A great focus for many startups, investors, and entrepreneurs is creating the next Uber or Airbnb. I have examined how both Uber and Airbnb have leverage data in powerful ways. A great deal of their success comes from their superior digital platforms, so let’s examine what principles are at work in becoming the next digital disruptor. In many ways, we are on the cusp of more digital disruption in many industries. I expect financial services, insurance, health care, and even food preparation to see disruption. Startups and entrepreneurs are very focused on achieving the scale to have large and successful digital platforms. To be a successful digital disruptor, it is critical to:
1. Lower Prices to the Consumer: Many times we forget that lowering price, more often than raising price, is the path to growth, scale, and wealth creation. Seriously, most firms do not think of this enough. Disruptors are almost always about lowering consumer price. It is one of the reasons it is hard to attack them. Attacking Uber means you are for higher prices. Who wants that? Attacking Amazon was and still is hard for retailers. A great many of the fortunes of the billionaires on the Fortune list have been built by lowering prices to consumers. Bill Gates and Microsoft lowered the price to write a letter or do a financial calculation. By making it digital, human labor was removed or made more efficient. Larry Ellison of Oracle made it easier (and less expensive) to store and get your data. Facebook has reduced the costs of social connectivity and targeted marketing. Amazon lowered the costs of shopping. Google removed the cost of going to the library or owning an encyclopedia and has since made the cost of targeted marketing lower. Zillow lowered the price (time and inconvenience) for searching for housing records at the county clerk’s office. The list goes on and on. Why do you use any app? At the core is that it reduces a costs, removes a pain, or reduces the uncertainty of a cost. The paradigm applies outside of digital too. Wal-mart certainly lowered prices in retail. Really, if your business model does not lower costs to the consumer, step away. The reason that Uber, Airbnb, and the next great digital disruptor that gets going will be because costs are reduced or removed. Lower consumer prices!
2. Measure the Customer: Digital firms have the distinct advantage of interacting with the consumer on a digital platform, where the customer’s activities are measured. This is a real asset. Leverage it! It is amazing that we still have analog and handwritten health and dental records in so much of the US. Digital collection and digital recognition enable operational savings and analytics on the consumer. Personalization, customization and all of the optimization that Uber, Airbnb, Amazon, eBay, and Google do comes from measurement processes. Create your Big Data, but before that, build a solid process for measurement and leverage automatic customer recognition so that customers do not have to actively identify themselves at each transaction.
3. Simplify Execution: The development of easy to use apps and even Amazon’s patented one-click ordering function has raised the bar in what is considered convenient. Simply put, your digital interface should be able to operate with as few keystrokes as possible. More critically, can a recognized consumer operate your digital interface with one hand on a smartphone? If not work to get there. It is the new standard for convenience. Look at what Rocket Mortgage and Quicken Loans and a host of online financial firms are all working on – simplified execution. Even the airlines have gotten these. I can buy a United airline ticket on the app with less keystrokes than I can on the website!
4. Protect Your Technology: Warren Buffett would call this moat building if he invested more heavily in technology firms. Having a great digital platform and winning customers will attract competitors really fast. Patents are a preferred way to protect your technology of course. Groupon enjoyed a period of great success and then the online and social coupon site attracted lots of competitors. Come to find out, issuing coupons was easy and Groupon did not have a patent, platform, or other technology that could keep its customers loyal. Groupon now runs radio advertisements (at least in Chicago). Be really sure that your technology is defensible.
5. Get Close (Sticky) with Your Customer: Even if you have a digital platform that is protected by patents or novel technology, you will find competitors finding another way to copy you. Yelp, Trip Advisor, and a host of the many review sites are a perfect example. Make it easy for your customer to join and hard to walk away from the benefits. I think Apple’s iTunes is the best example of a sticky customer model. Just the thought of trying to move my music to another platform brings me worry. Apple has my purchase history, reviews, music organization, and a lot more. Expect firms that are leveraging cloud solutions to similarly make it hard to leave. That is a strategy. Know what your customer values the most and make it hard for them to leave that.
6. Develop Data Products: I write a lot about how firms should leverage data to create data products. I also believe that firms can leverage that for new and powerful revenue creation. LinkedIn is a great example of a firm that creates data products on who views your account, and jobs that are of potential interest. That is smart. Banks that charge for your annual summary are hurting themselves. Customers should be entitled to their data, for free. Develop free data products that keep customers and premium data products for specialized growth. The freemium model will be at work for a long time.
7. Innovate for Growth: No digital platform should be done with its first act. Consider the amazing extensions that Amazon has brought us from the CD and bookstore of 1995. Google has grown in countless directions. Even Uber is moving into various new delivery services. Once you have a success, look at what else the customer tells you, gather data on that, and gather data on your internal processes, too. These will be useful in identifying new business ideas. It is also immensely critical for your business to foster a sense of entrepreneurism and experimentation with your data.
Author: Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. He has worked with many professional sports teams and leading marketing organizations through the Analytical Consulting Lab, an experiential class that he founded and leads at Kellogg.