The Disruption Ecosystem

by Sarah Firisen

30 years ago I moved from the UK to New York City and I gave up my car. I had mixed feelings about doing so at the time – I was only 21 and driving was still a novelty and an expression of independence. When I moved out of New York City to upstate 13 years later, I again became a car owner and regular driver. After my divorce, when I moved back to New York City, I once again gave up my car, this time happily. I would honestly be thrilled if I never had to get behind the wheel of a car again. I don’t enjoy driving, I’m not the most confident driver (I cannot reverse to save my life even after over 30 years of driving) and I generally would prefer to be driven. My transportation needs are now taken care of by a combination of public transport, ride sharing services and a boyfriend with a car who is very good about driving me around. And thanks to online shopping, the retail convenience of a car ownership has almost totally disappeared. As far as I’m concerned, this is a perfect state of affairs.

And it turns out, I’m not the only person who feels this way. While there is debate about just how strong a trend it is, and even exactly why it’s happening, there does seem to be a clear trend that millennials also don’t want to own cars.

Ever since Professor Clayton Christensen of Harvard University first coined the phrase Disruptive Innovation almost 25 years ago, companies have talked a lot about trying to head off disruption from entrants into their industry, and some have even taken strong action, with mixed results.  But sometimes, no effort is enough, “Consider that 18 months after the introduction of the Google Maps Navigation app for smartphones in 2009, as much as 85% of the market capitalization of the top makers of stand-alone GPS devices had evaporated.”

But what about companies that wouldn’t, at first blush, seem to be the obvious incumbents, at risk for disruption from emerging companies and technologies? Let’s call this, the Disruption Ecosystem. Not the primary companies and industries at risk, but the secondary, even tertiary ones. And going back to the declining trend of car ownership, an industry that seems to have a very obvious disruption ecosystem is the automobile industry. You can debate when exactly fully autonomous vehicles will be on our roads, there are clearly a lot of regulatory, legal and societal issues to be squared away, not the least of which is figuring out the interim phase when autonomous vehicles and human drivers still share the roads. But what really isn’t in doubt is that they’re coming. All the major car companies and a bunch of new entrants into the car industry, Apple, Uber, Google, have all placed big bets on this. The disruption that this will cause the transportation business – just the number of jobs lost – is real. But what about the other, more peripheral players?

There are the more obvious ones like the insurance companies. There’s a case for saying that their ideal customer is one that pays a very small premium but never gets in an accident, so will they be big winner in this particular disruption ecosystem? Well as HBR points out, “In addition to autonomous vehicles reducing the need for individual auto insurance, other trends, such as urbanization, ride-sharing, and a general lack of interest in car ownership among young drivers, are also cutting demand and putting pressure on premiums. “  And beyond these challenges, there are questions that need to get answered, and those answers could force major disruption ripple effects for the insurance industry: for example, when a driverless car has an accident, who’s to blame? “Currently civil liability turns on whether the driver failed to control the vehicle adequately. If the car is controlling itself, and the occupant cannot in any way override the automatic systems, then he is not in control of the car in the legal sense at all and is not just not driving negligently, he is not driving at all and can have no direct liability to injured victims.”

So clearly, the auto insurance industry is headed for some serious disruption, one way or another. Let’s look at local municipalities, particularly in the area of speeding tickets. As with accidents, can a driver really be blamed if a driverless car somehow exceeds the speed limit? And of course, it may very well be the case that autonomous cars get programmed so that they can’t exceed the speed limit. Goodbye speeding tickets. The actual revenue from speeding tickets is purposely obscured by local municipalities, but ballparking it “Assuming an average ticket cost of $150.00, the total up front profit from tickets ranges from 3.75 to 7.5 billion dollars.” That’s a lot of lost revenue that is probably going to have to be made up for somehow.

But let’s now go down a level or so. There will definitely be winners: when New York State was considering whether or not to allow Uber and Lyft to operate (while they’ve been able to operate in New York City for years, they were not allowed to operate anywhere else in the state until June 2017), some of the biggest lobbyists were in the hospitality industry. When I lived upstate in Albany, going out for the night to have dinner and drinks was painful; the parking is atrocious in downtown Albany, the local taxi companies were the worst and so someone always had to be the designated driver. I could tell you a story about the onetime my ex-husband and I decided to get a taxi into Albany for an anniversary dinner…I won’t, but let’s just say it was painful and we swore never again. Another likely outcome is the lowering of the drinking age in the US, “Without the hook of driving, there is no nexus between the minimum drinking age and roads, causing this prong to fail.” That has to be a huge win for bars and alcohol companies. So a world of zero designated drivers and millions more legal drinkers is great for bars, restaurants, the alcohol companies and all the ecosystem of industries that support those.

The entertainment and communications companies will likely be big winners; we’ve all got to do something with all this spare time in our autonomous vehicles. It’s not absurd to imagine a future where “cars” are really just living rooms on wheels where we all surf the web, shop online and watch Netflix.

Some other possible losers: well companies like McDonalds probably for starters. Clayton Christensen has an amusing and instructive story he tells about work he did for a fast food chain. The outcome of the work was that they found out that most of the people who bought just milkshakes got them to give them something they could consume with one hand during a long boring commute  “That is, they had a long and boring drive to work. And they just needed something to have while they were driving to stay engaged with life and not fall asleep. One hand had to be on the wheel, but geez, somebody gave me another hand, and there’s nothing in it. And I just needed something to do while I’m driving.” Of course, people will still get hungry and thirsty on their drives, still need to stop and use the bathroom, whether they’re driving or not. But their behaviors will change. They won’t be stopping for a coffee because they’re worried about falling asleep at the wheel. They won’t need to just have a break because the drive is monotonous. They won’t need to drink a milkshake solely because they need something they can consume with one hand on the wheel.

When you start to think about all the industries that are touched, to one extent or the other, by a culture of driving, you start to realize the ripple effect that autonomous vehicles will have. There will be benefits for society – how many people die because of drunk drivers each year? – and in the end, these may outweigh all other considerations, and there will be downsides, particularly in lost jobs. But those disruptions are coming and like the GPS industry, there’s only so much that can be done to prepare or adapt.

And this is just one emerging technology. Pick any other: AI, blockchain, 3D printing. Many of those disruptions have already started happening, some companies are leaning into, but all the technologies will all have a disruption ecosystem that goes beyond the obviously disrupted incumbents, and many in those ecosystems may have not yet seen the writing on the wall

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