Digital disruptors like Uber, Airbnb and TaskRabbit are using digital ways of working and technology to aggressively take B2C market share from both big and small companies alike.
Right now they look unstoppable – but how did they did achieve such a feat and what can other sectors (especially those in the B2B space) learn from this experience?
One way to understand their success is to consider how they challenged – and then used – “Porter’s Five Forces” to gain competitive advantage…
(It’s also worth noting that the “Five Forces Model” was developed by Michael Porter in the late Seventies – digital and business Strategy are two sides of the same coin)
1. Threat of new entrants: Digital disruptors have arguably penetrated markets where barriers of entry are relatively low for smaller companies (e.g. taxi hire, rental accommodation, home repairs, etc) but industrialisation of such services at a global level was previously thought unfeasible.
Yet these disruptors have succeeded at this level not by overcoming such barriers (like start-up/sunk costs, licences/rights acquisition and customer loyalty) but by mostly “subverting” them to deliver services at competitive prices.
For example; Uber provides a platform for customers to contact directly a driver located nearby – effectively eliminating (or replacing?) the established “middleman” taxi firm or other service provider competing in that area.
Uber doesn’t have to carry the costs of running a fleet of taxis, the majority of any local laws or regulations remain the risk of the driver/supplier, and switching costs for customers to use its service are virtually nil. These barriers of entry have now become a threat to existing taxi firms because they impact their ability to compete with Uber on price and customer convenience.
2. Threat of substitute products or services: A challenge levelled at disruptors is that their commercial model could be easily imitated by other digital service providers. But this is where they exploit first-mover advantage – they have already created large scale services used by millions of people; a customer could find rental accommodation using a new, different service for their long trip away to an unknown place but why bother when Airbnb is an existing reliable brand they trust?
3 & 4. Bargaining power of customers/buyers and suppliers: The disruptor’s role is to provide a digital service that brings buyers and suppliers together at the right price – TaskRabbit is a marketplace that gives customers and contractors access to the same information (including requested service, desired price and ranked supplier performance) to enable an informed purchasing decision for trade services. TaskRabbit’s success comes from effectively using buyer and supplier bargaining power to drive better collaboration between customers and contractors rather than itself being challenged by such competitive forces.
5. Intensity of competitive rivalry: A digital disruptor turns competitive rivalry on its head by making it a lot harder for incumbent players to strategically identify, assess and respond to the threats they pose. Uber, Airbnb and TaskRabbit don’t buy or supply the services in the sectors they compete in – they are not direct competitors in a traditional sense. Rather, they are convenient intermediaries that offer customers faster, smarter ways to buy from suppliers. Their strength also comes from them using their established global brands at a local level in markets where switching costs are low for customers.
What could this mean for B2B service providers? It should be noted that the disruptors explored here compete in providing B2C high volume, low risk “simple” services. Conversely B2B providers supply high volume, high risk “complex” services requiring them to have a deep historical understanding of the sectors they serve. Such entrenched capabilities give these existing players the strategic opportunity to combine their skills and experience with digital to create new services disruptors can’t imitate.
What strategic risks and opportunities do you think organisations face as digital continues to penetrate all sectors? Please share your feedback below.
For more information about digital transformation please contact the Sopra Steria Digital Practice.