Innovation

Disruptive technology and the rise of new industries

by WIEF

Disruptive innovations have revolutionised and enhanced the way business is done. However, many countries are still apprehensive about disruptive technology because traditional industry players view them as a threat. Governments need to understand that disruptive innovations do not take away livelihoods but complement and expand the overall ecosystem.

Disruptive innovations and ideas

Technological advancement has brought about a wave of disruptive innovations and ideas that have revolutionised the way we communicate, travel, shop, form relationships and so forth. Disruptive innovations are often products that emerge as solutions to problems or needs consumers encounter. They create new markets and do not necessarily compete against or outperform existing companies. The introduction of apps and sites like WhatsApp, Uber, Grab, Amazon and Ebay and many more have redefined convenience for customers.

Turo, a peer-to-peer car rental service founded in 2009 in San Francisco, was born of founder Shelby Clark’s desire to rent a car nearby when he was cycling on a cold winter’s day. “I rented the closest car to me and that was two and a half miles away,” explained Shelby, who is also Co-Founder and CEO of Peers. “So I got on my bicycle and braved the elements to get to this car while grumbling the whole way. I passed literally hundreds of cars covered in snow which looked like they hadn’t been driven in weeks and in my frustration I was like, ‘I want to get off my bike and get in that car right there.’” He opined that people wanted mobility and access to a car without owning one, and he found an economic and scalable way to do so through Turo.

Ahmed Haider, CEO of Zookal, started Zookal (a book-renting service for students) to address the high cost of new textbooks. The idea stemmed from the fact that students could avoid the exorbitant expense of buying new university textbooks by renting or buying old textbooks. Zookal provided technology and solutions that made the process of renting textbooks efficient, quick and easy. This is achieved online and users only pay for the amount of time they use the books, which also helps democratise education and push the industry towards digitisation.

Haider, who is also the Co-Founder and Director of Flirtey Australia, said that Flirtey’s concept of drone delivery occurred to the group when they faced a big logistics issue while running the textbook business. He saw that while the internet had revolutionised commerce, the entire infrastructure that supported e-commerce was still running on decades-old technology that relied on vans, cars, motorcycles and delivery depots, which was inconvenient. His colleague from the University of Sydney suggested delivering textbooks via drones and Haider agreed.

Founded in 2014 and based in Kuala Lumpur, iflix is a subscription video-on-demand platform that allows users to stream assorted shows on their smartphones, desktops and tablets. Azran Osman-Rani, CEO of iflix in Malaysia, said that two years ago, iflix was merely a conversation at the local coffee shop but by

May of last year, it had launched in Malaysia, the Philippines, Thailand, Indonesia and Sri Lanka. Unlike the traditional premium paid television, which requires set-top boxes with very sophisticated cables and satellite networks and installers, iflix enables users to download or stream online premium quality television shows.

“So how are we different from these big global Silicon Valley giants? We think there is a space for an emerging market solution that is not only significantly cheaper than what the Silicon Valley alternative is but is curated and tailored to our local emerging market consumers. Take for example the breadth of content. Iflix would have over 16,000 hours of content, which would be probably three times more content than the Silicon Valley giant and more mixed. Yes, you have Hollywood but it is important to also have Korean dramas, Japanese anime’s, Filipino soaps, Indonesian sinetrons, Malay comedies, Thai horrors and so forth,” Osman-Rani explained. He also noted that iflix was more culturally relevant to its market as it edits and curates the content to present it in an appropriate manner, besides providing subtitles for shows.

Growth and opportunities

A common trait found in disruptive innovations is its potential for growth and development. Clark said that Turo introduced a new market that industry giants were also beginning to acknowledge. He added that companies like his were not seen as a competitor—rather, established companies, such as General Motors, embraced Turo and viewed it as an opportunity for expansion. “We had a deal with General Motors—technology integration with their safety and security platform, OnStar, so anyone who owned a General Motors car could rent it out through the existing technology infrastructure,” Clark said. Turo has since expanded to about 3,000 cities across the United States and is now in its second country, Canada.

