Become a millionaire in no time at all: At the end of the 1990s, when the Neuer Markt opened on the Frankfurt Stock Exchange, this suddenly seemed possible to many. The dotcom companies that wanted to exploit the potential of the then new internet technology dominated the headlines of the business pages. Those who joined the right start-up at the right moment could actually become rich overnight through their employee shareholdings.
At that time, Thomas Hess was already in the thick of the first digitisation boom. The business informatics specialist had already switched from academia to business in 1996 after completing his dissertation. “I wanted to go into an industry that was particularly affected by the digital revolution that was foreseeable at the time.” He decided on the media industry, became assistant to the executive board member responsible for digital at Bertelsmann.
“At that time, I experienced how a very large and successful media company was challenged in individual aspects. At the same time, many small companies emerged, which were then bought up. That shaped my view of management and companies.”
For the business information scientist, the media are a “good example” of how structures, processes, products and profitability can change as a result of a new technology in the economy.
When a completely new technology emerged
Thomas Hess speaks of waves when he describes the effects of the digital transformation. In the first wave, the internet became the basic technology. The current second wave is determined by the ubiquity of data and the possibilities of machine learning, as well as the search for fields of application, for example in medical diagnostics.
“Of course, this is not a linear process. Back then, in the 90s, it was completely new that with the internet, after the classic machines, a completely new technology suddenly emerged. The speculative bubble on the financial markets was also an overreaction of many companies out of the shock that they had to do something. So they put a lot of money into it. That’s probably not untypical for such radical innovations.”
But not only the companies, the whole of Germany was in stock market fever at the time, as the Tagesschau put it in retrospect – until the dotcom bubble burst in September 2001 and caused disillusionment.
When radical innovations displace what already exists
Asked how the media industry has fared since then and whether mistakes have also been made in the face of technological change, Thomas Hess says: “There is certainly no definitive conclusion yet. There are a number of very large companies like Burda or the Springer Group that have ultimately reacted in the right way entrepreneurially, albeit at the expense of their journalistic role: they have moved away from the classic content business and, like Axel Springer, have built up electronic rubric and advertising markets. The small and medium-sized companies that do not have the necessary investment volume are of course finding it more difficult and have not yet found their way. But what they have all failed to do is to take advantage of the huge opportunities. Bertelsmann, with its financial strength, could certainly have built something along the lines of Amazon. The German companies didn’t manage to do that.”
In connection with the internet and digital technologies, the term disruptive is often used to describe the associated effects.
“It is often unclear what is meant by this. The broader definition is that it is a very radical innovation that displaces what already exists. But often the word is used in relation to individual products. Disruptive then means that a new product is not only completely different from previous products, but also has features that do not interest customers at all today,” explains Thomas Hess, referring to the smartphone, which has many features that have little to do with the classic mobile phones that preceded it.
“This is very difficult for companies to recognise. Especially when the customer says, ‘I really only want to make phone calls.’ That’s how Nokia, for example, went bust. They had built the better and better phone, but didn’t recognise the broader concept of having a computer in your pocket, so to speak. That is why this disruptive is so dangerous for companies: because it is hidden. And because competitors often come from the technology sector that you didn’t have before. For example, in the banking sector: suddenly companies come around the corner that offer payment services like PayPal or others that were not banks before, and where it is difficult for the established companies to assess what they are doing at all.”
Map of new technologies
Thomas Hess heads the Institute for Business Informatics and New Media at LMU. At his institute, he has a kind of technology map on which new technological developments are recorded. “We try to sort by relevance and define the essential developments. And then we take up these technologies in projects and investigate what that means for individual entrepreneurial areas.”
Currently, for example, one project is examining the so-called paywalls on the internet – a topic that also concerns the media industry in particular: How do you get consumers to pay for content? “The development is going in that direction. But at the moment, the turnover is still in the single digits, so there is a lot of hope,” says Thomas Hess.
In order to promote digitalisation more strongly in the economy, the LMU professor, who also sits on the supervisory board of an MDAX company, has been involved for many years in the Internet Business Cluster association, which links science, business and practice. Through the Center for Digital Technology and Management, among others, he strives to anchor digitisation in teaching.
Despite all his experience and research, as well as his background in information technology, Thomas Hess says: “The evaluation problem remains: You can also make a mistake sometimes.” For example, the expectation of virtual reality was particularly high in the media sector. “It turned out that this is not so exciting in the media sector because it is far too expensive to shoot 3-D films. In warehousing, on the other hand, the 3-D glasses make sense because it’s easier for the employee to see where the screws are that he needs, for example.”
In view: Opportunities from the company’s point of view
Asked whether there have also been developments that have surprised him himself, Thomas Hess says: “For example, I was surprised that telecommunications companies, which had a huge financial power and were quite close to the topic of the Internet, did not manage to lead innovative online services to success – that this is apparently even more difficult for them than it is known from other industries.”
The business informatics specialist has been involved in bidt from the very beginning and was already involved in setting up the predecessor institute MCIR. Together with the political scientist Ursula Münch, he leads, among other things, a research project on digitisation strategies in the federal states.
The impact of digital technologies is so broad that business and society must be addressed.Prof. Dr. Thomas Hess To the profile
In the interdisciplinary board of directors, he sees his role as bringing in the entrepreneurial perspective.
“When you see the major challenges that are foreseeable with digitalisation, there is hardly anything that can be solved in a purely disciplinary way. It is important that someone who looks at the opportunities from an entrepreneurial perspective is also involved. Often it is the risk that is seen, the opportunities are not always recognised.”
Using disruptive technologies within a traditional company is incredibly difficult.Prof. Dr. Thomas Hess To the profile
Today, almost 20 years after the collapse of the New Market, companies like Amazon, Google or Facebook talk about the opportunities. “Using disruptive technologies within a classic company is incredibly difficult,” says Thomas Hess.
“It’s not like established American companies have succeeded in doing that. These are new companies, which is typical for disruptive innovations. The bigger problem is that these companies have not yet emerged in Europe. However, it has to be said that at the moment we are still talking about consumer products, everything that private consumers use. German and European companies do not have a good market position there because they were too slow, did not understand the technology, and in some cases did not have the capital. Will that also be the case with industrial goods? That, at least, is still unclear.”