Customers Are Disrupting the Markets, Not Technology, Says Thales Teixeira

Thu, Feb 21, 2019 - 11:11am

Technology and innovation are undoubtedly woven together in today’s web of disruption. However, Thales Teixeira of the Harvard Business School, argues technology isn’t the main driver of massive disruption, rather, it’s a change in consumer behavior that's led to companies like Uber and Airbnb dominating the markets. How did we get here? What can businesses do about it? Teixeira addressed these points in his recent interview with FS Insider, where he discussed his new book, Unlocking the Customer Value Chain – How Decoupling Drives Consumer Disruption.

Before diving into the different waves of disruption and the role consumers play, it’s important to understand what exactly disruption is— not just the companies and people we tend to associate with it. Teixeira explained disruption in any industry, or country, always follows a similar pattern: an incumbent company holding around 20 to 40 percent of the market share loses a significant amount of that share in a matter of years. This, Teixeira said, is disruption and there have been three waves of digital disruption since the mid-90s.

Teixeira refers to the first wave as unbundling. “If you were to get the Sunday New York times 20 years ago, you’d get a newspaper that carried a lot of things: news articles, classified ads, restaurant reviews, it’s a bundle of little products.” When Google came out in the mid-90s it unbundled the newspaper. It gave people the opportunity to read just one news article, Yelp provided restaurant reviews and Craig’s List offered classified ads. The same thing happened in the music industry with the ability to buy one song at a time, as well as with movies and books. Consumers were able to access content in any matter of ways, at any time they wanted with the advent of Google. They no longer had to rely on just one avenue fro news, music, or book access.

The second wave in the early 2000s is known as disintermediation. Prior to this, to book a flight or select a hotel, consumers would use a travel agent who could provide these services. “The Hiltons and Deltas of the world created websites and sold their products directly to consumers bypassing the distributor, in this case the travel agent,” Teixeira explained. This wave of disintermediation spread out into financial services, in industrial services, everywhere. Again, consumers changed their behavior and chose to go directly to the source rather than consult with a distributor.

The third wave of disruption we’re in today and the one Teixeira’s new book focuses on is the breaking apart of the customer value chain. “Imagine you’re going to buy a new flat screen TV—there is a series of activities you go through before you're using the TV at home,” Teixeira explained. You would go to a physical store to compare options, maybe there’s a sales person helping you out, you place your order, pay for it and schedule someone to come out and install it, all these activities are called the customer value chain.

Teixeira calls this third wave decoupling, it’s “breaking apart those activities." Instead we have startups offering to satisfy just one of those activities. Take Amazon for example, they don’t have a TV show room or a sales person helping you or offering installation services, it just sells you the TV and that's the decoupling of the customer value chain, Teixeira said.

In each wave Teixeira found technology wasn’t the main driver of disruption—it was a change in consumer behavior. He spoke to CEOs and executives of incumbent companies who believed it was a certain technology or startup that was disrupting their business. When Teixeira visited companies like Netflix and Airbnb and asked how they were planning to disrupt the market, they wouldn’t say it was by using a certain technology.

Teixeira realized, “the customers of established companies were changing their needs and their wants and their behaviors and that is how companies get disrupted.” When Uber first started out there was a human behind the app coordinating drivers and riders. Airbnb wasn’t using any new technologies, they simply employed a website with standard technology. Consumers are changing the markets through their everyday choices. When people decide to stay in someone else’s home the next time they’re on vacation rather than booking a hotel room, they are the disruption.

To find out how businesses are adapting and competing in this third wave of disruption and to hear more from Teixeira, listen to the full FS Insider interview here.

About the Author

Digital Content Assistant
Financial Sense Wealth Management
justine [dot] hall [at] financialsense [dot] com ()
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