Disruptive Companies’ Power to Shake up the Market
We live in a world where the pace of change is rapid. Disruption is present all around us, accelerated by low interest rates and easy credit.
The dynamics of disruption create divergent outcomes across a range of industries, and come at the expense of many incumbent competitors. The effect of this disruption is playing out all around us, in the declining influence and importance of many established brands.
But why exactly can disruptors cause so much change to the worlds of very established brands?
The first answer can be found in advertising. To sell toothpaste 20 years ago, companies would buy up all the TV, radio and newspaper advertising space for their toothpaste and compete for consumer’s attention in the media. Businesses that didn’t have the scale to compete for advertising space with these established brands lost out.
Today people are buying toothpaste on social media. Consumers are finding out about new brands and businesses on Instagram, and while these new companies may have limited scale, they are funded by a market flooded with easy money. This enables them to create new products and use social media to target consumers.
Added to this is the changing way in which people consume media. Consumers increasingly listen to music on Spotify instead of the radio, and watch Netflix instead of traditional broadcasting channels. These spaces do not have advertising when signing up to a subscription, so where would established brands buy ad space that targets their markets?
Second, the place where people do their shopping has changed significantly. Consumers are increasingly reluctant to go to a physical store. Amazon ships directly to your house, which revolutionised the way people think about shopping.
E-commerce has unlimited shelf space, allowing new brands to compete cost-effectively with their established rivals. Two decades ago, established companies would – in addition to buying all the advertising space – acquire the shelf space in shops where their toothpaste is sold, making it virtually impossible for new brands to break into the market.
One such business that is shaking up the footwear industry is Allbirds – an environmentally and sustainability-orientated shoe retailer that makes shoes from wool, trees and sugar cane. It has a valuation of approximately $2 billion, while it has very limited retail presence, no TV ads (but with 55% of its advertising done on Instagram) and ships most of its products via e-commerce.
China has benefitted dramatically from innovation developments. Alibaba has become an amalgamation of many key web-based innovations. It is effectively PayPal, Amazon, Amazon Web Services, Facebook, YouTube, Instagram and Google – all in one company. This reach has given it extraordinary insights into its customer base and enabled it to capture revenues.
Developments like these are making it more important than ever to be on the right side of change, particularly given the dispersion of outcomes between winners and losers. Difficult decisions are sometimes needed, but that is where skill, experience and deep insights into the return opportunities of the future come into play.
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