Digital Transformation

What the next generation of Digital Disrupters need to learn from the last

Every single start-up aims to disrupt the market it enters; doing so can, after all, deliver profitability and acclaim. What, though, can the new generation of digital disrupters learn from the companies that have been there, done that and fundamentally changed not just the sectors within which they operate but the world as a whole?

Digital disruption has completely transformed the way consumers purchase goods and services, giving rise to companies who no longer need physical equipment to trade. Airbnb has become the biggest hotel room provider while not owning a single hotel, while Uber has risen to become the largest taxi company without the fleet of cars you would traditionally expect to see. But what makes these companies interesting is that they, and a number of others, are on their way to middle age - along with the term of digital disruption. The question now is: what comes next?

Put simply, digital disruption is the identification of a new market or using information and technology to deliver existing solutions in new and innovative ways. The next generation of digital disrupters will have both the easier and harder task of reaching the heights of the current generation.

A big theme of this generation of disrupters has been about digitally enlightening consumers with new pricing models and operating styles. Overall, we, as a populace, are now on-board with at least one aspect of the digital revolution and buy from tech giants, whether that’s general shopping, bigger purchases like holidays or something as simple as music.

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Author:

Chris Flynn
Chris Flynn Product Manager

Lessons for the next generation:

Uber: Work with the authorities… before they get involved

It’s often thought that large tech companies believe they are untouchable, even when it comes to the law. Facebook’s £500,000 data protection fine, eye watering to most SME’s, seemed to be accepted without a wince from Zuckerberg and co. Similarly, controversy surrounding data manipulations involving Cambridge Analytica (which they deny) and subsequent US Senate hearings seemed to have trickled away.

Uber, however, have learnt that when dealing with certain jurisdictions, cooperation is best. The recent case of Uber losing their license to operate vehicles in London show that Silicon Valley won’t win every time. Around 45,000 Uber drivers in the UK’s capital city could potential lose their jobs because of a “pattern of failures” on safety and security, and Copenhagen and Hungary have also brought action against the company for varying reasons.  

Uber has taken many steps in the last few years to improve safety features for riders and drivers, but it may be too little, too late for London. All this has taught Uber a valuable lesson; listening to users and their concerns at the earliest instance is better than waiting to make changes once the authorities step in.

Spotify: Client obsession

One of the most important aspects of any digital disrupter's tool kit is the passion to delight clients every day.

Spotify has demonstrated the value it puts on client experience via their social media activity and Twitter support handle: @SpotifyCares. After an outage of the platform in 2016, the company responded to customers' concerns, with timely communication and engagement until the issue was fixed. One twitter user affected by the outage received a personalised playlist from the support team in response once the platform was back up and running.

In the final quarter of 2019, Spotify grew their premium subscription base by 10%, attracting 11 million new users over the relevant period.1 The company are also currently ranked as the second most recognisable and relatable brand in the US according to the Prophet Brand Relevance Index.2

Amazon: Flat company structure

Amazon teams are often described as running like small companies, with faster decision making and more ownership placed on team members. Amazon is the company behind the infamous organisational mantra known as the two pizza rule: if a team can’t be fed on two large pizzas, it’s too big.

Unlike other large companies which are top heavy and process driven, Amazon works on a results orientated approach with the small company do-or-die attitude. Although lack of process can be a limitation in repeat processes and building team capability, there is a lesson to be learned from Amazon to build a culture where everyone is working towards the same goal, while being trusted to make decisions at their level.

Just Eat: Scale, Scale, Scale

It's incredible to think that, before companies like Just Eat and Deliveroo, there was nothing linking hundreds of thousands of takeaways around the world. Just Eat has had a remarkable scaling mission over the last few years, going from £96.8M revenue in 2013 to £779.5M in 2018 (a 43% YOY); turning over their largest profit in 2018 of just over £100M.

The growth is impressive and has been helped along through acquisitions of Australian Menulog in 2015, British Hungryhouse in 2016 and Canadian online firm, Skip The Dishes. The £9bn combined value merger with Takeaway.com will make Just Eat the biggest food delivery company in the world.

