The thin line between disruption and chaos for startup entrepreneurs.
Disruption. A startup is generally labelled as disruptive if it goes against traditional norms to disrupt an entire market or consumer habit. In the past decade, we have seen many online marketplaces come in like Amazon, Uber, Netflix which have become household names. We all love these online marketplaces, as they make our life easier by providing us with a way of doing things more conveniently. But this disruption usually comes at a cost. Chaos. Chaos in the traditional marketplace.
In this article, we aim to dive deeper into how these disruptive startups work and are there is a more sustainable way to build a disruptive marketplace.
How do these online marketplaces work?
If we take a closer look at all these big online marketplaces that have come up, at the core, they are quite similar. At the basic level, these marketplaces match a buyer and seller (consumer). They just transform the matching of these parties from a physical to a digital world. Evidently, the digital way is better as it has a larger pool of both parties to choose from. This results in better and more efficient matches. By design, these marketplaces give more value to the economy.
Let's take the example of Uber. So a traditional taxi driver drives their taxi around the city for 8 hours. But obviously, there is some downtime in some cases the driver doesn’t wish to go to a part of the city or they reach someplace from where they don’t get rides. Now Uber comes into the picture which more or less ensures that all riders will be matched with riders as per their needs. Simply now the driver gets 10–20% more rides for the same 8 hours they work.
Thus, these marketplaces essentially generate more value for the economy. This value is generally divided among the seller, buyer and the platform. But as we all know it's not all roses. These marketplaces induce a sense of fear amongst traditional businesses as it disrupts the livelihood so many local businesses in entire regions.
Is there another way?
As is evident from the example, disruption is quite valuable. But while it does provide value it also poses some major risks of job destruction, lower wages due to an increase in the supply of services and tax leakage. These businesses also affect other parties not involved in the business. This is something economists call a negative externality. Say for example my neighbour lists his house on Airbnb. This causes some commotion in the neighbourhood indirectly affecting me. This is a negative externality of the business which affects me even if I am not a part of the venture.
Now, how is this avoidable? At the end of the day, a business needs to be profitable. Can the disruptive business grow in a sustainable way? For this, we look at a case study on Gojek.
Gojek is one of the most liked businesses in Indonesia. Gojek started off as a bike taxi service. But why is the user perception so different from Uber? They did something unique. Instead of disrupting every other transportation service they chose to gradually integrate each service into their own platform. So that means if you don't want a bike taxi you could check the bus schedule instead from the very same app! You could even book a traditional taxi from the app. This established a certain level of trust between the traditional taxi services and the platform. And they leveraged this trusting relationship to come out as a super online marketplace that provides everything from food to groceries and even laundry and spa services.
As is evident from the model followed by Gojek, if large organizations adapt to these ways wherein in the name of their own growth they are not threatening the livelihood of entire regions, it is beneficial for all parties involved. In the long run, this sustainable relationship would be more profitable for the company. Basically, it pays to reconsider your priorities in light of a much larger equation that not only focuses on both the seller and consumer but also minimizes negative externalities. Businesses need to understand this is not a zero-sum game and collaboration is the key to business longevity.