Haider approached book publishers to introduce e-textbooks but they were unprepared to penetrate the digital platform, so Zookal moved on to digital video and managed to raise US$10 million in funding from Silicon Valley, Australia, Singapore and the Middle East. He said that the company turned over 10 million dollars and he projected about 15 to 20 million for this year. Zookal has expanded to Singapore, Hong Kong, and the Philippines. According to Haider, it is growing 370 per cent year-on-year and is now a multifaceted platform that leverages on technology to enhance the modern university experience for students. Zookal’s new video platform allows university students throughout Asia to share knowledge and discover supplementary educational resources.

Flirtey went on to make the first drone delivery to a Head of State when the Chairman of Emirates and one of the Crown Princes of Dubai invited them to Dubai to do a delivery. They have also partnered with NASA to develop an independent parachute release mechanism, which looked at fail-safe redundancy algorithms as well as delivery mechanisms to ensure that the package could be lowered for the consumer to take it.

Osman-Rani said that iflix is looking to penetrate dozens of other countries by the end of the year. Iflix was able to partner with telecommunications companies like Telekom Malaysia, Telkom Indonesia, PLDT in the Philippines and others when these telcos realised that iflix was encouraging customers to consume more mobile data. “So the model has now pivoted to where telcos buy iflix subscriptions at wholesale rate to give their customers at no additional cost,” he added.

The role of technology in disruptive innovations

Many disruptive innovations are implemented by startups and new entrepreneurs, but this could be difficult for established companies to replicate.
Dr -Ing Ilham A. Habibie, CEO/President, Director and Founder of PT Ilthabi Rekatama (a private investment company in Indonesia), believes that if one wanted to “disrupt” a market or industry, one would have to start from scratch.

Established companies, on the other hand, have to challenge their own business models in terms of corporate culture:

“If it is already ingrained in the company that you do this a certain way and you don’t challenge yourself, it’s very hard. It is possible, but you need to have the foresight, you need to look at new technologies and it’s important to look at changes and culture,” Dr Habibie said.

Technology is an integral component in disruptive innovations seeking to deliver a seamless and easy experience to users. For example, Flirtey brings drone deliveries to the market as a solution to logistical practices that are bogged down by decades old land transport systems.

Drones solve the problem of going to depots by allowing senders to “mail” their products directly to customers. Flirtey collaborated with NASA to develop a delivery mechanism that was safe for commercial use. The startup was the only company of its kind in the world to gain approval to fly over US soil.

In the field of television, the rapid progress of internet access via smartphones and mobile broadband has changed the traditional experience of watching television. Osman-Rani noted that traditional media had a local focus and media companies had to absorb massive capital costs arising from establishing broadcasting centres, satellite head ends, uplinks and processing centres, which in turn drove up consumer costs and encouraged piracy. iflix, on the other hand, uses cloud technology.

The only hardware needed is the laptops to write code; the rest is stored on the cloud. This means that scaling the service is 10 times cheaper, more efficient, and faster for the consumers. This has also reduced piracy.

A new generation of consumers

According to Osman-Rani, while the millennial generation were watching more television, they were watching 26 per cent less on television sets and 18 per cent more on personal devices. By 2020, he said, 72 per cent of all internet data would consist of video content. Viewers also preferred to binge-watch TV shows as opposed to waiting for a new episode to air, and iflix allows viewers to watch all their favourite shows at their convenience.

Consumers were also changing their transport preferences. Clark said that many people today did not necessarily want to buy cars due to high maintenance costs coupled with the presence of convenient ride-sharing services such as Uber and Grab. He said that people wanted mobility and access to a car without purchasing one, and Turo identified and met that market gap. Dr Habibie added that he had observed changing preferences in his own children as well — they used Uber instead of buying a car or even getting a driving licence.

