TechCrunch Disrupt: putting disruption in front of success

TechCrunch Disrupt is “the world’s leading authority in debuting revolutionary startups, introducing game-changing technologies, and discussing what’s top of mind for the tech industry’s key innovators.”  It ran its 2015 show in San Francisco a couple of weeks ago and Carole Cadwalladr from the Guardian/Observer wrote this excellent piece entitled “Is the dotcom bubble about to burst (again)”.

As well as the bubble angle, Carole also focused on the disrupt angle implicit in the event’s title and noted the extent to which the D word is inserted into all the pitches.  The logic here appears to be: 1) look at the businesses that have become successful and that we wish to emulate 2) identify a common characteristic of all of these success stories, i.e. that they were all disruptive 3) reach the conclusion that disruption is therefore the key to success.

Wrong conclusion.  Confusion.  Confusion of cause and effect.  Were these businesses successful because they were disruptive, or did they become disruptive because they were successful?   Did success cause disruption rather than the other way around.  Answer: yes it did.  The real lesson from the successful (former) start-ups such as Facebook, Uber, Airbnb, even the mighty Google is that success stems from simplicity: making something already out there simpler, easier or cheaper to do and/or creating opportunities to do something that previously wasn’t possible (in a such a way as the cost of creating said opportunity is less than the value created by doing it).  Uber made it easier and cheaper to get a taxi and created an opportunity for more people to become taxi drivers.  Google made it easy to navigate the web and ulimately to fnd answers to questions.  Facebook simplified MySpace.  Of course this principle of success applies to any business, not just ones which live in the digital environment.  In fact it would be a mistake to assume that ‘being digital’ somehow absolves you from the normal rules of business and economics.

Which brings us back to the bubble. The assumption in Carole’s article is that the amount of money being thrown by men in suits (or blue jackets, jeans and brown boots) at strange un-proven start-ups is in itself an indicator of a bubble.  Quite possible.  But perhaps the collapse may come from elsewhere.  The mighty Facebook is making profits, quite large profits in absolute terms.  But Facebook is not making anywhere nearly large enough profits to justfy it valuation – just compare its price to earnings ratio compared to a Google or an Apple for example.  Facebook, like the start-ups, is still trading on an as yet unfulfilled promise: the idea that there is lots of money is out there, even if we can’t immediately see it.  All you have to do is get noticed, get out there, be big, be disruptive and the value will start to crystalise.   If your valuation sits way above your earnings you only have a relatively small window of opportunity to build your earnings up to it, or else face the prospect of the valuation dropping to meet it.  It could well be that it is the failure of Facebook and the other supposed success stories to live up to their valuation expectations that actually triggers the collapse.  Even Google can seem vulnerable.  The vast majority of Google is hugely unprofitable, it just has the good fortune to have one part which is making super-profits.  Creating super-profits or no profits at all are not positions that are sustainable in the long term.

There are some difficult facts out there.  Disruption does not create success.  Facebook is not a media platform (Facebook is an infrastructure which, unlike most infrastructures, can’t charge for subscription).  Digital advertising may not actually work very well because it promises targeting, but the closer you can target someone the less responsive they are to being targeted.  The digital space is not ruled by the economics of distribution, but by the economics of connection.  These are facts that no-one wants to embrace at the moment, funnily enough because they are disruptive.

 

3 comments

    • RichardStacy

      Thanks for the comment. This new ‘economy’ is going to be big and hugely disruptive although I think we need to draw a slight distinction between the collaboration economy and the sharing economy (it is not all about sharing – it may not even all be about collaboration). Connection, forms of community and management of process are at its heart and, of course, the mighty ‘platfroms’ (which are forms of community). Trust is shifting from institutions (hotels, travel agents, taxi companies) to processes (and/or the platforms that mediate those processes). After all, Uber is simply a trust mediator.

      • jeremy

        No doubt. And a good distinction. Jeremiah just highlights a nice slice of the pie though. Either way…the “trust disruption” (how’s that for the name of an eBook we can publish together?) is going be quite significant.

Post a comment

You may use the following HTML:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>