“I am not a futurist. At best, I am a ‘pastist’ or a ‘presentist,’” Thales Teixeira said.
Teixeira spoke to the audience about a pattern he noticed after visiting the offices of Facebook, AirBnB, Birchbox, and other start-ups. When he asked about the strategy behind their disruption models, they would give him a step-by-step overview: “The more I heard that, the more I realised they’re all doing the same thing.”
This pattern is what Teixeiria calls the third wave of disruption.
1. Unbundling, the first wave of digital disruption, began in about 1995. Newspapers, once a source for articles, classifieds, and restaurant reviews, saw readers slowly drift away to Google, Craigslist, and Yelp.
“Start-ups at the time decided to unbundle the newspaper,” Teixeira said. “The product was unbundled, and the start-ups were offering their customers one part of the product.”
2. The second wave, disintermediation, began in the early 2000s and affected products that were a combination of digital and physical. Instead of going to a travel agent to book hotels, flights, and tour activities, consumers took the process into their own hands.
“You, the consumer of travel services, started going directly to the providers,” he said.
3. Ten years later, is seems the third wave of disruption arrived. Decoupling is big, Teixeira explained, because it affects each step of the consumer’s purchasing process: evaluating, choosing, purchasing, and consuming.
“This third wave is characterised by companies, start-ups mainly, that decouple this process.” Giving an example, Teixeira pointed to video game developer, Zynga. Zynga disrupted the traditional model of gaming by allowing people to play for free, and only pay for upgrades or other perks.
“Before, you used to pay US$60 to buy a video game; you would take it home, play it — and if you like it, great. If not, well, you just spent $60,” he said.
In another example, Teixeira highlighted NBC, one of the incumbents in the broadcast industry. In 2000, TiVo disrupted the content powerhouse by offering a box that unbundled the TV-watching activity, by allowing people to record and watch content later.
“The point is that consumers wanted to decouple these activities; and sooner or later a start-up will figure out how to do it,” he said.
In a case study of the radio company iHeart Radio in the United States, Teixeira explained there are three types of decoupling:
Value-creating activity: hearing a song you like on the radio.
Value-eroding activity: hearing a song you don’t like.
Value-capturing activity: A promoted song or ad that the listener pays the station for.
“Anyone who disrupts an industry does it through one or more of these activities,” Teixeira said.
In researching the market value of disruptors in these three companies, Teixeira found that value-creating activities — such as Skype and Twitch — are the most valuable. Value-eroding activites (such as Dollar Shave Club and Steam) have the lowest market value; while value-capturing activities (like Spotify or Birchbo) fall somewhere in the middle.
The main point is that the marketplace values these disruptors differently, and that matters to the companies they are disrupting.
“If you’re the incumbent and you’re responding to a decoupler, which are you going to be most afraid of?” Teixeira asked. “The value-creating ones.”
Coupling and decoupling are caused by integration and separation forces. In the beauty industry, there are three steps in the purchasing process: sampling, first purchase, and repurchasing the same product. Integration forces are encouraging consumers to do all of these steps at the same place, like the beauty chain store Sephora.
Decouplers of Sephora work to break the chain by specialising in one part of the purchasing process. Another example, the beauty start-up Birchbox, sends a box of samples to consumers — effectively side-stepping the process of going to a store, asking for employee advice, and trying the product.
In each step of the purchasing process, decouplers work to gain customers by making their lives easier.
“No matter what product or service you’re selling to anybody around the world, all those customers are doing is paying for that product with either money, time, or effort,” Teixeira said.
He went on to share the five steps that disruptors take to decouple the consumer journey:
Identify the consumption chain. “They look at their customers and see what they’re doing to get these products.”
- Look at the weak link. “Where are customers satisfied with the activities?”
- Identify the type of the adjacent activities. “Are these value-creating, capturing, or eroding activities?”
- Increase the force of specialisation. “That means reducing the monetary the effort or the time cost for the customer.”
- Anticipate the competitor response.
Teixeira said these steps can be applied to any industry. For the news media world, the last step can be crucial for the company being disrupted: “Chances are, you are not the disruptor in this room.”
Though there are thousands of potential responses to disruption, they tend to fall into two overarching categories. The first is recoupling. “If someone breaks something apart, what’s your first reaction?” he asked. “Put it back.”
For example, company that distributes gluten-free products faced a disruptor that broke the chain of browsing and buying. Customers began going to the store to check out certain products before buying them from the disruptor. The company’s response? Put up a sign that says they will charge people in the store US$5 for “just looking.”
“Unfortunately, that didn’t work and Celiac Supplies went out of business,” Teixeira said.
He then shared the second potential response to disruption: rebalancing.
“What’s the second option to respond to decoupling?” he asked. “Let it be! Let’s coexist in a world where if customers want to do something, we’ll let them do it.”
Teixeira used Best Buy as an example of a disrupted company that decided to change its business model. When customers began using the store to browse products before buying them elsewhere, like on Amazon, Best Buy turned to the products’ manufacturers for revenue. Now, electronics suppliers pay Best Buy for stocking products in stores — a model that grocery stores have been using for two decades.
This is more sustainable, Teixeira said, because it does not go against the customer’s decision to decouple their own purchasing process.
“Co-existing profitably means that you capture value at every stage that you create value,” he said. Recoupling is the most effective way to prevent leakage, which occurs when the value lost is greater than the value captured.
Teixeira ended his presentation by touching on three ideas that he says bother him, and must be clarified each time he speaks about this topic.
Customers disrupt, not start-ups. “It’s not the start-up disrupting the market, it’s the customer’s changing needs, wants, and behaviour.”
- The disrupting ingredient is business model innovation, not technology. “That is not the big change that is happening. They are using technology, but not new technology. It’s standard by now.”
- There is a common approach to digital disruption. “One of the big commonalities is decoupling, and there is a way to respond to it.”
Overall, it’s important to understand that customers use the same brain to make purchase decisions. Their purchasing habits when buying groceries are not fundamentally different than those they create when buying make-up. This span of habits means that news media can learn a lesson from looking outside their own ecosystem.
“You need to look across the industries,” he said. “That’s the important point.”
It is also important to acknowledge that the media industry response to disruption may be slow, but to keep working because the disruption will never end: “In the digital age, the consumer always wins.”