A Disruptive Business Model Is A Valuable Corporate Asset

Disruptive business models as used by the likes of Amazon (books), PayPal (payment), Uber (taxi), Airbnb (accommodation), etc are moving into industries in which there is 

- charging of excessive fees and/or
- making of excessive profits and/or
- poor customer service/high customer dissatisfaction and/or
- under-utilised assets and/or
- using out of date technology.

Some examples of industries under threat for the above reasons are:

- the data intelligence/analysts industry, like Thomas Reuters, Bloomberg, Gartner, etc, that have been in the industry for decades and built a US$ 10+ b. market. They have had little impetus to change owing to their market dominance combined with their public shareholders' expectations from this cash cow, ie short-term profit and the dividends. Yet almost all customers are dissatisfied. This has provided an opportunity for a disruptor, like FiscalNote (started in 2013 and worth US$ 18 m. in late 2015), to come in to differentiate itself by speed and breadth of information delivered, its superior design platform and customer service disrupt the research divisions at analyst companies. These disrupters are using their ability to predict what customers will want. (Rachel Botsman, 2015b)

- the taxi industry.  Uber, a technology-based disruptor that provides a ride-sharing service, is doing what years of inquiries, complaints reforms, etc have not been able to do to a monopolistic industry, ie taxi. Customers in the taxi industry are fed up with delays, bad drivers, excessive fees and poor service. Uber's popularity and increasing protest of established taxi licence holders about Uber are putting pressure on regulators and state transport authorities to find a solution. In addition to Uber, booking and payment apps, like goCatch and ingogo, are providing alternate payment systems to the likes of Cabcharge. Cabcharge has dominated the Australian taxi industry since 1976 and charges a flat 10% fee on every fare paid via its eftpos terminals (in 2015 this was dropped to 5% in some States).

Uber adopts combative tactics. It targets "poorly serviced" cities by giving drivers iPhones, with the Uber app installed. The legal Uber black posh-car service enters the market first; once established, Uber X is introduced, (Jessica Sier, 2016b)


These models use the latest technology to generate an asset-light approach, with low overheads.

"...A disruptive business model that can generate attractive profits at a discount price required to win business at the low end is an extraordinarily valuable growth asset. When its executives carry the business model upmarket to make high-performance products that sell at high price points, much of the increment in pricing falls to the bottom line - and it continues to fall there as long as the disruptor can keep moving up, competing at the margin against the higher-costs disruptee. When a company tries to take a high-cost business model down market to sell products at lower price points, almost none of incremental revenue will fulfill its bottom line. It gets......into overheads. This is why......established burdens that have to capture the growth created by disruption need to do so within an autonomous business with a cost structure that offers as much headroom as possible for subsequent profitable migration upmarket......disruption does not guarantee success, but it sure helps......following a strategy of disruption increases the odds of creating a successful growth business from 6 percent to 37 percent......is also clear what executives who seek to create new growth business should do: target products and markets that the established companies are motivated to ignore or run away from. Many of the most profitable growth trajectories in history have been initiated by disruptive innovations..."

Clayton Christensen et al, 2003

 

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