Disruptive innovation creating a new type of middleman

The use of Airbnb as a concept for homely accommodation is not limited to individual Kenyans and hotels listing their properties to get guests, but also Kenyans using the portal to find accommodation around the continent and the world as they travel for business and leisure. PHOTOS | COURTESY 

By JOE OTIN

In Summary

• WPP’s Martin Sorrel predicts that the sub-sectors of the marketing communications industry that will remain recognisable and continue to grow in the near future are research, public relations and digital advertising.
• You can’t talk about disruptive innovation without mentioning AirBnB which has had incredible impact on the hospitality and travel industries providing accommodation at a fraction of the cost and cutting out travel agencies.

Whatever happened to all the typing bureaus we had around town? Their clients were lawyers, service companies and university students with large amounts of paperwork that were processed in large halls with hundreds of women noisily typing for hours on end.

The rise of the personal computer caused the down fall of these companies and I’m sure that a few of them transformed their businesses just in time and became cyber cafes.

The customers of cyber cafes were a new breed — not the lawyers and service companies, but more students, small businesses and individuals, as CEOs got over their scepticism of the PC.

Before our eyes we have subsequently seen the demise of the cyber cafe as the power of computing has become more affordable and mobile and indeed some cyber cafes transformed just in time into value-add ICT businesses.

The speed at which sectors rise and fall is so rapid and it reminds us that the only thing that is constant is change and if your business does not have a long term view to market dynamics you could be dead in the water before you break even.

WPP’s Martin Sorrel predicts that the sub-sectors of the marketing communications industry that will remain recognisable and continue to grow in the near future are research, public relations and digital advertising.

The rest of them will go through disruptive innovation and come out on the other end being significantly different, and those who work in traditional advertising should keep a close eye on the industry dynamics.

Regardless of that prediction, research and PR are going through some incredible changes based on new media, cutting-edge technology and changing consumer lifestyles.

AirBnB

You can’t talk about disruptive innovation without mentioning AirBnB which has had incredible impact on the hospitality and travel industries providing accommodation at a fraction of the cost and cutting out travel agencies.

AirBnB was founded in 2008 and is now valued at USD 24 billion with 1.5 million listings in 34,000 cities and 191 countries. Contrast that with Marriott Hotels which was founded in 1927 and is now valued at USD 21 billion with 4,500 hotels in 87 countries. AirBnB doesn’t own a single room and yet they are considered the biggest hospitality brand around and they’ve done it in less than 8 years.

Take Apple, which reinvented the music industry in 2003 with the introduction of iTunes Music Store. It wasn’t the first attempt to sell licensed music online, but it was by far the best platform to do so because of the integrated ecosystem created around the iPod.

In it’s first year, customers bought more than 70 million tracks and in 5 years it had surpassed Walmart to become the worlds largest music retailer.

Apple’s new plan for the music industry is based on streaming music and paying fixed rates as royalties, which if put in force, could wipe out other streaming services that pay a percentage of their revenue for royalty payments.

At the Strathmore University SME Conference last week I heard the story about a recent graduate who was making an income from selling water tanks online. He’s website was 9th on the google search listing but with the best customer experience with an intuitive catalogue, pricing and ordering details.

The funny thing was that he doesn’t have a manufacturing plant, a warehouse or a storefront, but he buys products from the companies that were listed 1 to 8 on the Google search and then does a better job of presenting them on his website. He then outsources delivery and installation which is done with excellent efficiency, delighting customers.

Perhaps it is the outdated legacy systems that established companies insist on that create opportunities for the disruption in supply chains and give these new middle men a chance at the title, but it is critical for you in your industry to understand changes in society brought about by technology and the opportunities presented by the interconnectedness of things.

Bumpy Johnson in the movie American Gangster planted an idea in Frank Lucas’ mind that led to Frank’s eventual success. “Cut out the middle man,” Bumpy would say, “and go direct to the customer.”

In as much as this wisdom is the guiding factor behind the largest content company owning no content and the largest hospitality brand that has no brick and mortar, there is a new type of middle man who leverages on the significant societal changes. Inadvertently there will be a time when even that middle man will be cut out of the process.

Mr. Otin is a digital marketing expert and CEO of The Collective - an interactive ad agency.