Disrupting Google

Business disruption is not caused by technology alone. For it to occur we need 2 things to arrive simultaneously.

(1) A new technology

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(2) A new business model

If we only have one, the incumbents can usually adapt. They can plug the new tech into the existing business model. Or, they can revert the old technology into a new business model.

For example:

The Music Industry had 3 new technologies before they got disrupted. They had the phonograph, the tape and the CD. Each time they sold the new tech in the old business model. It wasn’t until the mp3 arrived until the industry changed. When that happened, the business model shifted with the tech, which resulted in disruption: Napster (stealing music) and Apple iTunes (buying music one song at a time). Then when streaming arrived, a further disruption occurred as both the tech and business model shifted once more. No one buys music, they subscribe to it.

Likewise, when the Airline Industry had low cost airlines arrive. A new business model emerged, but because it was utilising existing technology: planes, airports and booking engines, legacy players could plug in low cost sub-brands. No real industry disruption transpired.

Most Successful Consumer Product Launch in History

Chat GPT is the fastest-growing consumer product in history. It had over a million users in its first week and more than 100 million in two months. Previous technology juggernauts haven’t come close: TikTok took nine months to get to 100 million users, Instagram took nearly three years and Google took nearly two years to reach this milestone. It isn’t just the rapid growth of users of the platform that’s interesting. It’s that it demands a review of internet Search as we know it, how we perform searches literally and the resulting business model which underlies it. It may even redirect us away from advertising and the prevailing surveillance capitalism model.

The technology and business model just changed for search. Sounds crazy to say it, but Google could be in trouble. If there was ever a company which looked dominant and unstoppable mere months ago, it was Alphabet. Their Google search engine commands a 90%-plus share in most of the markets it operates in. Then along came ChatGPT.

Will your company be the Disrupter or the Disrupted with AI ? Get me in to share my mind blowing new Keynote Speech – and win in the new AI era.

Bing v Google

At the moment it looks like Open AI, the developers behind ChatGPT, have everything to gain, but behind the scenes is tech overlord Microsoft. If all goes to plan they could be the unexpected winner in AI, and there are literally trillions of dollars in market capitalisation at stake. Microsoft’s 23 January $10 billion investment in Open AI may well be the tech deal of the century. As a part of it Microsoft will have exclusive access to Open AI’s product suite, and will gain a 49% share of Open AI. However, Open AI will need to give back Microsoft 75% of the profits until Microsoft recoups its initial investment. Microsoft have already plugged ChatGPT into their Bing Search engine, and it is pretty damn good. I’ve switched already. But is isn’t just the product which puts google at risk, it’s the costs and business model.

The cost per ‘prompt’ on ChatGPT is currently around $0.02c. This is vastly more than the $0.00001 per Google search, and probably couldn’t support a pay per click or display advertising model. The recent option to subscribing to ChatGPT for $20 per month is a clue as to where the business model of Generative AI is likely to go – subscription rather than advertising. This would both remove the ‘free rider’ problem, and temptation to compromise product quality to appease the advertising model supporting it. Subscription is also needed because AI is far too expensive per prompt to run a pay per click model. This is a major problem for Google – which people use for free.

The market is likely to bifurcate into two segments: Search (Traditional web links) and Creation (Generative AI).

Think about it – if we shift our search habits to ask questions and getting an actual answer, rather than a page of links and options – the pay per click model could die alongside it. Bing might just become the world’s first Premium Search engine – a pay to play for a different kind of search.

The Code Red which was called in through halls of the GooglePlex hasn’t resulted in anything that seems like a worthy response to ChatGPT. After a failed demo last week of the Google AI chatbot Bard, it lost more than $100 billion in market cap. But I also wonder if the market senses that Google has far more to lose even if (and most likely when) it develops a competitive AI product. 58% percent of Alphabet’s revenue comes from search, which is driven by pay per click advertising, which simply can’t survive with generative AI – there are literally no clicks when you get a direct answer. Currently Microsoft only generates 5% of its revenue from Bing pay per click advertising. In real terms, it has a potential ten-fold search revenue upside, with near zero downside all the while potentially adding a new weapon to its already strong enterprise offers of Windows, Office and Azure. AI inside your own laptop, generating answers from your own personal data. That would be super powerful, personally and at an enterprise level.

