As new technologies emerged, integration among industries gets stronger, digital transformation becomes more mature, we start seeing more regularly that some industries are facing digital disruption. Just like what Airbnb did to the hospitality industry by integrating platform technology, Hotel model, and the concept of sharing economy. This monster is still far from it’s growth limit, with a year-on-year growth rate of 153%, 150 million users and great users satisfaction, even government start establishing law to regulate the expansion of Airbnb in order to protect the interest of traditional industry.
Digital disruption in the purest form is the product of integrating digital technology and business model and the power of it has to be able (or has the potential) to influence the value of traditional operating model. This is also the reason we use Disrupting to describe such a phenomenon. Before understanding how to deal with digital disruptor, we first have to have a thorough idea as to Where digital disruption come from? and What these factors do these so-called digital disruptors hold that enable them to influence the traditional operating model?
3 indicators to spot digital disruption
Cost Value - Competing with a significantly lower cost
through Integrating new technologies and traditional operating model, potential disruptors are able to offer the same or similar services with a significantly lower cost. Even some businesses are able to stay relevant, they will still still a sharp drop in their market shares because of it. Alipay in China is a great example where Alipay integrate the payment/transfer process of the bank with a physical wallet(the smart phone).
From the customer’s perspective, regardless of the area they are in or the bank they use to transfer they cost dropped from “transfer fee + percentage” on the amount to ZERO. And just like Airbnb or Uber, the technology is too disruptive, Chinese government start regulating the amount Alipay is allowed to transfer to protect the interest of financial institute. Not just the payment solution, The digital disruptor in the entire finance ecosystem – Alipay
Experience Value - Providing fundamentally more engaging and more convenient experience to customers
Through digital-enabled technology, disruptors are able to provide a significantly better, more engaging and more convenient experience to the customers. Even if competitors offer price that are competitive they will still have a hard time competing with this type of disruptors as the market trend is leaning toward experience. Whether it be Millennials or Y generation, they both are the advocates of experience and with them combined they are the biggest population in the world (63.5% of the entire population of the world).
One great example is Amazon Echo, Echo provide a more engaging and more convenient way for customers to buy things on their own platform. In doing so, not only Customers are more engaged with the brand, Amazon also indirectly increase the sales of their prime series product.
Platform Value - Connecting people & people or company & company to eliminate any form of middle man
For the past decade, Platform technology has become the hottest of it all. In 2004 Mark Zuckerberg, the Harvard Dropout, started the very first platform – Facebook with the purpose to connect the world. And what comes after is a series of startup offering the same type of platform with a more targeted niche. But those that will survive and prosper are platforms that are highly relevant to the users and can provide great value(or greater value than the traditional means) to both ends.
Like LinkedIn which connect employees to employer and businesses to businesses and provide really amazing value to both ends. Alibaba which was founded in 1999 by Jack Ma is even more of a pioneer in this space which did the exact same thing (indirectly) long before LinkedIn.
Dancing with the Digital Disruptor
The digital vortex below visually shows you how immediate the digital disruption may occurs.
Those industries that are marked in red – Technology Products or Services, Media and Entertainment, Retail, and Finance are all facing digital disruption at great scale. The whole industry is going through re-construction, innovation in operating model, adjustment in the market.
In those industries that are marked in yellow, we can already see digital disruptors in the field but it has not yet been proven to be able to fundamentally influenced the infrastructure of incumbents.
Industries that are marked in blue usually have strong tie with the government and has really strong infrastructure laid out already and also the initial cost of entry and government regulation usually intimidating to new comers.
The "D-Day" for the Incumbents
In those industries that are marked in red, businesses have to first figure out where the disruption is coming from. To be exact, out of those three factors, which value is the disruptors providing that is far greater than the traditional means. After deep evaluation on the competitive strength, market trend and direction of policy, incumbents have to know thoroughly what strength do they have and the weakness of the disruptors.
There is one great example in the finance world where Alipay is offering great cost value to users and they even have rolled out services like Yu Bao and Ant Financial which stands as the single greatest challenge to mortgage providers, fund, money management division.
Yet, this seemingly unbeatable challengers has a deadly weakness:
Unable to go deeper for users
Alipay is essentially the platform that connects hundred of banks so the one that actually touches money and manage it is still the bank itself. Not only that, Alipay also lack the infrastructure and relationship with users which bank has built up over the years. Take example of booking.com, they connect tens of thousand of hotels and each of them has different price range & quality in different area, and even speak different languages. Booking.com might have successfully changed customers behavior in terms of “booking” but those that actually has the infrastructure and the service are still hotel themselves. So in order to combat the disruptors the one question they have to ask is how they can provide experience that are most relevant to the customers to maximize the brand loyalty and increase trust between brand and customers.
