When disruptors ariseIn September 2015 - just three months after launching its website - self-proclaimed “Costco of the Internet” Jet.com has been ranked as the fourth largest online marketplace in the world. The firm, founded by former Amazon employee Mark Lore, has raised a staggering $225 million within a year of its inception, on the promise that it will disrupt Amazon.
Jet aims to beat Amazon at its own game through their dynamic shopping carts which allow for more effective bundling than the Amazon equivalent. By the looks of it, Amazon has noticed this and is quickly working to secure its position by undercutting prices in Jet’s key categories.
While the jury is still out on this, one thing is certain: the rising access to capital, matched only by the height of the dot-com boom, allows the challengers of today to scale digital, disruptive products faster than ever before keeping incumbents like Amazon feeling the risk of disruption.
Venture Capital Investments in Silicon Valley ($million)
Same game, new rulesInnovative startups and their venture capital counterparts have been around for quite some time, allocating capital to grow ideas into business, but the recent shift in funding (coupled with the increasingly digital and connected world) have changed the rules of competition.
Take Twitter for example - the social media power house raised over $1 billion on its path from launch in 2006 to its IPO in 2013 which valued the company at $24 billion, even as it posted nearly $134 million in net losses.
Over its 7 year growth period, Twitter transformed the way news is disseminated and how brands interact with their customers. Simply put, if you can create or fulfill an unmet customer need, investors are willing to pay for a lottery ticket and the street is willing to wait for profitability.
In this new environment, Fortune 500 companies have to adapt to survive as fresh new competitors abound. In the 1950s, a Fortune 500 company could expect an average tenure of 61 years, almost a lifetime, but in today’s winner-take-all world this number has dropped to 18 short years.
To put this in perspective, Capgemini Consulting’s Digital Transformation Review No. 7 (“Strategies for the Age of Digital Disruption”) states that 52% of the companies in the Fortune 500 in 2000 have either been acquired, gone bankrupt, or now cease to exist.
For those incumbents who wish to compete, massive action is the name of the game. While it took Hilton a century to build its portfolio of hotels, Airbnb capitalised off of residential housing to build an even larger portfolio in 5% of the time. Airbnb is just one example of the growth made possible by the new digital world.
Firms today must be aware the first company to build a robust digital platform gains near-instant access to talent pools, on-demand contracting, and infinite computing ability that has endless distribution channels. These benefits generate a significant competitive advantage that even the most solid of incumbents cannot combat. In the new age of disruption, it truly is innovate or die.
The journey starts hereWith this new landscape, incumbents like Amazon and Hilton must be asking themselves “how do I know I am at risk for disruption?” or “what can I do to stay ahead of challengers?”
In Part 2 and Part 3 of this series we will answer these questions and provide a framework for incumbents to innovate and thrive in the face of digital disruption.