🔴 How (removing) friction is the secret sauce to digital innovation
Digital has become such a force that we've become blinded and frequently fail to understand the core mechanisms at play. Sometimes though, these mechanisms cut both ways. Let's discuss how removing friction is critical to leverage digital and can also become toxic.
As often, finance teaches us where other markets and businesses will move before they understand it themselves. We might not like it, but at least we have a clear signal of things to come. In that regard, how digital has evolved into massive platforms draining data from consumers while locking them down in closed private gardens, has been quite spectacular.
If we often discuss the nuances of digital business, one of the core value creation mechanisms stemming from financial markets that are rarely pointed at is removing friction. And friction is not a bad thing. Friction is having to talk to a librarian because you couldn't find the Harry Potter section and end up discovering Borges. Yet, if you're into mindless efficiency –or simply maximizing profits– friction is something to optimize out of your business model.
Consider Amazon. As an early leader of the digital wave, it's a textbook example of removing friction. The old business of buying books or going to a library was ridden with friction: physically going to where books were stored, picking one copy that would then be removed from an inventory, using the book, returning it, storing it, or selling it back. Friction, friction, friction... Because every step depends on moving back and forth a single unit object around.
In contrast, the new Amazon business relies on making the book a cloud of electrons and adding further steps to this dematerialization: