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We all know that Internet platforms, websites, apps and software have employed economic models and turned into the biggest corporations around the world.
Think about every platform or social media site that you use on your laptop or smartphone today, each and every one of those has a CEO, a management team and a business model like any other offline company. But how are Internet-based companies different? Perhaps take a look at the image below.
Image Credit: https://gleamsocialblog.wordpress.com/tag/uber/
The nature of the Internet is a fast-paced, instant environment where these businesses are running swiftly, adapting to a volatile market and adopting qualities that traditional companies don’t necessarily have.
With Uber, Airbnb, eBay, Alibaba, Netflix, Facebook and so on, being the top and most common services people use today, a thought-provoking pattern is on the rise. What do these services have in common, of course, apart from the fact that they run on digital platforms, operate via Internet connectivity, are usually cheaper, more convenient and on-demand?
Here’s another figure that demonstrates a more important aspect of the digital economy.
The list goes on, but these are the main companies used around the world today, and other online companies are also pursuing this very method. But what is it that’s driving these companies to not actually own any entities?
A Sharing Economy
This economic system, ‘The Sharing Economy’, is based on Peer-to-Peer (P2P) sharing. When people share their own physical resources in exchange for some sort of benefit (aka profit), the company itself runs on its contributors’ or employees’ resources and thus profits out of the services it’s providing.
Although this doesn’t necessarily apply to every single online company, the Sharing Economy is starting to lift a burden off many companies’ duties to supply resources and entities. On the other hand, companies like Netflix, for example, are not based on P2P sharing, yet rely on immaterial resources and software as the core assets to keep the company up and running.
So for these companies, the business strategy here is to employ more of the intangible content rather than the physical stuff. And if there is a need for tangible resources, the other alternative is the P2P method.
So if these digital companies are becoming the world’s most massive corporations because of their innovation and convenience for the public, wouldn’t we be living in a utopian world?
When Digital Meets Disruption
Take a look at Uber — how many taxi driver protests did it take for people to realise the unfair competition that original taxi drivers were facing when Uber became so widespread all of a sudden?
“As Berlin has become one of Europe’s top travel destinations, with 30.2m overnight stays last year, the Airbnb trend has affected the local hotel industry. According to research company GBI, the private online bookings represent a ‘parallel market of an additional 6.1m’ overnight stays a year.”
This is what’s deemed digital disruption, or disruptive innovation; what happens when these digital companies make a sudden entrance into the mainstream market, and potentially disrupt traditional industries.
Here’s how it goes…
The Big Players of the Game Happily Succeeding
When the ‘big players’ (aka massive companies) secure their place in the market, they tend to feel quite stable because of their successful performance which puts them on the right track. Whether it be the retail, taxi, entertainment, hospitality, tourism, music or telecom industry, these companies have a fairly good reputation, brand name and, most importantly, stable profits.
What These Big Players Focus On
Since these companies are doing so well, there’s usually not that much planning or necessary changes for them to take in improving the business. However, what these businesses do have in common is their competitive nature to maximise profits. This means they might focus more on sustaining innovation, upgrading existing products or services to specifically attract higher paying customers whilst disregarding the ordinary customers who simply want low-cost alternatives.
The Game Changers: Disruptors Step In
This is the big moment for the disruptor. Who is the disruptor anyway? It’s that entreprenuerial guy who uses a golden ingredient: technology. The disruptor does this to provide similar services to the traditional companies, yet does it slightly differently. The disruptor starts by offering this service informally and for a cheaper price than the traditional one.
A model for the disruptive innovation process.
Image credit: https://hbr.org/2015/12/what-is-disruptive-innovation
Consider Uber, for example, where in comparison to a regular taxi, it’s free to download on any smartphone, offers cheaper fares, is more convenient in terms of the embedded GPS system as well as online payment and is on-demand. A regular taxi, however, could sometimes be less convenient because the customer has to physically search for one on the street, it’s usually more expensive and most of the time cash-only. These would be enough reasons for a customer to choose Uber over a classic cab.
