Notes on Disruption

The reason for this post is not to establish any specific point, but is just notes of what I am observing. I may come back and add more to this.

Technology disruption is a beautiful thing. It affects us in a positive way. More important is the technology disruption that affects our physical lives. For ex: not having to drive to a store in treacherous winter weather to buy a shirt, and instead login into a website and order it right from there. Would we shed a tear or two if JC Penny were to go bankrupt? Not really.

Some benefits of disruption are:

1. Convenience for consumer
2. Lower prices
3. More efficient system by eliminating the middlemen.
4. Freeing of resources to invest into newer things.

We all have heard of some disruptions and have talked about them at length. Below are some industries that are getting disrupted or will get disrupted soon.

1. Retail

Book sellers such as Barnes and Noble disrupted by Amazon. Retail traffic during holiday shopping season is slowly reducing and shifting to online commerce.

2. Media

Well known disruption of movie rental business Blockbuster by Netflix. However, second disruption is happening,  In media industry, the established players are content providers and content distributors. What if content distributors also become content providers? Could this drive out inefficiencies in the system. For ex: if HBO produced ‘House of Cards’, how much money would have been wasted by content distributors in licensing it, holding a premium on it, selling advertising on it?. Because Netflix produced it, they can distribute it without having to sell advertisement. Consumer wins. I expect this trend to continue and content providers like HBO will head the way of BlockBuster. Secondly, the pure content distributors will also get disrupted, because their model is based on an assumed dependency on content providers.

3. Real-estate

Realtors may be the biggest middlemen when it comes to inefficiencies. For minimal work, in each house transaction, approximately 5% of the house value disappears into these middlemen through commissions. What RedFin is doing here is interesting, and this model ( actually a better version of it) will end up disrupting the Realtor business.

4. Lending

If you had applied for mortgage or other large loans, you have experienced what may be the most inefficient system in the world. Not just the process, but the fees ( Why do you have to pay for a Fedex charge for loan company to send some docs to title company – haven’t they heard of email ? ).  I am not aware of any startup actively disrupting this, but this is likely to happen within next decade.

5. Healthcare

When we talk about healthcare, we think much hated Insurance companies. Yes, they are ineffective and needs to be disrupted. Also, there is a second middleman – this is the hospital operators. The largest hospital operators build facilities, and rent it for health care providers. If you had ever spent time at hospital, you know the pain of dealing with them. What a mobile app can do more efficiently, hospital operators have multiple employees trying to do using outdated systems. This is an area ripe for disruption. I am not yet aware of startups in this area yet, but I expect this disruption to happen in next 15 years.

6. Auto Sales

Dealers are the middlemen here and have a huge mark up. What Tesla is doing with company owned showrooms is a good first step disruption, but what I believe is the more powerful disruption is going to be an online product configurator and direct ship to consumers. I am sure there are already companies trying to do this, but I am not yet well informed in this.

7. Education

This is already happening to some extent. Online education will make it less important to go to actual campuses. The concept of education with multi-year degree programs will become an outdated concept in our lifetime. Another example – kids these days study together by watching Khan Academy videos. This could disrupt the tutor business of Sylvan Learning etc.

8. Pharma

Legalization of marijuana is an interesting trend when looked at medical uses. It may be better alternative to pain medications in some instances and given the risk of pain medications, people may prefer marijuana. As more and more states start to legalize pot, we could start seeing a hit on pharma company profits.

I am sure there are many more areas where disruption is happening. Please add your comments below.


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