for instance, costs and speeds vary greatly. Digital is immediately more scalable and offers greater potential to abstract and simulate.
The technology of digital also enables more personal experiences for users. As an example, the resolution of the control circuit that Google uses to manage digital advertising is several times higher than what’s used in the physical world, where a unidirectional medium like television or a billboard sends a static message to an unknown mass of potential customers.
The finely grained control of digital offers huge advantages that make the digital advertising market far more dynamic than the physical one, and for years now, advertising budgets have been moving from the physical to the digital sphere. Digitalization leads to high-resolution management because the cost of measuring and actuating elements is almost zero, while changes can be made with nearly the speed of light.
Digital platforms also offer huge opportunities to improve businesses and the way humans interact with the physical world. For brands and businesses to be competitive, it’s essential they consider platforms carefully.
Digital Platforms: A Window To User Behavior
Google serves as a model when it comes to using a digital platform to better understand users and improve its own business model. Google has put location, context, data, mobility, search and mobility trends to good use. In fact, it has revolutionized the advertising market. Google analyses search queries and collects clicks on web pages to measure user behavior. Based on this high-resolution and precise performance data, the company can tailor advertising messages to individual users and optimize profits.
Google also measures user reactions in real time to determine the effectiveness of its banner ads. It uses these measurements to optimize its allocation model and quantify results for invoicing its advertising customers.
Lego and Philips are two product manufacturers who also created multi-layer platforms. They each took two simple physical elements (bricks and light bulbs) and made those objects the foundations of complex platforms that not only serve a need but are, in fact, ecosystems.
Phygital Platforms: Reinventing The Lightbulb
This is the true definition of digital transformation – moving beyond an isolated or unique need (gaming for Lego, lighting for Philips) to create well-oiled platforms that serve as multi-layer ecosystems. These ecosystems enlarge the space from local to global, and help businesses improve products and meaningfully serve customers.
With the evolution of M2M/IoT advances, digital platforms can also enhance our everyday lives and the ways we interact with physical objects. A multi-layer platform and approach can merge physical and digital into a “Phygital” platform.
With a Phygital platform, users enjoy frictionless and seamless journeys across different and sometimes overlapping services, while businesses are able to create new revenue streams by turning products into services.
Retailers and brands can change customer loyalty behaviors and completely redefine their value to customers.
To understand how the Phygital approach drives services and revenues based on a multi-layer approach, we can analyze the Philips paradigm:
Layer 1 – Physical object: The physical element, the LED light bulb, is Layer 1 of the value-creation model. It facilitates the first direct, physical benefit to the user. As a physical object, the light bulb is tethered to a location and can only supply benefits in its immediate environment.
Layer 2 – Sensor/actuator: The physical object is equipped with a minicomputer with sensor technology and actuating elements. The sensor technology measures local data, while the actuating elements deliver local services and generate local benefits. With the LED light bulb, for example, a microwave sensor might continuously measure whether people are present in the space – reliably and at a low cost. The actuator will turn the light on automatically when human presence is detected and off when it’s not, thereby supplying local benefits – including the value of not requiring a separate, wired motion detector.
Layer 3 – Connectivity: In Layer 3, elements from Layer 2, the sensor and actuator, are connected to the Internet so they become globally accessible. In our example, the LED light bulb can be addressed through an embedded radio module and transmit its status to authorized subscribers anywhere in the world at negligible marginal costs.
Layer 4 – Analytics: Connectivity per se does not deliver added value. In Layer 4, sensor data is collected, stored, checked for plausibility, and classified. Findings from other Web services are integrated to provide consequences for the actuator elements – typically in a Cloud-based backend system. In our LED example, the on-and-off times in a household are collected, motion patterns are discerned, and the operating hours of individual light bulbs are recorded as well.
Layer 5 – Digital service: In this final layer, the options provided by previous layers are structured in digital services and packaged, for instance, as Web services or mobile applications – and made available globally. The characteristics of digital business model patterns apply to these digital services, which are inseparable from the smart things that generate the data.
At the end of the day, digitization is all about creating scalable platforms with well-designed customer journeys to serve and predict customers’ needs. It becomes really important to focus on how these platforms can serve customers and not company stakeholders’ requests. When platforms are ecosystems, in which constant exchanges with users and quick, smart improvements are always in motion, they make “things” entirely more useful and satisfying, providing a value that a mere physical object alone cannot.