verb \dis-ˈrəpt\ : to cause (something) to be unable to continue in the normal way : to interrupt the normal progress or activity of (something). That’s according to Merriam Webster dictionary.
Disrupting an industry involves more than just gaining market share from your competitor. It’s a shift in how business is done — the money flow and value delivered, ideally squeezing out inefficiencies and those profiteering from lack of transparency.
So what industries are ripe for disruption? Anything come to mind?
In what industries are companies, producers, or brokers pocketing too much money for the value they add, victimizing consumers or others along the supply chain?
Here are a few companies to look at more closely. One is not going to be disrupted any time soon. The others are making serious waves, with more to come. After that, we’ll look at some industries that could be due for a shake-up.
Apple focuses on two key value-added phases of the company’s iPhones and iPads: design and sales/marketing. The manufacturing and labor for the product assembly are done overseas at very low margins. All the while, Apple pocketed $8.5 billion in profit for the fourth quarter of 2014.
Apple makes HUGE profits on their products, while they produce a very small percentage of them. Does that mean Apple and the iPhone market are ripe for disruption?
Apple has built loyal followers and will pocket huge profits for their phones, tablets, and computers for years to come. Their products (iPhone, MacBook, iTunes, etc.) work together nearly seamlessly and build loyal fans.
This does not appear to be a market or company that is ripe for disruption.
This is an easy-to-follow example of a company that has disrupted an industry.
The modern taxi business has been around for decades with very little innovation, passing along longer wait times and higher fares to customers. The industry simply did not innovate fast enough to keep up with technology.
Uber didn’t look at the cab market and say, “We’re going to build a better cab company.” Uber doesn’t even consider itself a cab company. Uber is a transportation network that uses a smartphone app to match riders and a nearby driver.
Riders can request rides from their cellphones and conveniently pay with credit cards already on file. The rides are timely, competitively priced, and allow riders the ability to contact drivers before they are picked up. Geolocation tools allow riders to see on a map where the cab is and how long until they’re picked up.
While there has been substantial pushback from cab companies, unions, and local governments who want Uber to do a better job of complying with local taxi and insurance regulations, Uber has flourished, despite some recent bad press for unfortunate events involving drivers and passengers.
The legal setbacks and bad PR have not slowed Uber, which just closed a funding round of $1.2 billion at a $40 billion valuation.
Industry disruption is going to ruffle feathers, especially those of the incumbents. Uber is a solid example of disruption.
Remember Blockbuster Video? Barely. At its peak in 2004, Blockbuster had 60,000 employees and more than 9,000 stores. What happened?
Customers became fed up with late fees and, as technology developed, there were better ways to watch movies and rent video games, but Blockbuster failed to evolve and innovate.
Netflix, which started in 1997 and was barely on Blockbuster’s radar, reinvented the game. By 2010, just six years after it was humming along nicely, Blockbuster filed for bankruptcy.
Netflix changed the movie rental market, first by eliminating late fees with their mail-in rental model, and then by continuing to innovate, allowing users to stream video via the Internet from the comfort of their home for a monthly fee.
Today, Netflix has over 50 million global subscribers and has started producing award-winning original content.
Beware, HBO and Hollywood. Another good example of disruption.
So Who Else Is Due for a Shake-Up?
Some industries are ready for disruption, while others are cemented in the past by laws and regulations that protect the incumbents and are not changing any time soon, in the absence of a surprise “black swan” event.
Here are a few industries that are ripe for disruption, and a few others that are cemented in the past.
Ever feel like you have overpaid for an airline ticket? And when we get a deal, we get hit with nagging baggage fees and surprised when the flight attendant tells us coffee is $1.99.
While curation sites like Kayak, Orbitz, and SkyScanner are moving in the right direction to help us get better deals, it still feels like we’re paying too much for flights. Oil prices have fallen dramatically, but we don’t see the savings reflected in ticket prices. What gives?
I wasn’t completely convinced airline travel was going to make the list, but the recent story about Skiplagged confirmed my suspicions that we’re still getting aced on airline prices.
The 22-year-old founder of Skiplagged is being sued by United and Orbitz for exposing a basic travel hack that goes something like this:
You book a ticket from Denver to LA with a stop in Phoenix. Your final city is actually Phoenix, so instead of boarding your connecting flight to LA, you skip the last leg of your flight. Keep in mind, this strategy works only if you have carry-on luggage, not checked bags.
Seems a bit odd that prices with additional legs would be cheaper, but apparently it happens. Airlines will need to improve transparency or companies will continue to find “hidden city” approaches to allow travelers to get better fares.
Turn on the television. Cellphone companies are paying for a lot of advertising trying to win our business and get us to switch (hoping we ignore the fine print of how they stick it to us).
Sprint will cut your cellphone bill in half. Cricket will provide unlimited calling and text messaging for a fraction of what I’m currently paying.
The best advice I can offer is to read the fine print. Plans to amortize the price of a new phone over the life of the contract and early termination fees are not in the customer’s best interest.
My cellphone provider (Verizon) is getting almost $2,000 a year from me for unlimited texts, calls, and four gigabytes a month of data. Is it worth it? There are days where a flip phone, unlimited calls, and texting for $60 a month (saving $100 a month, or $1,200 a year) feel pretty compelling.
