Don’t look now, but the web might be ready to eat your lunch. All around you, the carcasses of old profitable value chains lie, killed by the web’s ability to dynamically integrate value chains from many different places, without needing the vertical integration inside one company that was formerly required.
Are you a hotel chain? How many different disruptions have you lived through? You probably remember how you felt when Expedia started hijacking all of your customers because they no longer needed to call you to make a reservation. Then TripAdvisor came along and made it impossible to hide that one wart of a hotel flying your flag that really doesn’t measure up to your brand promise. Now Google is trying to eat Expedia’s and TripAdvisor’s lunch by allowing booking directly from the search results.
All of these changes have come about because the web can dynamically integrate value chains across companies, through complex APIs and simple links to other sites. When these new dynamic value chains are integrated, it simultaneously dis-integrates the existing vertical value chains that probably have been charging a premium for convenience that now comes at a discount in the new chain.
The reason hotel brands are under attack is because you once needed to know the brand of the hotel to “know” the quality. Now, you didn’t really know the quality, but it was the closest you could come. If you knew which brand you wanted, you could call the hotel chain’s main number and make a reservation. If you didn’t know what you wanted, you called a travel agent who did it for you. That whole value chain is under attack.
The newest attacker is AirBnb, who not only steals the reservation, it doesn’t even book them in your hotel, instead renting out couches all over the world. The Internet is what makes it all possible.
It’s not just the travel business, although that business is very instructive with lessons for other businesses. Cloud computing is changing the business model in the software business, where companies no longer care about how easy software is to install, or how many workers are trained in the technology that they can hire–because none of it happens on their premises anymore. This is leading to many smaller software companies with no support–just continuous new releases, disrupting the large companies with their vertical integration of all these services around their software.
Look at Uber. Remember how you used to get a cab to a remote location? You kept calling cab companies until you could find one that promised to send a cab in less than 30 minutes.
So how does the vertically integrated brand fight back? Cab companies (and some hotels) are fighting with lawyers and lobbyists. They want to force Uber (and AirBnb) to comply with all the regulations and taxes that they are saddled with. It might work. For a while.
But anytime that technology enables these new value chains that are more efficient (read: cheaper) for the customer, all the while providing comparable or better solutions to their problems, regulations and lawsuits won’t hold them back for long.
Remember Napster? It failed, right? Legislated and lawyered right out of business. Except the idea didn’t fail. The record companies didn’t win. Apple won. Spotify won. Pandora won. The idea of streaming music that is easily downloaded on the net won. The record company lawyers were fighting a holding action.
If your integrated value chain is under attack from web technologies, you can’t expect to lawyer up and hold the technology at bay. Your only hope is to pivot so that you provide more value than the competitor to at least some part of your existing audience. You might not be able to hold onto all of them, but maybe you can keep some. Maybe you can keep the most lucrative and highest profit part, thus becoming a smaller company but one that still exists.
What could record companies have done? Maybe they could have bundled concert tickets into their offerings. Maybe they could have offered online access to band members. Maybe these ideas wouldn’t have worked, or maybe the artists had so little trust in the record companies that these ideas were nonstarters. But now record companies are dying a slow death, as artists are learning to make money without signing with a record label at all.
Many hotels are taking down their brand flags and going independent, because they don’t see what the franchise fee buys them. Many cab drivers are quitting cab companies and signing with Uber. Many software developers can bring their product vision to glory in the cloud without a big packaged software company behind them.
What about your industry? Watch the trends to dis-integrate your value change and start developing the strategy to pivot to a new chain while you still have the chance. If you snooze, you lose.