Just when we thought we thought a one tech firm could never be usurped, a new technology comes along which potentially changes everything.

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Keep Thinking,

Steve

Robot Love

We don’t just have a relationship with technology, we use technology to find relationships. Newspapers, video dating, website matching services and apps – and to the most direct of all – Tinder.

The reason Tinder works is simple. It replicates human behaviour in the real world. The moment someone walks into a night club they look around at the faces of people and say to themselves, Yes, No, No ,Yes, No, No, No, No Yes, Yes. And the people they are looking at are doing the same thing back at them – assuming of course they are both looking to meet someone. But in the actual nightclub there is that awkward discovery process of trying to work out if the other party feels the same way. Which then becomes the business model of the nightclub – Sell people drinks for that few hours of the discovery process.

One of the core functions of the alcoholic drinks was to make people look better, and feel more confident. Well, technology has managed to do replace this as well – let’s just say that instagram filters are the new beer goggles!

Technology has a way of replicating what we do in the real world, and in doing so, it creates competition in business which are non traditional, even hard to align. Beer volumes may decline due digital photo filters. Insights like this are very difficult to report in a corporate market share update.

In the not too distant future – things could get even weirder. People developing serious relationships with humanoid robots – Robots which look, feel and act, just like humans. The vote 50 years from now might make gay marriage seem so minor as we vote on whether or not humans and robots can get married!

Happy Valentines Day.

Trickery as a Business Model – Rental Cars

Customer service systems have improved so much in the past 20 years that we take for granted how arduous some things used to be. I was reminded yesterday when I had to pick up a hire car that not every industry has embraced the possible. Why? To maximise profit while the barriers to entry are still high. It made me wonder if one car rental brand is called Hertz on purpose!

The picture above is the line I was waiting in. It inspired this spur of the moment LinkedIn post which really seems to really have struck a nerve. Here’s what I posted below:

Dear Rental Car Industry: this is a queue from today. Most brands have it at the airport today & often. The problem isn’t a busy day, it’s that your rental process is stuck in 1989. We waited nearly an hour! I don’t buy for 1 second that this process couldn’t be all digital and all automated. A simple text with my car rego and bay number is all we need. Condition reports can be pics on drive out, insurance, copies of driver licenses and credit card details all can and should be automated. Let’s call it ‘sub-optimal’ – I could redesign this in a day & fix this in 2 weeks.

As I write this the post has had 73,157 views, had 978 reactions and 196 comments.

The comments on the LinkedIn post provided some deep insight into industry disruption, technology and CX. But more importantly, it was filled with many customer centric fixes, and startups in the process of doing so.

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The story doesn’t end there.

Once I finally got to the check-in counter, I was then asked if I wanted insurance, and that the excess for not choosing insurance was $5000. Seriously? I felt extorted. The risk of not taking the insurance seemed far too high not to proceed. The crazy bit is that it added more than $200 to my final rental price for a few days, which almost doubled what I had paid for when I booked it online. What is clear is that this isn’t offered at the time of booking online because it exposes the ‘real price’ during the booking process, when switching to an alternative is easier. It also seems as if the ‘analogue’ pick-up process is designed on purpose to perform this upsell to customers. (Oh, and I’m being generous with the term upsell).  The car I ended up getting wasn’t the one I ordered, either. It was in the same size class, and I am aware that the offer is ‘Car XYZ or similar’ when booked. This presents a major problem. I ordered our specific car on purpose because I know it fits our luggage and my surfboard. The one I got didn’t. I’m struggling to understand why any car rental firm wouldn’t have the exact same model of each car in each size category. Surely that wouldn’t not only reduce purchase price via negotiating power, but reduce also operating costs. Not to mention, customers would actually know what they are getting. Maybe it’s just a little bit too much commonsense here from the Sammatron? Other times I’ve even been ‘upgraded’ to larger cars, which isn’t really an upgrade in cities overseas where I want a small car on purpose because the streets are small and I’m unfamiliar with the roads. It does seem that this industry is entirely built on serving itself and its existing infrastructure instead of its customers.

