Due to the lack of regulation it is easy for digital businesses to disrupt industrial enterprises.
The Industrial Revolution brought significant change to society and its rules and laws. By the end of the 18th century, reality was changing, developing and evolving. It took a long time to adjust the regulations to the new reality and create laws that accounted for the technological and socioeconomic changes.
Technology is ready, but laws are not. Until the new digital reality is fully regulated, there is plenty of opportunity to disrupt industrial enterprises with new digital business models and/or using the unregulated space as competitive advantage.
The same is happening today: rules, regulations and laws haven't changed greatly since the industrial era and haven't been adjusted to the digital age. The way companies operate is still dictated by old rules and regulations and it will again take some time for our regulatory system to incorporate all changes brought by digital.
For example: in the industrial age, the telecommunication business is heavily regulated: For each country, the operator must acquire licenses, buy frequencies and ensure that all data exchange (including calls or web addresses accessed from all users) is recorded for many months.
On the other hand, when offering voice or video calls over an IP service (@Skype, @Viber, Facetime) or SMS over an IP (@WhatsApp), there are no geographical limitations, no licenses, no rules and no regulations. These new digital companies offering and using an app or web service profit from a lean business setup, require minimal workforce and are able to ousource most of the work. See the case ofWhatsApp: only 30 engineers serve 700 million clients. Everything else is outsourced, self-service or automated.
The significant changes in regulations (or rather, the lack of regulation) and the business models of new digital companies are opening up possibilities for fast innovation and disruption of standard business: Find an interesting and profitable service in a regulated industry, create a global app with great user experience — a mobile application both simple and easy to use — and there you go: you disrupt industrial enterprise big time.
Taxi services are under attack (thanks to apps such as Lyft and Uber). Banks are under attack (PayPal and many others allow money transfer and payments to be done way easier, faster, cheaper). Micro financing, crowdsourcing and peer to peer borrowing are also increasing in popularity as well and competing with financial institutions. The share economy is growing: why would you buy a drilling machine when an owner uses it only 11 minutes per year on average and you can borrow it instead? By answering "true" to this question, many are supporting the share economy.
Why to own a car when we have car2go? Drive now and many other companies are converting cars (an industrial product) into a digital service.
And it is only beginning. With driverless cars coming, would we still buy cars and invest a small fortune to just own a vehicle, despite the headache with maintenance, parking, insurance, regulations and laws attached to it? Or would we just make a phone call to order a pick up service for our next trip? No problems with phoning, reading emails, preparing a presentation during the ride or watching a movie with glass of champagne in a hand.
The way I understand it, technology is ready, but laws are not and we need to wait for laws to be adjusted and brought in line with the new reality. But until this new reality is fully regulated, there is plenty of opportunity to disrupt industrial enterprises with new digital business models and/or using the unregulated space as competitive advantage.
But what is with industrial enterprises? What can they do?
Industrial enterprises need to understand the changes. Then, they need to disrupt the sector in which they operate themselves or wait and be prepared to be disrupted and die.
Branislav VujovicPresident New Frontier Group
Strive to become better
Branislav Vujovic is founder and also president of New Frontier Group and has overall responsibility for the New Frontier Group, with special focus on Innovation, M&A strategy, group strategy and investor relationship.