Watch out Amazon, old mistakes can still trip up new tech.
Tech firms should brush up on their history – those innovative ideas aren’t as new as they think
What’s old is new again, what comes around goes around, nothing is new under the sun – however you phrase it, the truism applies as much to the tech industry as any other.
That’s not to say Silicon Valley hasn’t produced trailblazing inventions that have changed how we live. It has. It’s just that even tech’s most innovative companies are following an arc set by businesses 100 years before them.
Here’s how it goes. First, a company unveils a disruptive business model, usually pairing customer convenience and lower prices. Both are easy wins – who doesn’t want to spend less time or money, after all? Amazon started selling books, and eventually everything else, from one website; anything you’d like, without leaving home, at a discount. Uber’s handy app delivers a driver direct to wherever a would-be passenger stands at a fraction of the price of traditional taxis. Airbnb did similar for hotel rooms, offering cosy comfort in any neighbourhood for less than Hilton or Marriott.
None of that is news to PC Pro readers, but it’s what happens next that matters. Amazon extended into every market it could find, and struggled to post a profit for years. Uber has yet to make a penny for its many investors. Airbnb doesn’t have to release its figures, but reports suggest it only started to pull a profit this year.
Good ideas take a while to pay off, of course, but that’s especially so when the core
of a business plan is dependent on leveraging the network effect via cut-throat rates. In other words, each company needs to dominate its respective market, and for the most part does so by undercutting traditional rivals on price. That’s the formula for a monopoly, which is why the EU’s regulators are so keenly watching such companies.
That’s also the inherent problem with businesses set up as platforms, which require market dominance, or at least near enough it – if there were 15 Ubers in every city, we’d be back in the world of minicabs for each and every neighbourhood. Drivers would still get paid, but none of the platforms would make enough from their small slice of each ride to stay in business. They need scale to survive.
That’s not true for standard businesses. A hotel need only fill its rooms to make a profit — it doesn’t hurt its business if a proprietor across the street is also having a good week. Overall, a simple hotel is a much easier business than a global apartment-sharing platform that’s dependent on the whims of regulators and residents.
No wonder, then, that Airbnb’s next project is not so much disruptive as “been there, done that”: the company is building its own hotels. Uber, meanwhile, is running bus routes – the old-school way of ride sharing – while Amazon has bought Whole Foods, a traditional brick-and-mortar shop, and has opened a line of high-street bookstores. It’s almost as if traditional businesses operated in their old-fashioned ways for such a long time for a good reason: they made money.
And here’s the kicker: those operational loops – from online retailer to high-street shop – aren’t even new themselves. As an article in The Atlantic pointed out ( pcpro.
link/279sears), Sears followed a similar pattern. The retailer was founded in 1893 in Chicago, not as a department store but a catalogue company with one product line: watches. Eventually that line expanded to everything you could imagine, including groceries, with shoppers flipping through the pages to pick their purchase before ordering it to be delivered to their door. And then, after years of success, it broke with its delivery model and opened a store, going on to open thousands across the US and Canada. Sound familiar?
Here’s where the warning comes: Sears just shut up shop in Canada, and pundits are watching to see if the rest of the firm will follow. After more than 100 years of success, Sears is no failure – and its troubles are not helped by the likes of Amazon. But it’s worth Amazon, Airbnb and Uber remembering that as innovative as their websites and apps may feel, these are roads well-trodden.