The problem as I see it isn’t really the prices. It’s the process, lack of respect and lack of dignity they afford their customers. It’s the fact that it could provide a much better experience.

While some premium memberships and other firms and startups in this space offer a superior digital check-in process, it seems that a poor experience is most common. To the credit of Avis, their AP Commercial Director did reach out to discuss the issue and improvement plans. (I’ll update you on that in due course.)

Why do they get away with it?

As far as I can tell – this business has far more barriers to entry than taxis did. Firstly, a fleet of cars is required, and retail and parking space in airports comes at a super premium. This alone would keep out most players wanting to disrupt the space. Also, given that any alternative couldn’t be a pure SaaS play, most Venture Capitalists would shy away from funding a new disruptor. But buckle your seat belt, some big players are coming.

What’s coming soon

New competitors are about to arrive and it is not Uber, Lift, Didi, Hola, GoGet or new car rental startups. It’s the OEM Car Manufacturers themselves. As soon as autonomy arrives, and it is coming quicker than you think, they won’t just sell cars, they’ll be renting them too. By the trip, by the hour, the day and the month via subscriptions. Lucky for them, consumers have already been trained through ride sharing companies’ hard work.

Once cars can drive themselves, the car manufacturers can avoid the need for a retail space and a car park in an airport and simply summon a car to the kerbside of the airport to rent out. In fact, car manufacturers can do all sorts of interesting things like provide free rental to existing new car purchasers and sell cars via monthly subscriptions which are ‘location agnostic’. This is all with a massive pricing advantage given they won’t have to buy cars from third parties like rental incumbents do.

The Lesson? 

The lesson is simple, really. It’s very easy to assume that as soon as better technology becomes available, large corporations will adopt it. The opposite is most often the case. They tend to lag behind the potential of technology and customer expectations as long as possible. Especially when the barriers to entry are high. It’s also a good reminder that opportunities to improve an industry are everywhere and not dependent on new tech. They are mostly about lazy incumbents taking advantage of a glitch as long as they possibly can.

Disruption and The Shampoo Strategy

Business success is built on what I like to call a Shampoo Strategy. We find a formula, a business model that works, and then we rinse and repeat. It’s the way all wealth is created in the modern economy. We discover a process, service or product which has perpetual demand and we continue to deliver this to the same people again and again and again. The only problem is when to change the formula?

Shampoo Strategies are the type of business outcome any profit centric capitalist should be aiming for. We turn something from an idea into a system which makes money with very few changes to inputs. It’s essentially when we’ve cracked it. Ironically, the Shampoo Strategy is exactly where disruption comes from.

We develop a system which becomes its own thing. It operates on a kind of auto pilot and is highly profitable. Costs continue to go down while margins go up, and we end up serving the system, and losing track of why it worked in the first place. The reason it worked is usually because the formula, the customer and the business model all overlapped in a way that suited the market. But as markets evolve, yesterday’s formula may become less effective, sometimes seemingly overnight. But when we look hard, the signs of deceptive disruption are always there long before that ‘overnight‘ moment.

So what should we do to understand if our formula is about to stop working? Well, it’s rarely one thing on its own, but the way a few things interact. I break them into 3 parts.

The Technology: Questions to ask here include: How the problem gets solved and how can tech change that, reduce costs, or change the method of delivery?

The Business Model: Are people still prepared to pay for what we deliver? Can they serve that need more economically elsewhere? Can we increase our margin or reduce our price with a new emerging technology?

