What do you do when paying rent for your apartment becomes an issue? Brian Chesky and Joe Gebbia did what most sensible thirty year olds do. They furnished their apartment with three mattresses and marketed it as a bread and breakfast place. Pop-tarts made for the breakfast appeal. Fast forward a few years. AirBnb is now valued at over $25 billion, present in over 34,000 cities, 190 countries and on one night recently about one million people stayed in their listed properties.
Something very similar could be said for Uber. Except that Travis Kalanick did not have trouble finding a taxi. Nevertheless he went on to find Uber the company that now challenges the very basis of the taxi industry all over the world.
Countless other examples prove the same point.
An outsider, to the industry, comes in to the picture. Establishes a business. Builds it so big that in some cases, the company gets valued at a lot more than the leading brand in the very industry that is being disrupted.
Marriott, with its 4000+ hotels in 80 countries, has a market capitalization that is far less than AirBnb’s and the total number of it’s rooms barely touches the one million mark. Contrast that with AirBnB’s $25 billion market valuation, no properties on their own and the ability to serve one million customers on a given night. With time, this number will swell to several more million users who will choose AirBnB over traditional hotel rooms.
Marriott’s Nov. 2015 acquisition of Starwood Hotels will give it a higher valuation in the short run. But if history has any lessons to teach, the increased valuation will just be a temporary phenomenon.
Both Brian and Travis, did not start their ventures wanting to compete with the industries they are now disrupting. Competing, I am sure, was not the top three objectives when either of them launched their startup. That the respective industry got disrupted was just a collateral damage in the broader scheme of things. Not a premeditated move. Nor one born out of vengeance or a strong sense of competition.
The ramifications though are here to stay. AirBnB’s one million occupancy is just the beginning of a shakeup that will have far reaching consequences. Consider the fact that the one million people who used AirBnB simply deprived the hotel industry of that many rooms. Sooner or later AirBnB will have its suite of competitors. And when you factor in the number of potential people that can use AirBnB like properties, the hotel industry will be forced reconsider its business model or at the least do enough to make it even more enticing for people to stay in a hotel as opposed to a no-name household property.
When Uber was launched, I am not sure, if Travis told himself that he will put taxi drivers out of a job. But over one million people use its services every single day. And that is just the beginning. For every one Uber ride, there is a taxi somewhere that is waiting in it’s stands for someone to call for their service. Add in competitors like Lyft and the look-alike services that are popping up all over the world, the taxi industry has enough to rethink its business model or simply join the ranks of Uber and make for one happy ending. For Uber.
This kind of innovation is what traditionally gets branded as Disruption. The kind that doesn’t incrementally improve a product, instead rewrites the very core of the business and brings about a radical change that almost obviates an entire industry forcing it to reconsider its existence or how it operates.
Authors Larry Downes and Paul Nunes use the word ‘devastation’ to characterize the effects of such innovation. Devastating it is. And disastrous it will be. Unless incumbent companies watch out for such seminal events that challenge their safe holds.