Disruption’s effect on the non-disruptive business
The digital disruptors picked off the low-hanging fruit, where there was a ton of money to be made cutting out layers of unnecessary intermediaries. But some industries have marched merrily along, seemingly untouched in the two decades since the public Internet emerged.
There may not be any such thing as a “disruption-proof” industry, however. From pizza to rent-a-brain, the old markets are being reshaped by new ideas. Here’s how digital disruption is affecting these harder-to-crack industries.
Follow the trends to find the next industries likely to be affected. Look for a monopoly or oligopoly of well-established brands that sit between customers and products or services, pocketing a surprisingly large percentage of the transaction. “You look for an industry where there’s a lock-hold on the market, but they’re not using a lot of technology,” says Siddhartha Chatterjee, CTO of Persistent Systems.
Looking for a sign that even the most prosaic business isn’t immune from disruption? Shifting to digital ordering, via Web or app, has been just one part of Domino’s recent reinvention campaign, but it’s paying off. Over one-third of Domino’s sales now come through digital orders, and have lower error rates because there’s no chance of miscommunication between the consumer and a Domino’s employee on the phone.
Wildcat, crowdsourced construction crews may not be in the immediate future, but just as easily customizable computers gave Dell a disruptive advantage over PC competitors in the 1990s, builders have the same potential on the horizon. “There’s still a lot of hammering and pouring of concrete, but there are a lot of aspects of the interaction between builder and buyer that could be transformed digitally,” Chatterjee says.
There’s another quirky intersection at the heart of many digital disruptions: the combination of both a deep belief in the rule of some laws, and an almost complete disregard for others. For an older example, remember that it was piracy which forced the reinvention of music delivery along primarily digital lines. Today, services ranging from hotel-replacing Airbnb to valet parking alternative Zirx flourish because consumers believe the law will protect them and their personal property from harm, even as they scoff at the statues and regulations that normally control entry into those fields.
Amazon and other e-commerce players rocked the brick-and-mortar world, but the response has been adaptation and consolidation, not the end of all in-store sales. In the ensuing decades Amazon has itself become part of the establishment, which is why it tries so hard to re-disrupt with same-day delivery, pick-up lockers, and drones.
Real estate is another area primed for a second disruption phase. Long characterized by cheerful salespeople pursuing second careers and self-actualization in equal measure, the business has done a tremendous job embracing and extending itself around attempted disruption.
Even back in the ’90s, buyers could browse home listings without agent assistance. Since then, real estate information clearinghouses like Zillow and Trulia have added even more transparency. That has emboldened far more people to list and sell directly using the “for sale by owner” (FSBO) model, but not as many as you may think. FSBO accounted for just 4 percent of all listings on Zillow in February 2014.
How has this old-guard industry remained largely unscathed for so long? Clever maneuvering and a timely crisis.
“The market correction of 2008 really saved the realtor,” says James Simpson, CEO of SQFT, a long-time real estate broker himself. “We as middlemen were starting to be vulnerable to disruption, but when people were scared and didn’t know what to do, they went back to the tried and true model.”
Now that the housing market has calmed considerably, the barbarians are once again at the gate. Consider SQFT, which occupies a new middle ground between FSBO and full-service agency. It takes a smaller fee than a typical agent’s commission. The service’s primary task is to syndicate listings to marketplace sites and pair buyers and sellers, involving licensed agents to support the procedural details of completing a transaction.
“[Agents] don’t bring proprietary information to the table anymore, and they don’t add anything to the syndication process than we do,” Simpson says. “There will always be a portion of the market that wants someone else to do this for them, but there’s plenty of room for another tier of service that allows sellers to run their own show and make their own choices.”
Brain games and healthcare
Ivory towers and operating rooms are both facing their own disruptive moments. Healthcare is a massive, slow-moving industry, but processes aren’t stuck for lack of trying. Accenture Health predicts that over $4 billion will be spent in 2015 on digital health startups and other disruptive projects.
“Healthcare is so heavily regulated and a matter of life and death; that’s why it’s moving so slowly,” Chatterjee says.
The brain trust model at old-guard consulting firms is also under fire from digital disruptors. The survivors in high-value consulting have thrived themselves because they have learned how to juggle skilled professionals across multiple projects, but most of their clients are at a double disadvantage. They need the expertise being hoarded by the consulting groups, and they can’t effectively manage independent freelancers on their own.
“An online labor force model is a strategic advantage for the few companies who are really doing it, but most companies don’t use that model because they can’t,” says Rob Biederman, co-founder of HourlyNerd.
HourlyNerd is trying to cut out the big consulting intermediaries by pairing MBAs with clients on significant project work. Like many other digital disruptors, HourlyNerd relies on the premise that the old guard brand doesn’t mean what it used to. “Even if the average bear at McKinsey wasn’t that bright, they had the brand halo,” Biederman says. “The brand became a stand-in for quality. Now, you can vet quality directly, you don’t need a traditional consulting firm to tell you this person does good work.”
Don’t shed a tear for the pizza shop phone operators and Big Consulting project managers. In every mini-generation, we can be sure that the disruptors will purge a lot of complexity and cost from the system, but they will also leave some traces of the old ways behind. “We’ve pushed the software to the level where we don’t need people to handle routine things for us, but try booking an unaccompanied-minor trip for your kid without live help,” Chatterjee says. “That’s the value add, and that’s why travel agents are not extinct.”