Welcome to my first DIGIGRAM of 2020! No doubt, the first Flop of the year is COVID-19; not exactly how I thought the year would start when the champagne corks popped on New Year’s Eve. I hope you and your families are well. Let me know how you’re doing. I’ll help if I can, and will spread the word among this community.
This newsletter is dedicated to disruption. Think disruption is over because we accepted apps like Uber or websites like Airbnb? I’ve got news: It’s not over. Entire industries are not only ready for disruption, they’re at the very beginning of being disrupted. I discuss two examples in this newsletter. The bottom line is:
1. Disruption is not kind! It’s brutal.
2. You can’t outrun disruption on beaten paths.
3. Digital technologies accelerate disruption and magnify the impact.
4. Disruption is as harsh as every synonym listed in its thesaurus entry.
Happy reading and I truly hope that the next DIGIGRAM will catch all of us at better times!
Please stay healthy, and protect yourself and everyone else by staying in – and by keeping your distance from others when you go out.
Till soon, Gert
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Marks of Disruption #1: (Too) comfortable industries that haven’t changed in a long time are vulnerable
A Business Insider article was one trigger in my decision to focus on disruption in this newsletter: “Apple sold nearly 10 million more watches than the entire Swiss watch industry in 2019”. Think about it. Apple shipped 30.7 million watches in 2019, compared to 21.1 million watches shipped by the entire Swiss watch industry! What’s even more alarming is Apple’s 36% growth in volume over the previous year, compared with a 13% decline for Swiss watches.
For 40 years, the Swiss watch industry stuck to the same strategy: Mass-produced, reasonably priced analog quartz watches at the low end, and super-high-quality, expensive luxury watches at the high end. Its marketing remained frozen in time, too, with suitable brand ambassador celebrities, event sponsorships, and airline-magazine-style glossy ads.
This approach worked well for the Swiss for decades, so there was no need to rock the boat. Enter the iPhone and Fitbit, and the boat began taking on water fast. Fitbit started the category of wearable sensors, and Apple the one for wrist-worn computers. In 2019, Apple and Fitbit together shipped more than twice as many devices as the Swiss watch industry, and this doesn’t even include all the Android-based smartwatches.
Maybe it was too much for the Swiss watch industry to conceive of ideas for more products they could sell to the world’s wrists. After all, they were enjoying the good times of doubling their volume in the early 2000s. But latest in 2007, the alarm bells should have been ringing in Geneva, Bienne, and Zurich.
The point? Remember the Innovator’s Dilemma! You can’t outrun a disruption by doing more of the same old same old. Banks, learn from the fintech startups! Carmakers, stop belittling Tesla! Insurance companies, stop relying on regulation! Healthcare organizations, don’t think that industry structures can’t be changed. Watchmakers realize that your traditional customers are dying off (literally!). I’ll always remember, I once worked at NOKIA…
Marks of Disruption #2: The winner takes it all
Another trigger that got me to focus on disruption was the first-time publishing of YouTube’s advertising revenue: It’s greater than the 4 U.S. TV networks CBS, NBC, Fox, and ABC combined!
Traditional TV studios had 100 years of experience, billions of dollars invested in studio and production infrastructure, and highly paid celebrities on payroll to keep the loyalty of viewers. Didn’t make a difference; uprooted by a 25-year-old upstart from Silicon Valley with no studios, owning no content, and no celebrities to keep happy.
Of course, all these TV studios also launched streaming services in the last 5 years. But even so, they couldn’t match the attractiveness of YouTube and its parent company, Google, who owns the ad booking services that allow companies to conveniently buy ads across all Google online properties. The TV studios, along with the media companies who own them, just couldn’t imitate the convenience and went where the other search engines once went – to the marketing fringes.
The point? If disruption is coming to your industry, there’s no such thing as being half in. Because often, when one dominant player emerges, that winner takes it all. Google, Facebook, and Amazon together now garner 70% of the digital advertising spend. Everybody else has to fight for the post-disruption scraps.
You have a choice: Either be passive and the new players will push you to the fringes where you are left to try to react. Or you can be proactive and take a radical course, disrupting yourself, but at least on your own terms.
Top of the Month
Tesla, congratulations on ending the year 2019 with a stellar performance: Record production of cars, profitability (sort of), the introduction of new models, and more factories going online. I find this to be an astounding feat, and I look forward to tracking Tesla’s performance in 2020. Can it succeed in raising walls around its supply chain (e.g. the fight for batteries!)? Will it put enough distance between itself and the traditional carmakers that will soon be launching electric vehicles by the truckload? We will see in 2020.
Flop of the Month
COVID-19. No. Need. To. Say. More.
Meet me here
Our UC Berkeley course, “Deplastifying the Planet,” was moved online in the wake of COVID-19 measures. We moved fast, and in under a week, we held our mid-term presentations via Zoom! Our students are divided into 5 teams, each working with a different corporate partner. See the posters of the teams below, and let me know if you’d like more information about a project. Also, corporate sponsors are welcome: Join our next course by sponsoring a challenge!