Leap-frogging the Unicorns

or disrupting the disruptors

Keeping up with the Cambrians

I recently saw a chart that plotted the occurrence of the phrase “exponential growth” in published works over the last decades. Unsurprisingly the chart showed an exponential curve. Similarly I have started to notice a Cambrian explosion of “Cambrian explosions” … (the Cambrian Explosion was a phase in our geological record where there was an apparently very rapid increase in the diversity of life forms on Earth). I’m seeing the term applied in a broad variety of technology fields right now: as I cycle to work every day I’m seeing a Cambrian explosion of personal propulsion devices including electric skate-boards, power-assisted bicycles, hover-boards, scooters and obviously electric and potentially self-driving cars; in my day job we’re seeing a Cambrian explosion in tools and techniques to make data-centers ever more powerful and reliable (it’s not just the jobs of commercial drivers that are under threat from the new algorithms, sysadmins are endangered too); you just need to browse through Kickstarter or Indiegogo to see the explosion in ingenious ideas about how to graft ubiquitous connectivity and embedded smarts into every day objects; and while we’re at it we’re seeing a Cambrian explosion in terms to describe the ecosystem of all these smart connected devices.

Not disruptive

Contrary to popular opinion the likes of Uber and AirBnB are not disruptive innovators. At least not in the technical sense. These “unicorns” are clearly having a “disruptive” impact in the colloquial sense to their respective industries. But if we remove the label of “disruptor” and examine how they have succeeded we may get a better insight into how to replicate their successes, or even improve on them. Particularly if we broaden our remit to focus on solving not just for friction-reduction at the individual level, but also at the societal.

The technical description of a disruptive innovator, according to Christensen, is a new player who enters an under-served portion of a given market with a simpler (and normally cheaper) product or offering. The incumbents typically ignore them because the new entrant is not directly competing in their core segment of the market. The disruption comes when the new entrant hones their offering and gradually moves up-market and rapidly displaces the incumbent.

Unpacking the 3-pronged approach

If we look at AirBnB and particularly Uber it is clear that they actually went straight for the main, and well served markets. So if they’re not taking a classical disruptive path what has made them so successful? In my view they had a three-pronged approach that allowed them to be successful:

  1. Friction-reduction through first-class technology.
  2. Moving the perceived relationship from “market norms” to “social norms”.
  3. Replace capital with “other people’s capital”.

I’ll step through what each of these means and then talk about how we might adopt portions of this playbook for different, but equally impactful, outcomes, and how we might improve on it for the benefit of everyone.

Friction-reduction through first-class technology

None of Uber or AirBnB’s technology is particularly inventive or new. It is very well executed both in terms of the front-end and back-end technologies and also in terms of the user-centricity of their approach to reducing the friction of interacting with their services. These tools and techniques should be table-stakes for anyone wishing to be competitive in modern business, but they don’t by themselves create the radical level of market domination that these players have achieved. A relentless focus on customer development and continuous delivery is a necessary, but not sufficient, ingredient for modern-day success.

From “market norms” to “social norms”

Although a solid portion of Uber’s “customer delight” comes from the rapid and reliable ability to hail a cab with the minimum of fuss, the real break-through, in my view, is the perceived relationship between driver and passenger. Part of this comes from the rating system: there’s an understanding that both driver and passenger are going to be on their best behavior. This has many hidden down-sides, particularly for the drivers, in terms of data-darwinism [link] and job security, but in terms of customer experience it has a strong positive impact. This reputation element is important, but the real step-change comes through the fact that no money changes hand during the whole interaction.

Daniel Ariely has documented from a variety of psychology experiments how humans will operate very differently when money is or is not present in an interaction. When money changes hands (however small the amount) humans will operate in “market norms” where haggling, penny-pinching and distrust dominate; when there is no financial transaction, we move into “social norms” where gifting and generosity are favored. His canonical example is of lawyers who were asked to provide services for needy retirees at a well-below market rate ($30). The lawyers didn’t accept the offer. However when they were asked to donate their services free of charge to the same group many of them agreed.

Compare the last few minutes of a ride in an Uber to those in a traditional Taxi: in the taxi you are subconsciously fretting about how much it’s going to cost, will the driver be grumpy to take a credit card, how much tip should you leave without getting a sour look etc etc; in an Uber you say thank you, get out, smile and wave good-bye.

AirBnB have achieved a similar trick through the personal connection with a fellow human who is temporarily lending you their home, rather than the norms of transacting with a for-profit hotel. You could also argue that Kickstarter invokes similar dynamics as you help someone get their dream off the ground rather than just having a standard market transaction with a product company.

This movement from market to social norms, however faked it may be, is not the result of continuous improvement of the customer experience; it is a step change into a very different mental and emotional state. Understanding how to create similar step-changes is an under-explored area of user experience design and is not something you can just A/B test your way towards.

Other people’s capital (and labor)

The first two items point to important changes in the customer experience. The final prong of the strategy points to rapidly changing business economics. Standard economic models since the industrial revolution show how automation has progressively replaced labor with capital (investing in machines rather than paying people). What we are now seeing in the, so-called, “sharing economy” is businesses beginning to replace their own capital with other people’s capital.

As Tom Goodwin said: “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.

