The disruptor wins it all
FORD Motor company sold about three million vehicles last year. Tesla, the electric car maker, has just caught up with Ford's market capitalisation. Guess how many vehicles Tesla sold last year? All of 76,000! This is the new world - one that belongs to disruptors. From Apple 10-15 years ago to Amazon and Tesla, the disruption juggernaut has carried on. It has laid low many conventional companies (think Nokia), shifted the technology narratives (think Kodak), shaken up skills and attitudes, and more significantly acquired mammoth scale almost unnoticed. Market cap is just one indicator. Amazon has over 300 million customers, Apple has unspent cash of over US$250 billion (slightly below Israel's gross domestic product) and Google employs 75,000 people. We are clearly heading for a Jurassic moment in corporate annals.
If the disruptive innovation of these companies is awe-inspiring, so is the rapid acceleration of their path-breaking ideas leading to dominance in 10 to 20 years. Companies in the previous era needed more than 50 years to scale up, and those were not smooth rides. It is equally vital to note that consumer appetite for disruptive products and services has grown astronomically. We are able to digest new technologies, new ways of running our lives and new conveniences as these get thrown at us non-stop. Generation Z and the millennials have skilled themselves up to receiving new things - and they make up over 50 per cent of the global population now, according to Pew Research Center.
What makes a successful disruptive strategy? What common features do we see in companies or products which have gone on to dominate their categories and to even rule our daily lives?
Self-selling products and services
The new age products and services were designed to be self-explanatory and therefore marketed themselves. The underlying disruption did not have to be explained (electric cars, touch-screen phones, online book sales). The innovations were so glaring (compared to conventional products) that the teaching and familiarisation process for customers was either minimum or obvious. The concepts were simple, the benefits self-evident and the new learning needs minimal. When these products or services were introduced, they focused on getting some early customers which probably involved some marketing dollars. After that phase, the Internet, the novelty of the ideas and their simplicity did the rest of the marketing. This is now further easier to achieve in business to consumer (B2C) industries exploiting social media, analytics and affiliate programmes. By contrast, Google Wave did not succeed, as the feature was over-designed and users had to "invest" time to understand and derive full benefits Simplicity is a hard-won goal.
Continuous improvement, adjacencies, upgrades
Every successful player in the disruption game has mounted regularly additional services. Amazon kept adding new product categories and even media and entertainment offerings. Google has deployed the "adjacency" model expertly by expanding services from search to mail, maps, docs, Chrome, Google Drive, YouTube, Google Translate, AdWords and more. This unrelenting spree of extensions has ensured continuous engagement with Google users and kept the company nimble, innovative and attractive. Facebook has extended itself to messaging, customising feed preferences, private scrapbook of photos, etc. Apple's iOS renews itself more times than you can keep count. These companies roll in new changes constantly as new user insights and analytics throw up opportunities. Large packaged software companies like Microsoft have the practice of launching upgrades every few years. The new disruptors however, make this a daily routine. Changes are many times seamless. Thus you do not need a fully fitted product or service to launch (you must, however, meet basic needs). Importantly, these companies can easily abandon old versions, without qualms.
New services or products, hence ability to charge new prices
When Apple introduced the iPod more than a decade ago, it was priced at around US$399. It was rumoured that it cost the company under US$30 to produce each iPod. The advantage of new unknown products or services is the pricing power that they hand you. Even after copycats came on the scene, iPod continued its pricing hegemony by suitably modernising features, storage capacity, indexing conveniences etc. Amazon introduced a subscription service for delivery of online purchases with pricing plans seen for the first time for such services. Google AdWords and Facebook advertising have pricing plans that are similar to none, as their services are unique. That is the cash engine for these two companies. Electric vehicles are priced almost twice as much as conventional vehicles, partly due to cost differentials - but the price differential is more than the cost differential. Over time, the gap may close, though, but the advantage can be sustained for a long time, with improvised features. Thus, it would almost seem that disruptors set their own prices and thereby enjoy abnormal profitablity for many years. By corollary, copycats do not enjoy much pricing power. It is interesting to note that Samsung started off as a me-too product in the touch-screen handphone category, but after lagging behind in pricing for a long time, shifted gears to even achieve favourable comparison versus iPhone on several parameters. This helped them close the price gap.
Outstanding user experiences
Google Chrome usurped the dominance in the Web browser category from Internet Explorer or Safari, thanks to its outstanding user interface, mobile integration, extended ecosystem, robust but non-intrusive security features etc. Everything is in the right place to the right extent, as assessed by the users. It has put user experience on top of everything, rather than going on a technical overdrive. Apple iPhone is another classic case of excellent user conveniences, many of them designed to work intuitively. The popularity of Instagram is attributed to its simple user interface exploiting visual appeal and instant enjoyment to the full. Uber is in the same category as its first prototype of booking and payment services hit the nail straightaway in user comfort. Facebook is so easy to use that it has many septuagenarian and octogenarian users. By contrast, many Web portals, including airline booking pages, are quite clumsy with too many steps and counter-intuitive algorithms. Not long ago, Iridium phone and Palm organiser suffered from inconvenient features and never really took off. It thus takes some effort to keep it simple and user friendly and the disruptors seem to know it well.
Localisation
Consumption in the Third World has risen faster in the past decade. China, South Korea, India, Indonesia and Brazil have some of the most rapidly increasing device adoption rates, Internet bandwidth growth and cheap data plans. That has produced a multiplier effect for all things under "technology" platforms. So, paradoxically, global demand is governed by local needs. In order to stay in the hunt, content and language have been substantially localised. According to worldstats.com., Facebook has over 50 per cent of its subscriber base in non-English speaking countries, and it supports over 100 languages. Google Translate is one of its popular uses. But localising content or features is not mere translation. It goes deeper into culture, habits, attitudes, preferences and lifestyles. Fifty per cent of cars sold in India are by Maruti Suzuki, a largely localised company, with local design, parts and manufacture. Ten Cent in China is transforming the mobile digital life of its consumers. It claims to have 868 million users for its messaging service, QQ. Its WeChat has revolutionised social media and entertainment. These are fully local applications. Some of the large e-commerce sites in emerging markets are not Amazon or eBay - they are Flipkart, Alibaba, Blibli, Submarino, Zalora and the like - all emerging market disruptors with local features. Perhaps Amazon will buy some of them or follow their recipe in order to compete effectively.
As these companies get more innovative and keep a steady lead ahead of others, their winning strategies will become the new normal to succeed as a new player. Disruption will then become a core element of every company's strategy.