Demand: Is demand for what we do solid, shifting or waning. How can we shift with it? Is the solution just shifting? e.g. digitization of news. Or is the market in perpetual decline? e.g. coal fired power plants.

Finally, how do these three things interact to create a new formula for tomorrow’s rinse and repeat?

The one thing to remember with the Shampoo Strategy is that they never work forever, but new formulas can always be invented. And new formulas only ever get invented by those paying attention to the market, more than they pay attention to what they make or sell.

Your World in 2030

Ten years is not a very long time, but in a world of exponential technology, a lot can happen. So I thought I’d provide some predictions for the world by 2030. Thirty of them, to be precise. Let’s call it 30 for 2030.

Sure, some of the ideas below might seem like science fiction or fantasy, but so was much of the technology we take for granted today. It makes sense to think about these now, so that we can consider longer-term career, financial and corporate strategy decisions today. So buckle your seat belt, open your mind and enjoy!

1. All-Electric Economy: The vast majority of the energy we consume in the future will be electric. Fossil fuels will be replaced almost entirely by electricity, generated by renewables. Electricity will win not through a political battle, but purely through economics. Fossil fuels won’t be able to compete on cost. The energy will be generated by the the sun, wind and water. We’ll find a storage solution 10o times more efficient than the lithium ion batteries we use today.

2. The Energy Internet Emerges: We will be trading energy with each other through a new type of distributed energy grid. It will be akin to the way we trade information with each other on the internet now – except it will be energy – and we will generate excess energy on our buildings. Sometimes we’ll get paid for it and sometimes we’ll simply give it away. Centralised energy production will go the way of centralised news and media – and mostly be replaced by user generated content (but this time it’ll be energy).

3. Data Becomes a Liability: Data is currently seen as a commercial asset that companies try to acquire from us. By 2030 this will be reversed. Data will become a well-regulated liability. If companies hold our data it will be like a bank deposit that we own and they look after, and they’ll even have to pay us interest or fees. If they lose it, or it gets stolen, they will have to pay heavily for the mistake.

4. Globalisation Will Go into Reverse: The current trend to re-nationalise, and de-globalise will continue. Countries will become more closed and trade less. Fear of technology, job losses and immigrants will continue its current pattern. This will be further enabled by automation and manufacturing where the low-cost labour market trading advantage evaporates.

5. Climate Issues Will Re-Globalise: We will only become a truly global community when climate catastrophe demands it. While the technology to de-carbonise our economy is already here, we’ll be stifled by politics and the worst will hit in the early 2030s creating a necessary global alliance across countries for species survival.

6. Mobile Work > Office Work: More people will work away from office and formal work locations than those who work in them. Large companies will realise modern offices are a poor allocation of resources and de-centralise their workforces. Most people will be mobile in their work and cross-fertilise ideas with people outside their company and industry.

7. Freelancers Overtake Employees: There will be more freelance workers selling their time and skills on projects for companies than people who are full-time employees. As technology removes the friction of employment, we’ll all become modern day digital craftspeople.

8. Gigs with Benefits: The gig economy will evolve from its current exploitative business model. New startups will emerge to perform the roles of what unions and HR departments used to do to represent and organise gig economy workers. These quasi-union organisations will facilitate work benefits once only available to full-time employees. Think sick leave, annual leave, superannuation, training, wage negotiation. This will become a huge industry and may work in conjunction with the superannuation industry as employee numbers decline.

9. Regional Renaissance: Administrators and residents from regional areas will realise the internet can change their fortunes. Global e-commerce, lower living costs and higher living standards will create a renaissance for non-city places of great beauty. They’ll leverage their geographic monopolies and localised products, sell to global market places and compete effectively with cities.

10. Public and Private Transport Morph: The two forms of transport will continue its trajectory to differentiate from each other. Autonomous vehicles will be owned by private people who rent them to public systems. The shape of public and private transport will replicate each other and become mobile forms of commerce, relaxation and entertainment zones.