These new economy players have shown the immense value that can be generated by a market-place style platform as they generate new markets for existing unused assets or provoke new assets to be created by building low-friction platforms with vast reach.

The dark side

These new platforms are not without their problems and externalities however. I was recently at a conference where someone (I don’t remember who) said: “If your idea isn’t big enough to get regulatory scrutiny maybe it’s not forward-looking enough!” This drew some wry laughs, but it also points to the challenges that the new players are creating.

Some of these challenges are the natural dialog between progress and policy, for example: how should we manage air-space when it’s populated with murmurations of drones? who should be liable when a self-driving car crashes? how do we ensure health and safety in private homes that are rented out? and, how do you tax a Decentralized Autonomous Organization?

Some of the challenges are a little darker however: at what point should a default platform or content monopoly be regulated like a utility to avoid algorithmic censorship? how can workers in the new “1099 economy” have the same protections, benefits and stability as full-time employees? how can workers organize to protect themselves from “zero-hour contracts” or unfair low star ratings? how much privacy should we expect as we make our daily errands in the digital world? how do we make sure that there are still paying customers available when all our jobs have been replaced by “forged workers” and “synthetic intellects”? and most importantly, should electric skateboards be allowed in the bike-lane?

Putting it back together

Christensen’s precise definition of disruption notwithstanding, in common parlance we are clearly seeing business sectors and segments of society that are being disrupted. If you look at the Latin root, “disruption” means “breaking apart”. Though much of the Bay Area begs to differ, breaking apart is not in itself a virtuous or heroic activity; the real creativity and heroism comes in finding new and better ways to put things back together.

So the challenge is this: as businesses and as society, how might we leapfrog the current herd of unicorns to a better future without having our prime assets painfully skewered in the process? How might we move beyond tearing things apart and instead focus on putting things back together in new and important ways?

The new basics

Flawless technical execution is the new table-stakes. To compete in the new digital economy you have to have your technology capability firing on all cylinders. You have to use human-centered service design approaches to create interactions that happen on your customers’ terms, wherever they are, and that have the minimal possible friction. This means strong experience design, the ability to experiment and refine continuously to keep improving, modern infrastructure that can scale as you iterate, strong analytics to optimize your operations, and above all, great teams that can execute with the minimum of internal friction. While this is a vital capability for any modern organization, sadly this on its own is not a strategic differentiator – it is merely a minimal survival mechanism.

The challenge for creators and businesses in this technology-driven Cambrian explosion is how to stay on top of this rapid phase of innovation, how to experiment with the emerging toolkit and how to get benefit from the advances without getting over attached to any particular shiny new thing and losing sight of the bigger picture of where the macro trends are heading. The challenge for policy-makers is how to give these innovations room to grow, mature and coalesce without letting them too rapidly disrupt our security, privacy, safety and social cohesion. The challenge for economists is how to make sure that the ensuing wealth is equitably distributed. Hint – Finland is pioneering the way towards a Universal Basic Income.

Humanity-centered design

This final point leads to ideas about how not just to compete with the current models of the on-demand and sharing economy platforms, but how to supplant them with something that has less of the societal downsides. If a key tool of the current tech giants is “human-centered design” we need to start exploring what “humanity-centered design” would look like.

As a starter on this journey I’d like to highlight two avenues of exploration.

The new premium propositions

Two concerning down-sides we’re seeing from the current crop of technology-fueled behemoths are the impact on low-paid workers and the impact on individual privacy. Could we take a leaf out of the “fair-trade” and the “eco” or “organic” playbooks to start addressing them? 20 years ago fair-trade and environmentally-friendly products were marginal niche concerns, today they’re big business. To avoid a debilitating race to the bottom on pricing, forward-looking businesses should look at how they might be able to change up their model to turn what was just an annoying cost (protecting workers and protecting privacy) into a differentiating attraction. Isn’t it time to start using some of the Big Data flowing through our organizations to shine a light on good practices that could be put in place?

Architecture as political statement

Finally, and close to my heart, is the possibility that we can rely less on policy and more on technology architecture to shape a more equitable future. The major new companies we’ve explored in this article are basically just market-places. They act as intermediaries who help create a trusted platform for people who don’t know each other to interact with trust. And they take a very large skim of the profits for this service that they provide. Interestingly though another area of Cambrian explosions we haven’t mentioned is designed to do exactly that – provide trust between parties who don’t know each other – without the need for a centralized intermediary. That technology is the blockchain and other distributed trust algorithms.

While I was at the Next:Economy conference there was another conference taking place on the opposite side of the country that was exploring precisely this – how might we stand up platforms and market-places that function just like Silicon Valley’s darlings, but don’t require a rent-seeking intermediary sitting in the middle.

It’s early days, but there is growing potential that architecture can be a political and policy statement. There is now a final Cambrian explosion worth watching and supporting – that is the explosion in new approaches to creating cooperatively owned re-decentralized platforms that provide us with all the functional benefits of our current services, but have a very different impact on the distribution of wealth, data and power. These new approaches can truly be described as a “sharing economy”.

This is the next wave of technology coming down the line that could truly disrupt the disruptors … and it could have a genuinely positive impact if policy-makers, businesses and technologists play their part to shape it in a way that is humanity centered rather than just centered on individual human needs.