Even five years ago, the onboarding process for restaurants was quick and easy, as was the process for setting up a customer account and ordering food. Restaurateurs would apply to Just Eat, receive their printer to plug into their computers, design their online food offering and that was pretty much it. A clear, rigid pricing structure for commission was implemented and the rest is history. Just Eat is now the new normal in the takeaway market.

Alibaba: Look at others, fill the gap

When Amazon launched in 1994, it began the wave of online sales and retailers. Alibaba came to the market in 1999, at which point Amazon was already turning over $2bn per year. Online retailing is a fierce market and despite having a strong base in Asia, Alibaba has done a good job of spotting the gaps left by competitors and filling them. The main gap is the founding of a Chinese based online retail giant that has managed to gain the confidence of the government in China, and is now moving into other markets.

Alibaba has a distinct advantage over companies such as Amazon, as they are situated geographically close to where much of the manufacturing world is based. Alibaba moved into the B2B market back in 2014, enabling Chinese manufacturers to sell products directly around the world.

One of their key breakthrough technologies is the use of real-time language translation between 16 languages. This means that buyers in the UK can communicate in English and be understood straight away by a supplier In Hangzhou, China. For small and medium sized retailers and consumers, this is an important step in doing large amount of effective trade globally.

Where are the next digital disrupters going to come from?

With many industries to choose from, there are a few stick out sectors that can be drastically improved by digital disruption. We have identified the following:

  • Professional services - Services such as accounting and legal remain largely untouched, expensive and slow. It is likely that we will see a digital service implemented somewhere down the line, allowing consumers and businesses to get accurate and swift advice, and services in a similar way that Purple Bricks has shaken up the estate agency market.

  • Procurement – Centralised and smart procurement that relies on greater exploitation of data and automation will only benefit clients. The main benefit will certainly be in process efficiency, but we will need to see improved client experience and potentially new pricing models.
  • Healthcare - We're already seeing wearable tech, such as Fitbit, transforming lives and changing how we manage our health. There are a number of agile, non-traditional start-ups that are entering the market and reimagining client experience, as well as reducing product time to market.
  • Manufacturing - With many firms seeing increasing materials costs, there is an argument that manufacturing is crucial to many in the industry's bottom line. In the SME sphere, this can be a costly move if it involves digitally improving shop floor machinery, which it will need to, in order to bring multiple aspects of a manufacturing organisation closer together.
  • Insurance - Despite already having better ways to search for insurance through comparison websites, the industry will see greater customisation and focus on the customer, in a future where retention is king.

Will the old guard fight back?

You can bet they will. We're seeing it already with the large players such as Amazon, Google and others buying out the competition for eye-watering amounts. Facebook paid $19bn in 2014 for WhatsApp, which had been swallowing user messenger market share, in an attempt to prevent a new platform developing and toppling Facebook.

Spotify have diversified from music in recent years, with the acquisition of three major podcast providers to accomplish an easy concentric diversification into non-musical audio, and attract new clients away from Apple.

We're also seeing the big players teaming up to provide cross functionality. The biggest example of this is the integrations provided by Google's home and Amazon's Alexa devices, allowing consumers to voice control their Netflix, Spotify, lighting and CCTV, amongst hundreds of other services. Elsewhere Spotify, in partnership with Uber, allows riders to listen to their playlists whilst in an Uber taxi.

As the tech giants get into bed with each other more frequently, it will become much more difficult for entrants to the market to add as much value as the veteran providers.

 ​​​References:
  1. Spotify letter to shareholders (05/02/2020) Available at https://s22.q4cdn.com/540910603/files/doc_financials/2019/q4/Shareholder-Letter-Q4-2019.pdf [Accessed on 05/02/2020]
  2. Prophet Brand Relevance Index (2019) Available at https://www.prophet.com/relevantbrands-2019/ [Accessed on 27/01/2020]

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