Many people use the word “disruption” these days to describe how new entrants or products are shaking existing market players. Clayton Christensen, a Harvard Business School professor who first coined this term in 1995, describes disruptive innovation as serving an underserved niche market that may appear unattractive or inconsequential to incumbents, but eventually redefines the industry.
The way businesses are managed these days is very different from before. In the past, the traditional business model is such that firms create a product and push them out to the market to consumers — a “pipe” model where value is unidirectional. Similarly, in the services sector, capabilities are built at the top of the value chain and are cascaded down to consumers as service offerings.
As technology and innovation evolve, the platform-based business model is gaining popularity. Instead of the traditional B2C (business to consumer) model, the C2C (consumer to consumer) model, driven by platforms and users who ride on the platforms to create value for other users to consume, is increasingly gaining ground. This new model, also dubbed as the sharing economy, is profoundly transforming the way consumers live, work and play; from shopping, making hotel bookings to commuting. Yet, many firms remain religious to the traditional “pipe” business model and are resisting change.
The platform-based model usually begins by serving niche markets with a limited variety of products. As the platform starts to build up in terms of the number of users-producers and with more attractive prices and product attributes, it begins to threaten traditional providers. The rise of Uber is an example of how a platform-based service has caused major ripples in the taxi industry around the globe. Some argue that Uber, where the drivers escape the regulations typically imposed on traditional taxi drivers, creates an uneven playing field and threatens the survival of the cabbies. In many countries where Uber is operating, the regulators are being intensely pressured to review the laws and regulations for a fairer and healthier public transport sector.
The hospitality sector is also being forced to change. Since Airbnb came into the picture, hotels’ ability to charge higher during “compression nights” — the nights where more than 95 per cent of rooms are occupied — has been limited. In municipalities where short-term lodgings are taxed or regulated, for example in New York, where short-term lets of apartments are prohibited, the authorities are struggling to figure out how to regulate “room sharing” apps.
The trend is not only limited to transportation and hotel businesses; the idea is now spreading into other segments and market needs. In health and wellness, wearable technology and Internet of Things (IoT) are enabling crowd-sourced, platform-based online medical consultation. Soon, we will be able to capture our heart rate using our watches, measure our blood sugar level and transfer the information to a health diagnosis platform from our mobile devices. The doctor’s report and medical prescription will be sent out through email and medicines will be delivered to our doorsteps.
Such a possibility is already here and now. Distance is no longer a constraint when getting medical advice. There are already platforms in the United States, such as eclinicalworks.com and memd.me, that allow patients to send their health records electronically and seek online consultation with licensed doctors.
Malaysia is also beginning to ride on the wave. RingMD, a Singapore-based company, has recently launched a “telehealth” app in this country and it is reportedly aiming to reach 2.5 million online patients within three months. The app is also present in more than 10 countries, including Indonesia, an obvious target market in Southeast Asia due to its huge population. Patients can seek medical consultation with doctors via video chat, text or calls.
The rise of the sharing economy is creating a tenuous relationship between innovation and regulation. Technology is removing middlemen and thus, challenging certain vested interests, changing how businesses are run and transforming how professionals work. Equally importantly, the rise of “the planet of the apps” is creating a strain on regulatory systems that have been deeply founded on traditional supply chains. Innovators are moving far more quickly than the regulators, so without a strategy to develop regulatory frameworks to keep up with the prevalence of platform-based business models, the authorities are exposing themselves to the risk of regulatory obsolescence. Relying on dusty old laws that were developed decades ago to regulate businesses that no longer play by the same set of rules will not only inhibit innovation, but also create more frustration among market players who are desperately looking for regulatory coherence. Regulators, authorities and incumbents alike have to redefine boundaries and rules.
Simply put, they must wake up and get going.
Azizul Rahman (azizul.basir@tm.com.my) is a certified risk management professional and Mazlena (mazlenamazlan@gmail.com) is an independent researcher