For every action, Newton tells us, there is an equal and opposite reaction. True in physics. Not necessarily so in business.
In another case of a traditional industry reacting in traditional ways to an untraditional threat, we have incumbent Marriott, the largest purveyor of hotel rooms in the world, drawing a line in the sand against that pesky start-up, AirBnB. Marriott is launching its “Homes & Villas,” which is a premium home rental service, very similar to what AirBnB offers with its AirBnB Plus service.
The fact is, in just a few short years, AirBnB, which owns no properties, has turned a software platform into a network that can claim about 5 times as many rental nights as Marriott alone.
The fact is, AirBnB has turned the hotel industry upside down. And the hotel industry is trying to adjust to the new game. But is it enough?
As has been the case with myriad industries, the incumbent struggles with a major dilemma: How to protect its cash-cow-generating machine while cannibalizing that machine to combat the attacker.
It rarely works. In fact, I’m hard-pressed to come up with an example where it has worked.
Uber and Lyft can be annoying to use. But is there any comparison with taking a taxi? Does anyone enjoy a taxi more? At least with Uber and Lyft you know the price, the driver’s name, his/her ratings, the length of the trip, and you never, ever have to worry about being “taking for a ride” for an additional 45 minutes to drive up the fare.
Yes, the auto industry is swapping out internal combustion engines for batteries faster than you can say “rickety-split.” But in the meantime, Tesla has rewritten the rules by amassing millions of miles of user data to be able to provide over-the-air updates to their customers. The other guys aren’t close, at least not yet.
The reaction of Blockbuster to Netflix has become a Business 101 case study. Blockbuster’s reaction to Netflix is a beauty. Blockbuster actually thought customers would enjoy the experience of traveling to the store to pick up a USB drive, vs. clicking a few clicks on a website from the comfort of their own homes.
The list goes on, with Amazon (not only in books and everything else, but in cloud services, an industry it single-handedly created right under the noses of the biggest hardware and software companies in the world). Google did the same thing with online advertising.
The pattern for the challengers is very similar. They enter an existing market orthogonally, usually using technology to rewrite the business rules. Their strategy is to:
- Disrupt the market with better, faster cheaper
- Go for growth and scale over profits short term
- Use that scale to reach a critical mass
- Capture the market
- Take profits
- Expand into new markets
- Never stop
Meanwhile, the incumbents react in similar ways:
- Ignore the start-ups
- Accept the start-ups by offering some low-end solution
- Realize the offering isn’t working and then do some soul-searching as to how to truly protect their territory and preserve their cash-cow-machine.
- Struggle with their hybrid business model and their legacy infrastructure while the new guys breeze through encumbered.
This pattern has repeated itself multiple times in the past 25 years or so and is documented in the brilliant book “The Innovator’s Dilemma,” by Clay Christensen.
Having just spent the past three months traveling the world and using both AirBnB and VRBO (Vacation Rentals By Owners) for about 80 percent of my nights, I can tell, unequivocally that the value that the challengers are providing to the hotel industry is noticeable. The average nightly cost is about half of what a comparable hotel would cost, and with that you get a kitchen, washer, dryer, a living room area. A hotel’s offering would be a square room with a bathroom and a Keurig coffee maker, if you’re lucky.
Now, I’m a big fan of Clay and the book, but I had the chance to have dinner with him some time back (2006) and I posed the question to the Harvard professor: “Why isn’t your industry (higher education) vulnerable to this challenge?”
He gave me a long, unsatisfying response.
This was long before Kahn Academy, Udemy, Teachable, even YouTube had come along that provide the ability to learn just about anything for free or a small fee. Yes, it’s not perfect by a long shot. But, as with all the other cases, you can see where it is heading.
Like it or not, this disruptive force is unstoppable in virtually every industry. If it can be disrupted, it will be disrupted.
Electricity, it is said, follows the path of least resistant. That might a more apropos “law” for business than any of Newton’s.
Luxury properties. VRBO Vacation Rentals.
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IRON-AGE EPILOG 