How To Embrace The TNC Technology Revolution

Posted on May 26, 2015 by - Also by this author

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The solution to competing with TNCs involves buying time to slow down the disruptors while applying information from past experiments and failures to newer, “outside the box” ways of doing the same thing better, keynote speaker Larry Downes said. Downes spoke at the International LCT show in Las Vegas, Nev., Tuesday, March 17. 2015. (Photo by LCT)
The solution to competing with TNCs involves buying time to slow down the disruptors while applying information from past experiments and failures to newer, “outside the box” ways of doing the same thing better, keynote speaker Larry Downes said. Downes spoke at the International LCT show in Las Vegas, Nev., Tuesday, March 17. 2015. (Photo by LCT)

LAS VEGAS, Nev. — Limousine operators should get used to a disrupted business world.

The digital technologies driving that disruption will bring services and products that are faster, cheaper and better, but with the stresses of constant change and adjustment, said Larry Downes, an Internet industry analyst and co-author of the new book, Big Bang Disruption. Downes spoke to Show attendees March 17.

Two Paths
To illustrate two possible futures, Downes drew lessons from two companies, both household names: Eastman Kodak and Philips Lighting.

Kodak went bankrupt and disappeared in 2012 after 131 years, despite inventing digital photography and owning the best patent portfolio. In the bankruptcy sale, buyers only wanted those patents, for $500 million.

“Everything was worthless,” Downes said. “The problem was cultural. They turned to being the leader and inventor of film-based photos to the point that they could not commit to digital fully. They wanted to have their cake and eat it, too.”

Philips, the inventor of incandescent light bulb, was profitable but foresaw the need to support future products. Because LED lights double in capability every 18 months, Philips left the light bulb business. “At some point, [Philips realized] LEDs would be better, cheaper and more efficient,” Downes said. “Instead of crying in their beer, they announced seven years ago they would get out of the incandescent light business, and they went to the government and said, ‘You should mandate banning incandescent light bulbs.’ They sold off assets and screwed their competitors completely, mandating everyone else do what they set themselves up to do. They got ahead of it.”

Which way goes the limousine industry? Downes took attendees through the options.

Moore’s Law Rules
Downes explained how a tech-driven economy is governed by Moore’s Law, named after Intel co-founder Gordon Moore, who observed in 1965 that the number of transistors per square inch on integrated circuits would double about every 12 months. Moore predicted this trend would continue, and while the pace slowed a bit, data density still doubles about every 18 months,

“While price holds the same, it’s cheaper and easier to stuff things into computers,” Downes said. “That can kill an entire industry. Computers get cheaper, as do other things such as cloud-based storage. The Internet is a global marketplace to simplify logistics and transport with minimal inefficiency and losses.”

The Big Bang Disruption, in many industries, involves new products and services that can enter the market simultaneously, Downes said. “The prices of raw computing components get cheaper and use less power.” Disruptors once entered the market cheaper, but worse in performance. Now they can move into the market better and cheaper at once.

Risk Factors

Industries at risk for disruption retain the following risk factors:

  1. Decentralized with few dominant players
  2. Long history of close, localized regulation
  3. High transaction costs for customers
  4. Low asset use for providers
  5. High labor costs
  6. Historically low investment in information technology
  7. Low barriers to entry (absent regulation)

“The Big Bang [disruption] happens based on those seven factors, the depth and number of them,” Downes said. “Some industries are moving faster than others.”

One industry with all of these traits is the legal profession, especially law firms.

“Law school admissions are declining dramatically,” Downes said. “No one is hiring and no one is willing to pay. Law firms are struggling with their business model as new kinds of competition emerge such as internal lawyers and Internet-based legal services.”

Then, Downes looked out at the audience of limousine operators and said, “I’m thinking about you as well. You have all seven of the same characteristics.” Transportation network companies (TNCs), such as Uber and Lyft, are attacking all seven of those attributes in the limousine industry at the same time.

TNC Phenomenon
First generation TNCs are expressing symptoms of those seven factors, Downes said. “They can figure out the easiest way to pick off the high-end of business. Watching these factors and how to respond to them is more important than responding to specific companies.”

In yet another example every motorist can relate to, Downes cited customized navigation tools such as stand-a-lone GPS and smart navigation apps that have replaced Thomas Guides and Rand McNally map books. Navigation apps have the capacity to reach 100 million people.

Development now is unencumbered, not bound by the traditional steps of research and development (R&D). “Because devices are already in place, you don’t have to wait around and build something that is slowly released into the market,” he said. Genius lies in when to launch the right product at the right price at the right time.
“Uber is not the threat,” Downes said. “It’s the venture capitalists who have invested $5 billion. They are betting on so many opportunities to improve on those risk factors. It is worth the risk because the upside opportunity is so high.”

Turning Disruption To Your Advantage
The way for the chauffeured transportation industry and other more traditional business sectors to manage disruption is to make the best use of untapped assets, Downes explained:

  • Increase technology infrastructure investment (cloud-based outsourced). The industry needs to recover from a period of underinvestment.
  • Coordinate information technology investments, especially among private providers and trade groups.
  • Lower consumer transaction costs with innovative technology. Instead of it being on the operator end of the transaction, it will be with the customer.
  • Remove regulatory barriers to investment and to data entry, which Downes admitted can be controversial. Applying rules onto TNCs is a short-term strategy.

“The long-term approach is extract yourself from unneeded regulations, many of which are wasteful and inefficient. You have to lead the charge and not fight from behind. Lower the regulatory barrier even if it lowers the barrier of entry.”

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