Just typing that last sentence makes me sick to my stomach.
In talking to people and reading posts on social media, I know other people are just as fed up with their cellphone providers as I am. And I’ve heard people complain about every cellphone provider under the sun. At least for now, the grass is not greener next door.
When there are lots of dissatisfied customers and very few better alternative options, those are signs of an industry ripe for disruption.
Someone can do better. I don’t know who you are or what you’re up to, but the level of dissatisfaction in this money-soaked market is tremendous.
Credit Card Processing
Ever seen those little signs by the register in stores that read, “Minimum credit card purchase is $10”? Ever wonder why that is?
Merchants get hit with a slew of fees for using credit card services. Transaction fees, interchange fees, percentage-of-sales fees… the list goes on and on. Some are charged per item, others are charged as a percentage of sales, while other monthly and one-time setup charges apply as well.
I’m not a merchant, but so many stakeholders taking a cut of the sales reduces revenue and profit margins. Banks and brokers fatten their wallets every time you swipe a card. There are a number of companies working to improve efficiency and reduce costs in this arena. Stay tuned to see who comes out ahead. (Will it be Apple Pay?)
With major hacks at Sony, Home Depot, Target, and JPMorgan, just to name a few, it’s time we step up our computer and network security. Now I’m not a computer whiz (yet), but for someone close to the front lines or tinkerers in their garage, this is a huge opportunity. While unsure what percentage of the errors are human versus technology, there is clearly room for someone to change the game in the network, database, and server security.
Guess how big the global wine industry is. If you guessed $85 billion, you are more than $200 billion shy, according to the wine industry and research put together by reportlinker.com.
That’s bigger than books and music combined, and there has been very little disruption by challengers looking for a piece of that pie. One boat rocker could be Gary Vaynerchuk, who grew up working in his father’s liquor store and later founded Wine Library TV, which he used to grow his family’s wine business into a $50-million-a-year operation.
There are huge markups and premiums paid for fine wines. The size of the industry is enormous. This grape is ripe for disruption.
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I’m sitting here watching college football bowl games and there have been no less than five Northwestern Mutual commercials. They are my friend. They will ensure my financial security. Yada, yada, yada.
What the commercials fail to tell you is that their insurance brokers and financial planners, who may be good people and have your best intentions at heart, are paid commissions based on what financial products you use.
Translated to simple English: They are sales reps. Yes, they take tests and receive designations, but most are glorified sales reps.
And Northwestern Mutual is not alone. Stockbrokers, commodity brokers, hedge fund advisors — across the board, many of these so-called financial experts do not have their interests aligned with yours. It’s not their fault, it’s how the companies and industry are set up.
During the Great Recession, the U.S. bailed out big banks that were deemed “too big to fail.” Today many of the players are reaping record profits and lining their pockets while the everyday investor is still trying to get back on track. The system is set up for them to win and us to lose. Where else can someone take 3% of your money through fees — some upfront, others hidden in pages of disclosure? Keep in mind, they are taking no risk. Market goes up, they get paid. Market goes down (i.e., you lose money), they still get paid.
I know because I’ve worked in the financial world and used to sit on the other side of the desk. The entire financial industry needs a good dose of transparency and education for the consumer.
One challenge to this entrenched model comes in the form of online financial advisers, such as Betterment and Wealthfront, which automate the services of high-priced investment advisers. Will they, or someone else, be able to stand this industry on its head?
Industries Almost Ripe for Disruption
These industries are edging their way toward a big shake-up.
Government and Politics
Where to start with this one? Our electoral college system is antiquated. While the dual-party system we have established in the United States was intended to create debate and discussion, bipartisan politics and political gridlock seem more over the top than ever.
The trouble with innovating government is that many of the systems, policies, and procedures that exist to protect the incumbents would need to be changed, and the group with the power to do it would be axing their jobs and the processes that got them elected.
On a more positive note, we’ve seen platforms like Twitter and YouTube increase transparency in governments domestically and abroad.
It pains me to say this, but education is almost ready for disruption. It may take another generation, but this industry is still running on the stones laid a hundred years ago.
There is a huge dichotomy between those who believe in the U.S. public school system and those who have given up on public schools and believe the only solution is to blow up the system and start over. Semantics aside, the latter group believes charter schools and alternative schools are the best solution, as working with public school administration involves so much red tape that it frustrates even the most patient education advocates.
Think education has evolved? Then explain to me why we still group elementary students by age, measure time in seats (instead of material learned), and why the basics of math and reading are the only ones tested on fourth- and eighth-grade standardized state tests, on which we base so much of our analyses of the success of education.
When we finally acknowledge and accept that kids learn differently and at different speeds, we will have started to make strides in the right direction.
You cannot tell me the current education system is preparing kids to live meaningful and successful lives in a rapidly evolving world. It’s not. We’re failing our children. And kids are coming out of college with mountains of debt and insufficient skill sets.
This industry is awaiting a black swan, which I optimistically hope is on its way.
Joe Sweeney is a social entrepreneur, committed to helping individuals and organizations grow and solve problems. Most recently, he was the co-founder and CEO at 100state, a nonprofit, startup community of entrepreneurs, educators, and innovators in Madison, Wis. Joe was recently named one of 53 entrepreneurs on Madison Magazine’s “M List: The New Who’s Who” for his work with 100state.