Uber And Disruption

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Editor’s note: Elad Gil is a serial entrepreneur, operating executive, and investor/adviser to startups. He is an investor in Airbnb, Pinterest, Square, and Stripe. Elad was co-founder and CEO of MixerLabs which was acquired by Twitter he served as the Vice President of Corporate Strategy. Prior to Twitter, Elad started Google’s mobile team and was the first product manager on Google Mobile Maps, Mobile Gmail and other products. Elad recently co-founded a new genomics software company. Follow him on his blog and on Twitter @eladgil.

Usually an industry’s disruption happens faster than anyone anticipates. Things look like business as usual to the slow moving incumbents, who often have not faced a real market threat for a while. Then the incumbents’ business undergoes sudden, cataclysmic collapse. Uber and Lyft are in the midst of causing this pattern to eat away at the taxi industry.

Disruption cycle copy

Below are the typical phases of disruption:

1. Overconfidence. As the disruptive companies emerge, the incumbents view the new entrants as specialized toys that could never threaten their decades-old franchise. This is the time for the incumbents to take action and innovate, but instead they usually ignore the new entrants, or often try to delay them with regulatory actions, such as forcing UberCab to change its name to Uber. Uber and Lyft’s early skirmishes with regulatory bodies are good examples of this standard tactic. Similarly, Airbnb has been pursued by the hotel lobbyists in NYC.

2. Sudden collapse/downward spiral. Sudden realization that things have changed. Realization is typically sparked in the incumbent through a drastic turn of events – e.g. the incumbent unexpectedly misses a quarter in a big way when its business evaporates faster than anticipated. A sharp collapse in its business is often the singular signal that the industry has hit a tipping point and an irreversible downward spiral kicks in for the incumbent’s business.

This is happening right now with Uber – more taxi drivers are switching to Uber, which means there are more cars on Uber, which means more people use Uber and fewer use taxis, which means more taxi drivers switch to Uber.

To quote a telling article from Fortune on this:

“The San Francisco Cab Drivers Association (SFCDA) [...] reports that one-third of the 8,500 or so taxi drivers in San Francisco — over 2,800 — have ditched driving a registered cab in the last 12 months to drive for a private transportation startup like Uber, Lyft, or Sidecar instead.”

Downward spiral

These sorts of downward spirals start off slowly (so the incumbents ignore them early on) and then hit a phase transition and shift into overdrive – often over the course of just a few months or a year. In Uber’s case it is a network effect that drives fast compounding for itself, and a rapid phase shift/cliff for the incumbents.

3. Too little too late. Incumbents try to take action but often don’t do enough quickly enough. For example, the SFMTA and cab companies in San Francisco are now adding new medallions to extend taxi numbers in San Francisco, however it’s almost definitely already recreation over in the end. This and different movements (corresponding to constructing their very own on-demand taxi app), will have to had been taken just a few years in the past when Uber first seemed on the scene as a black automobile centric firm. As an alternative, the taxi corporations answered by means of forcing Uber to drop the phrase “cab” from its title and lobbied widely on the regulatory aspect.

four. Ongoing decline. Incumbents could live on for a few years publish cave in, however are not truly related (e.g. BlackBerry). As an alternative they endure from ongoing layoffs and downsizing of their corporations with a subset going bankrupt early. Within the taxi instance, the person drivers will thrive as they transfer to Uber and Lyft, whereas the taxi corporations themselves will endure. For the following N years, folks will nonetheless order Yellow Cabs and different taxis. There’ll simply be fewer and fewer drivers and clients for these conventional products and services. Ultimately, branded taxi firms will develop into an “outdated woman use case,” i.e. simplest a small subset of essentially the most conservative prior technology of customers will proceed to make use of the dramatically downsized incumbents.

BlackBerry is an effective instance of this. Some organisations nonetheless purchase BlackBerrys for his or her workers so the corporate has no longer utterly disappeared. Alternatively, its relevance continues to say no as its market share slides. Outdated incumbents may just live on for years and even a long time in a so much lowered type after the brand new entrants take lots of the pie. I’m certain there’s nonetheless a horse whip and buggy producer someplace, regardless of society’s shifts to vehicles many years in the past.

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