In China it may seem like the big four: ICBC, ABC, BOC, and CCB are providing similar services yet their demographic are actually very much different. In order to combat incumbent, bank has to figure out how they can clearly define their customers, segment them, and provide experience that are most relevant to them.
Before the double digit growth deteriorate in China, Banks are all focusing on developing, building new offices, providing similar type of services, now bank has to know to fundamentally strengthen their competitive advantage. It is even more so when facing these disruptors. Instead of going toe to toe with them, they have to go where their strength are (and where disruptor’s weaknesses are). And develop strategy and offer that disruptors just can’t compete with.
The incoming enemies
For those industries that are marked in yellow, incumbent have to figure out where the market trend is going and adjust the operation model for it . When facing the disruptors, businesses have to stay calm, observe, think or even cooperate.
In Education, Hospitality, Telecom and Manufacturing, we can already define the disruptors. For Education it may be Udemy, for hospitality it may be Airbnb, for telecom it may be Skype, for manufacturing it may be those IoT leaders. Their potential is also clear to the market like Airbnb their market cap even passed the 35 billions mark. But can they really impact the fundamental of incumbents and has the sustainability for doing so is still in question. But in any case, there is no denying that they are changing the shape of the industry.
Take Airbnb as an example, According to the MuchNeeded, as of today, Airbnb has 150 million users, has 5 million listings in 191 countries and what is even more scary? 93% of all users is very satisfied with the platform. No single hotel group can even come close to what Airbnb has achieved. Airbnb is not just a “supplement” which the founder claims. A study conducted by HospitalityInsight shows Airbnb has substitute characteristics in their long-term effects on hotel sales’ patterns.
Even though Airbnb shows great potential, we don’t think hotel owners should be that nervous if they have deployed strategy we list out below.
Increase the quality of touch points and make the experience consistent throughout the journey
Airbnb can’t do anything to the basic-level touch point. After all, the so called “Sharing Economy” is a platform that integrate other people’s resources. Which means they have little control over the PR, Branding, Quality of Service, and infrastructure. Yet hotel is different, from marketing, booking, customer service, food, to staying, hotel can have total ownership to these touch points.
Businesses have to define their brand value and position their brand as so by expressing it with verbal and visual identity and integrating brand voice and tone throughout the whole journey. In that way, not only will they have advantage over Airbnb, they can also win among the competitions.
Improvement in Infrastructure
One more obvious thing that Airbnb can’t do is Infrastructure. And the so-called infrastructure is not just exterior or interior design. It contains the booking system, business process, customer service & support, communication channel, entertainment, B&F, Security, Privacy and every little thing you will find in a hotel like television.
Businesses have to figure out which improvement in infrastructure will be most cost effective and relevant to the users. And also the improvement should be executed throughout the entire organization so that customers will know “wherever he goes, as long as you choose to stay with us, this is the level you can expect”.
The incoming enemies
Including healthcare, utility, oil & gas, medical industry, those that are marked in green seem to be those that are least likely to face digital disruption. The reality is when disruption does happen it is usually unstoppable, radical and extremely fast
These types of disruptors generally won’t directly come in to the industry. Instead it will grow quickly and quietly, incumbents wouldn’t even be able to define the direction of it. Those disruptors will slowly change the behavior of customers and eliminate any form of reliance customers might have for the incumbents.
Like Oil & Gas might face great impact when autonomous driving enter the 3rd stage or smart city is being adopting by the cities. And the need for Healthcare or Medical industry might decrease as information is globalized and technology like Watson is growing more and more matured.
Radical & Extremely Fast
Because of the nature tendency of it industries like utility and healthcare generally have a close relationship to the policy. In a demographic country policies are directed by the people. So when the majority of the population share a consistent point of view(like using an alternative for power generation), government will have to start making new system and policy for it.
Businesses generally have no power over this kind of changes so in order to minimize the possible impact these kinds of digital disruption could bring, organization has to stop relying on the relationship they have with the government or satisfy with their infrastructure. They should fundamentally study the marketing trend and adjust the direct of organization and digitizing their communication channels to make themselves more relevant to customers.