The disruptive business of technology

KARACHI: Consumer electronics giant Sony has seen its valuation drop by 80 per cent over the past decade and its Walkmans and Discmans are relics of the past. In January 2006, Nikon announced a complete shift to digital cameras and a decade hence few will even know what a film roll is. Mobile phones are replacing land lines whereas VoIP services like Skype are changing telephony altogether by allowing free video calls.

Similarly, Yahoo, Lycos and AltaVista were all popular search engines before Google disrupted the market with a better search engine. Now Lycos and AltaVista are all but gone while Yahoo survives only due to its diversification. Traditional companies like Walmart and Toyota also rely heavily on technology to stay ahead in the game and to power their efficient supply-chain, just-in-time manufacturing models and business analytics.

Billionaire investor Warren Buffet subscribes to a buy-and-hold investing strategy and a lot of the big winners in his investment portfolio have been there since the beginning of his career. Technology, however, is one sector he openly shies away from and instead prefers the predictability of companies like Coca Cola, Gillette and WalMart, which are largely immune to disruption. As population grows, so will the demand for these companies’ products. All men need to shave in the morning and children everywhere grow up drinking Coca Cola.

Innovation

Disruption relies on innovation and building a better product or business model. It is simply not possible to build a better tasting soft drink than Coca Cola because taste is not disruptive, rather it is acquired over time. Hence Coca Cola’s focus is less on product innovation and more on strengthening its global supply chain, marketing, and reach in order to dominate the market. When popular alternatives like Thumbs Up have emerged in countries like India, Coca Cola has been quick to acquire them. It is no wonder the company has been around for as long as telephones have.

Telephones have been around for over a century but in mere a decade or two the industry has been disrupted at its core. Mobile phones don’t incur the time and money to run a wire to every home like PTCL land-line connections do. For the same reasons, mobile phones can reach even the remotest of regions and offer competitive rates. Not to mention mobile phones themselves are more fashionable while providing music and pictures.

Another classic example is the US based company Netflix which undid the decades old movie store rental business based on technological prowess and business model innovation. Netflix allows movie aficionados to order movies through a website, three at a time, and receive them by post the next day. Netflix constantly sends movies in the mail as old ones are returned so subscribers always have something to watch. It does not incur the monthly recurring expense of rent, electricity, store employees, cash registers or in-store warehousing. Netflix has also done away with late fees, which happens to be at the core of all movie store rental businesses. Consequently, Netflix has seen its stock price rise from $20 to $120 in the past 3 years while Blockbuster, the largest movie rental store in the US has seen its stock plummet to a mere 20 cents. Such is the disruptive nature of technology and the price of failing to innovate.

Published in The Express Tribune, June, 21^st, 2010.