POST WRITTEN BY Gordon Ritter
Ritter is co-founder and general partner of Emergence Capital.
Uber, Lending Club, and Airbnb have all upended long-standing, traditional business models, replacing them with cloud-enabled marketplaces, and making headlines in the process. Industry-focused cloud applications, the engines driving the upheaval in those industries, have only begun to realize their potential. What other industries are Uber-vulnerable for industry cloud disruption, and what do the disruptors have in common?
We’d recently seen the sizable impact that industry-focused vertical cloud applications (“industry cloud”) can have, as companies like Veeva Systems, Opower and Guidewire have become some of the fastest growing technology companies in the last decade. They sell cloud applications to industry leaders and enable sales and process improvements in life sciences, energy and insurance, respectively.
At the same time, new companies are emerging with the intention of disrupting an entire industry. Disruptors are a new breed of industry cloud, with a different set of ambitions and skills relative to the enablers. They don’t work within current organizational structures, but instead, build entirely new ones. Think Uber for transportation, AirBnB for hospitality, Lending Club in fintech, and Zillow in real estate. These companies leapfrogged existing industry constructs and built direct consumer-to-provider marketplaces where none previously existed. The new marketplaces give consumers a straight, non-stop, path to goods or services, and by directly connecting consumers with providers, creating greater customer intimacy.
When combining enablers and disruptors, the opportunity for industry cloud growth is even bigger than we first thought.
Last year at Emergence Capital, we looked at the five hallmarks of industry cloud enablers – a category where we continue to see tremendous growth. Do disruptors have similar hallmarks? We think so.
Here are six common elements shared by industry cloud disruptors:
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- Build Managed Marketplaces – The most successful disruptors to date have been those which have built well-managed marketplaces in which both suppliers and consumers have been motivated to participate. For example, Lending Club is a peer to peer lending network that bypasses traditional banks, and LendingHome is building a disruptive network for mortgage financing.
- Create Customer Empowerment. Disruptors empower consumers by allowing them to choose how/when to engage with suppliers/sellers. These models provide the transparency that many digital-savvy consumers demand. Airbnb hosts forums where suppliers and renters can provide feedback, share photos and see reviews from other renters.
- Offer Suppliers Direct Consumer Relationships – In some industries, disruptors are giving suppliers a direct line to customers without going through a middleman. For example, on the real estate site, Zillow, sellers can set a “Make me Move” price to let potential buyers know that they might be interested in selling, representing a company that is both an enabler and a disruptor.
- Dismantling High Margins – High margins are always vulnerable, and particularly so for industry cloud applications. Disruptive companies creating customer marketplaces can cut out the middleman, and the associated margin. Insurance companies such as Zenefits and Oscar are reducing the fees charged by brokers.
- Leveraging Mobile Interfaces – Industry cloud disruptors have built their user interface for consumers from the get go, typically with mobile user interfaces at the core. In industries such as transportation and hospitality, well designed mobile user interfaces are compelling for all users. Uber and Lyft are great examples of effective mobile applications that have reimagined how consumers order taxis.
- Operating in Less-regulated industries – Organizations without tight regulation are vulnerable to disruption because the suppliers have more flexibility to engage directly with consumers. Industries with more regulation, such as life science, insurance and energy, have seen more industry cloud enablers instead of disruptors. Interestingly, in these industries, the leading enablers are becoming the disruptors by working within the system to provide a totally new experience for consumers. For example, athenahealth is developing a ground-breaking industry cloud platform that connects hospitals to doctors to patients, all in a HIPAA-compliant manner.
Following is overview of selected industries that are being disrupted and/or enabled by industry cloud applications.
Can today’s industry leaders prevent the entrance of disruptors?
With so many disruptors on the horizon, it’s important to ask if today’s leaders will be marginalized. We believe that accepting the status quo just won’t cut it for most industries. Within 2-5 years the current leaders will need to choose between being disrupted or enabled. They can work with the enablers to build a better offering for customers, or they run the risk that industry-specific technology companies bypass the incumbents and go directly to consumers. While disruptors might get quick traction in some industries, in other industries, particularly with regulatory barriers, enablers may actually allow the incumbents to create end-user marketplaces from within.
Customer Intimacy Matters
All successful industry cloud companies share a core value of using technology to truly understand the customer. We see this “customer intimacy” as one of the most compelling reasons that industry focused solutions can outperform all-purpose horizontal solutions in the market. Disruptors build intimacy through a direct connection between buyers and sellers, supplemented with ratings and reviews. Enablers create customer intimacy by employing user data from vertical-specific inputs and behavioral analysis, and often building a direct link to their customer’s customers via mobile technology. Regardless of the methodology, as industry cloud companies permeate an increasing number of verticals, we will be ushering in a new era of direct interaction between industry leaders and their end user customers.
Repost from Forbes