11. National Parks 2.0: National parks are generally enclaves reinventing the way the ‘world used to be’. A new form of National Park will emerge in cities. Places where there is no internet connectivity at all. These ‘zones’ will replicate pre-internet industrialisation where humans need to connect directly and nothing can be copied, documented or shared.

12. Cities Redesigned for Living: During industrialisation cities were designed around factories and offices. But cities will be reinvented to be built almost entirely around human living spaces. They will be more green than grey and grow most of the produce for their inhabitants in buildings. They will be pedestrian-centric with clean air.

13. Nationalisation of Technology Platforms: Big tech in America won’t just be split up – they may be acquired by the government and be redefined as national infrastructure – as we saw with railways. Some big tech companies will be repatriated. Many countries will build their own digital platforms such as search and social, taking them out of private hands. Algorithms will be regulated, and listed like food ingredients on digital platforms.

14. Government Will Love Small Again: Governments around the world will finally realise big powerful companies are reducing their tax revenue. They’re doing this in two major ways: through tax avoidance and reducing their number of employees paying PAYE tax due to production automation. New policies will be set in place the world over favouring local and small businesses. The current rhetoric of ‘corporate tax reduction creates employment’ will be rebuffed and the trend of lower corporate tax will be reversed.

15. Highly Paid Because Human: The highest paid jobs in the economy will be paid as such ‘because a human is actually doing it’ even if it could be automated or done by a machine. Think of the cost of a concert versus a digital download, think barista coffee versus coffee machine . We’ll start paying more for the real thing. Highest economic value will be placed on humans doing tasks for other humans, even if a robot ‘can’ do it.

16. Personal Operating Systems Will Arrive: Software systems will organise our personal lives. We’ll train them like dogs and they’ll be our personal life assistant. They will owned by the individuals (rather than a company), powered by open source software and backed up by machine learning.

17. Humans Start Merging with Machines: Information technology and biotechnology will increasingly overlap. We’ll have the first versions of ‘upgraded cognitive ability’ for humans inserted into our bodies. This will start an inevitable split in our species: neo-humans and organic-humans.

18. Humans Become a Hackable Species: As we merge with the machines, we will for the first time become hackable from the inside. The hacking process will mean that we could be programmed to behave in ways we didn’t intend. The hacking will mostly occur without our knowledge that we’ve even actually been hacked.

19. Posthumous Existence: Our memories and intelligence will become uploadable into the cloud. In doing so, many of us will have a posthumous existence and continue relationships with loved ones after we’ve passed.

20. The Higher Education Bubble Will Burst: People will wake up to the fact that all but a few (eg medical) university qualifications can be obtained online, for free, from the world’s best practitioners on those topics. Alternative education methods will emerge and gain more credibility. Knowledge will also start to become a commodity we can buy and download directly into our brains.

21. Crypto Currency Replaces Fiat: Governments around the world will launch crypto currencies to replace their fiat currency. A global crypto currency will emerge and replace the USD as the quasi-official global trading currency.

22. 3D Printing Will Have a Smart Phone Moment: A revolution in 3D printing will occur, probably associated with new materials science. Materials like graphene will become ubiquitous, like ‘plastics’ did in the 1950s.  We’ll finally end up with desktop manufacturing in most homes and offices, the way PCs became household items in the 1990s.

23. The Toilet Will Become a Laboratory: The toilet will become a digital health parter as a mini lab in your home. It will be the most high tech device in every home.

24. Everything with Electricity Will Be Smart: If it has electricity, it will be smart and connected to the cloud. There will be near zero dumb devices that require electricity to operate.

25. Augmented Reality Metastructure: A new type of virtual infrastructure will emerge in cities and homes. We’ll put some technology into our eyes (eg glasses or contact lenses) that enables enhanced digital vision of everything around us to augment the physical world and provide bespoke, on-demand information for cognitive shortcuts.

26. Universal Basic Income Will Fade Away: The robot and automation job apocalypse will never eventuate as technology will create more jobs than it destroys. With this, the fashionable concept of UBI will fade away.

