Stability in turbulent times? The effect of digitalization on the sustainability of competitive advantage

Abstract

Does digitalization make competitive advantage more or less sustainable? One line of argument is that digitalization leads to hyper-competition and shorter spells of competitive advantage. An opposing claim is that digitalization leads to advantages of a size and sustainability unprecedented in the “old” economy. We argue that the likelihood of observing either of these outcomes depend on the extent to which the dominant business model(s) in a market combine the accumulation and use of Big Data with the generation and utilization of network effects. The more complementary Big Data and network effects are in a business model, the more likely that we will observe large and sustainable competitive advantages, and vice-versa. Furthermore, we argue that firms enjoying a data-driven network-advantage have strong incentives and ability to envelop to adjacent markets. In the longer run, such envelopment will cause an increasing number of markets to be characterized by more sustainable competitive advantages.