The same thing could be applied to Airbnb. Why would someone pay for a relatively pricey hotel if he/she can rent out a fancy apartment or house in the centre of a main city or even local neighbourhood (to go for the authentic experience) for a cheaper price? Sure, it could feel safer to stay at a hotel rather than some stranger’s property, but with ratings and online reviews these days, it’s doable to make a fair judgment based on what looks reliable and what doesn’t.
Netflix did the same to Blockbuster. Remember when you had to go all the way to that blue and yellow themed store for a movie night in, and would have to choose from a specific selection based on what’s available? Why bother when you can pay between £5.99/month and £7.49/month for a wider selection of TV shows, movies and documentaries from your own device at home?
Overall, these companies were smart enough to know how to make our lives easier and more convenient.
Going Back to the Sharing Economy
If most of these companies are operating on P2P sharing, this also means that they are often willing to employ, or open to allowing almost anyone to ‘share’ their possessions, as long as they do have them in hand.
So for Airbnb, as long as you have an actual property, you are eligible to sign yourself up as a host. For Uber, employees do have to go through a typical recruitment process, yet don’t have to go through the same trouble that traditional taxi drivers have to go through in order to qualify for the job. On eBay, consumers can either buy or sell from other consumers or other businsesses as long as they have the items to sell them. On Facebook, anyone can upload media content so long as they have a Facebook account and camera to share a photo or video to the public, unlike on a specific TV channel or newspaper.
But what does this mean for these companies?
The Difference Is In the Quality of Service
Typically, a successful company makes sure it maintains a specific level of professionalism and qualification for its employees and services in order to be legitimised on the mainstream market. However, the disruptor is usually known to underperform. That is, perform with lower quality, quite informally at times and even in some cases less reliably. This could make it difficult for the disruptor to keep up with traditional companies’ quality of service.
Think about any experiences you may have had with these companies, if any. How many times did you feel like the service was unreliable, unstable or even frustrating? For instance, how many times did you ride with an Uber driver who knew exactly how to get to your destination without a GPS? Chances are, almost never. Whereas if you grab a black cab in London, the driver can take you to a specific post code with his eyes shut! This is a very classic example, but it can be applied to almost all Internet companies nowadays.
So when the disruptors underperform, the big players underestimate them. And when the big players ignore the regular, relatively low-paying customers, the disruptor attracts those customers.
By the Time the Big Players Notice, It’s Too Late
The disruptor doesn’t need that much time to prosper and grab public attention. By the time the general public starts to increase consumption from these companies and their popularity starts to soar, the big players start to notice. Only problem is, it’s too late. The disruptor now has now entered the mainstream market and is a fierce competitor with the traditional companies. Yes, the disruptor has stolen the spotlight.
What’s important to keep in mind is that often times the disruptor doesn’t necessarily replace a whole industry or take over the market, yet it does create instability and obviously, disruption.
So what options are traditional players left with once the disruptor made an entry? They tend to go through the dilemma of either pursuing the same path they have always been on, or to compete by adopting innovative schemes. Some have done it, some haven’t.
Chain hotels are not doing much in competition with Airbnb; in fact, they seem confident enough that Airbnb is not much a risk as Uber is to taxis. In fact, The taxi industry in the UK now has the Gettaxi app, which functions pretty much like Uber in hopes of getting back to its original stance.
Disruption: A New Concept?
Disruption isnt new. It’s been exsiting as long as humankind has been on Earth. From steel mills and disposable cameras to mini mills and digital cameras, disruptive technology keeps advancing and introducing new ways for people to live and do business. But what’s fairly interesting in this topic is not the goods, but how the services of digitally-based platforms are transforming them in the current decade.
Digital transformation and disruption is a revolutionary process in which the market and other surrounding businesses have to adapt to. It shakes the market, creates instability and a whole lot of predicaments for existing companies.
So the dilemma here is: Should traditional companies continue adopting the same methods, or should they up their game by competing and introducing innovative techniques in fear of losing their stance as the big players?
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