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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.
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.
Industries at risk for disruption retain the following risk factors:
“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.
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:
“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.”
Lessons To Learn
Downes advised attendees to re-examine those ventures and experiments that failed in the past and find out why. An abundance of experimentation proves that innovators are working toward massive, inevitable changes.
“Listen to your truth tellers,” Downes said. “Look for people who can look further than a year or two in the changing nature of technology. You have to be talking to people way outside of the industry box. You need to look at failures and say it may not work now, but ask what is missing and how can it work.”
Downes compared the explosive success of TNCs to the sudden advent of Twitter, terming it a “catastrophic success.”
“They were unprepared with no infrastructure to handle and develop the demand,” Downes said. “The people and equipment were not prepared for catastrophic success, and Twitter had lots of crashes. We’re seeing this with Uber and Lyft.”
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.
“What can you do to slow down disruptors before they do irreparable damage to your industry or balance sheet?” Downes asked. “You can use legal mechanisms to slow them down. Patent and copyright lawsuits will get the regulators to pay attention. But operators need to be working outside of the regulatory structure. Napster and file sharing services got killed and ordered to shut down. But it didn’t matter. Had they known what they were doing, they could have bought time to figure it out. They were so focused on stopping the disruptors that they didn’t notice Steve Jobs taking over the music industry with iTunes. You want to use time to buy time and then use the new time wisely.”
Consumers have shorter attention spans, expecting better products at the same prices without long waits. “They are primed to look for disruption,” he said. “They are looking for it everywhere, outside of and in traditional services. People expect things in one second. Make sure you are not left holding assets that are underused and unproductive.”
All the technologies that will create smart roads, drones and self-driving vehicles are coming after a process of fail-fail-fail-fail, and then total success, Downes said. The challenge is to see the threats as short-term but the opportunities as long term. “Whether or not it is a success, it depends on what you do now.”
The ground transportation sector will follow a familiar pattern seen among disrupted industries: Fewer small players that are less localized and steered by “customer mobs” that serve as ruthlessly efficient regulators. “Cooperation with TNCs will prove essential,” Downes said. “They have the speed, you have the assets. What they have is the ability to react quickly. They can experiment and change rapidly.
“Expertise and the customers are the value of limo companies,” he said. “TNCs need that and will come to you. You will thrive if you do more than others.”
Downes likened the dynamic to what happened with the American pinball industry, which peaked in the early 1990s. Then came ever-more sophisticated video and Internet gaming, and pinball manufacturing plummeted. Now, there is only one pinball maker in the U.S., Stern, which absorbed competitors and comfortably profits from a stable nostalgia market for classic pinball machines.
“There is a possibility that one company can survive the most dramatic Big Bang disruption. But only one.”
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