27. Clean Meat Movement: Clean meat (nature identical meat grown in a lab) will be lower cost financially and environmentally, than meat grown through traditional agriculture. This will create a massive consumer shift starting with the humble burger, ending in disruption to agricultural industries.

28. Semantic Language Coding: New software will be developed granting coding powers to anyone who can speak. Software that builds software based on voice commands will democratise the code development process, mostly through AI and machine learning.

29. AI Cold War: A cold war around winning the AI race (which has already commenced) will continue, resulting in a handful of AI superpower nation states.

30. Blockchain Digital Commons: Many platform businesses like Uber and Airbnb will be replaced by a new form of Digital Commons. Software will be owned and operated by the providers of the services,  instead of a giant internet company like Uber taking 30 percent for every ride organised.

 

Some of these ideas will happen within a couple of years and some will be closer to the end of the decade – but I’m confident most of them will eventuate. The exciting bit? It’s our turn to go and build all the good stuff and help circumvent the bad bits.

 

The Other 1 Percent

Ferrari sales in Australia are up 17% on last year. While new car sales are down 3 percent. A new Gulfstream private jet has a 2 year wait list. By all accounts the one percent are doing well. But there’s another 1 percent out there which doesn’t get nearly as much attention.

This is the 1 percent who take the time and effort to invest in themselves. The few who understand the gift technology has given us to transform. This is the 1 percent who:

  • Re-educate themselves on changes in their industry
  • Turn up to the free learning event on hot topics like  E-sports, Blockchain or Artificial Intelligence
  • Learn anything, for free, on-line
  • Do night projects
  • Start a side business
  • Tap into the world’s best thinkers who publish their ideas for free
  • Read the book and not just the blog post
  • Listen to podcasts instead of FM banter
  • Aren’t concerned about keeping up with the Kardashians

All of which have the very low price tag of allocating spare time differently.

These people realise that even though there are income disparities, an eroding middle class, and change which will disrupt jobs – they’ve also been given a choice. A choice to change and adapt with the market as it moves on. A choice to be the person who invests small and frequent amounts of time to know more, become more and reduce their income risk when that change finally hits. This other one percent are thankful for the dignity of choice to ‘upgrade our skills’ we’ve all been given, and they’re taking it.

And the others? Well, they just watch the next season of that tv show they watched last year, with those people fighting each other to win some cooking battle, get voted off an island or marry someone they don’t even know. They opt out of their life and start living someone else’s.

Sure, it’s tough when the rules of business, life and the market change. But it would be tougher if we didn’t have all the choices we do to do something about it.

Can entrepreneurs live inside corporations?

Incentives shape behaviour – a statement to live by.  One which gives more guidance to corporate and gubernatorial behaviour than anything else. It’s the reason why the disrupted, got disrupted, and why most governments in developed economies favour industrial protection over reinvention. Whenever we think about how anyone, or any organisation might behave, the best course of action we can take is to stop, and imagine what their incentives might be.

A favoured form of reinvention for companies facing a technological disruption is the birth of the corporate accelerator program. Or smaller efforts of finding and funding internal ‘entrepreneurial’ activity – the startup inside. The concept is valid, but so often the execution fails. Over the years I’ve been involved with a number of multinational corporations who’ve sponsored such activity to try and build out internal startup firms. They rarely work for one simple reason – misaligned incentives.

If you’re really an entrepreneur, the first things you want are ownership and independence. But all too often these accelerators have majority equity stakes, or expect their newly minted internal entrepreneurs to magically stop behaving like employees. They expect an entire new perspective on risk taking inside their culture. When the mindset and rewards are so often about protection and risk mitigation.

The simplest and best way to ensure anyone truly cares about anything is via ownership. People need to have ‘skin in the game’ and own the outcome. It’s only when we wear the cost of failure and benefit directly from any success that the true entrepreneurial spirit can ever be found.