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Is Uber a disruptive innovation?

Digital revolution

Uber is NOT a disruptive innovation. The concept of disruptive innovation is often misrepresented. Business professionals, for example in Technology conferences, TV shows etc. tend to refer to Uber as a disruptive innovation. I've noticed as well most of my colleagues at work seems to agree with this narrative. This concept is best explained in Harvard business review, Christensen et al (2015) "What is Disruptive Innovation?"

The theory of disruptive innovation, introduced in these pages in 1995, has proved to be a powerful way of thinking about innovation-driven growth. Many leaders of small, entrepreneurial companies praise it as their guiding star; so do many executives at large, well-established organizations, including Intel, Southern New Hampshire University, and Disrupters first appeal to low-end or unserved customers and then migrate to the mainstream market. Uber has gone in the opposite direction: building a position in the mainstream market first and then appealing to historically overlooked segments. They often build business models that are very different from those of incumbents. A typical example is Netflix, its initial service wasn't appealing to most of Blockbusters customers. After some time, eventually Netflix appealed to Blockbuster's core customers, offering a wider selection of content with an all-you-can-watch, on demand, low-price, high-quality, highly convenient approach. And it got there via a classically disruptive path. If Netflix (like Uber) had begun by launching a service targeted at a larger competitor’s core market, Blockbuster’s response would very likely have been a vigorous and perhaps successful counterattack. But failing to respond effectively to the trajectory that Netflix was on led Blockbuster to collapse. It is important to keep in mind that some disruptive innovation succeed, some don't. For example, many number of internet-based retailers pursued disruptive paths in the late 1990s, but only a small number prospered.

Looking at the South African context, the property market is actually ripe for disruption, for example most players in that space are focusing on mainstream and high end customers, obviously neglecting low end market. Truth be told, their products and services are over priced, perhaps the current tough economic environment contributes to this. Nonetheless innovation and digital transformation can disrupt this market.

So what does this mean for digital transformation?

Established organizations focus more on sustaining or incremental innovation, trying to keep their mainstream customers happy and aiming at the high end of the market. They usually loose sight of low end market or unserved customers. A typical example in the financial market will be the unbanked customers. Based on the research done by IVERI payment technologies in 2014, overall 23% of adults in the African region have a bank account at a formal financial institution (IVERI, 2014). So where is the 77%?. Its possible this number have improved since then, however it still present untapped potential for new players who are more innovative, and using digital platforms, e.g. blockchain etc. to their advantage. Clearly, the new players have identified a gap in the existing market and as a result creating new markets; providing cost effective products and services; and more convenience to low end customers.

They are able to do this, for example because they are not constrained by legacy technologies, applications, infrastructure, business models, processes, skills and culture. One would say they have unfair advantage over established players. And they really do make to use of these new digital technologies, like cloud, social media platforms, big data and mobile. The new technologies can drastically reduce operational cost enabling businesses to only pay for resources they are consuming, for example in the cloud. As a result new players are more lean and agile compared to their competitors. This presents significant challenges for established players hence they need to re-imagine their current business models and re-invent themselves or loose to new competition.

Stay tuned for more!


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