New innovations, new challenges

The emergence of disruptive innovation has not been without its challenges. Osman-Rani said that besides competing with traditional media, iflix

had to deal with Silicon Valley alternatives. However, iflix was different because it had diverse content tailored to local market consumers. Another matter
iflix had to consider was the quality of technology in emerging markets: while most developed countries had high-speed connections and were able to stream high-definition and 4K video content, iflix faced the problem of streaming lengthy videos at speeds below 1MB per second on a 3G signal without buffering. This was solved by allowing consumers to download the shows to be watched offline.

While Haider was thrilled that Apple was willing to work with Zookal by giving them early access to an iPad, publishing companies were not as keen.

“We started talking to publishers. What we found out was that they had spent billions of dollars in overheads in physical print books. They weren’t ready to make that leap to the digital space. So we knew that we had to disrupt the physical space before we could go to the e-space,” he added.

Turo faced legislative issues when it first launched as there were no regulatory laws on peer-to-peer car rental services. Clark noted that legislation has since been passed specifying that Turo is legal. “The only thing I would say is that these industries are changing so fast that whatever laws and regulations that are passed need to be flexible. The first peer-to-peer car sharing law in the US is already outdated. It assumes that every peer- to-peer car-sharing rental is mediated by technology in the car. That is no longer true for the vast majority of rentals in California,” Clark explained.

Flirtey also faced regulatory concerns when it first pitched the idea of drone delivery service due to the absence of regulations or regulatory bodies concerning drone delivery. Haider said they had to work closely with certain regulatory bodies
and governments to ensure the safety and wellbeing of consumers. “When we first approached regulators with it, they had absolutely no idea. So we gave them a guideline of what we thought would be a proposed sensible way to move forward. We managed to get a fair approval in the US,” Haider added.

Working beyond boundaries

Clark said that Turo’s biggest problem was finding an effective insurance policy. In this, the company had to fight legal and regulatory battles because the concept did not exist and there were no regulations. He also faced investment problems early on because investors did not deem Turo feasible, and there were concerns about damage to the rented cars. This, Clark said, was resolved by face-to-face meetings between renters and car owners — personal interaction drastically decreased damage to rented cars.

Flirtey went through extensive research and testing before it was launched. Haider explained that it was not as simple as merely fastening a package to a drone and getting it out — it was about building a robust and scalable autonomous operation. Flirtey only managed to get insurance coverage because it partnered with NASA and considerable work was put in before it even conducted its first flight. “There is no point in having really great technology when people are not okay with it. So it’s about timing it and making sure that it is the safest possible operation,” he said.

“Looking back 50 years, if I were to propose putting people in a massive steel aeroplane and flying them over populated cities, you’d think it was crazy. But now, just look up in the sky,” he concluded.

Q&A

Q: Disruptive innovation can affect existing businesses. Some people will lose their jobs. Governments somehow have to step in to make sure that the innovation will not disrupt society. What is your perspective on that?

Dr Habibie:
To use an anecdote from history: the head of the Ottoman Empire was confronted by protesting scribes due to the advent of the printing machine, and [in the end] the Empire lost out because people couldn’t afford books. In order to progress, knowledge is needed. What I’m saying is governments should have a long-term view on things.

Azran:
When you think about the economic policy model, don’t look at it just as jobs but think about how much money new businesses are giving back to consumers by creating a lot more savings, as well as the multiplier effect for broader society. Secondly, quality and new jobs are being created by the multiplier effect: we have more software engineers, more design marketers — they can then have the skill sets and experience to create even more innovative startups. They will contribute to the entrepreneurial and innovative ecosystem, but most important are the benefits to the consumer.

Q: How do you handle the mind-set of multiple investors, all of whom have different requirements and demands?

Clark:
It is a pretty straightforward thing. If the investors aren’t aligned with your vision, don’t take money from them. It doesn’t work. They should accelerate your business, not detract from it. So find the people that share your vision; they are aligned with what you are trying to achieve and it will work out well. Don’t go for multiple investors just because you can get money. It won’t help you, it will detract from your business.

Haider:
You also want to be finding long-term investors; people who are expecting things to take a while and will be with you to weather the storm. It is sort of an emotional roller coaster in entrepreneurship and you want to find the people who will stand by you and back you in everything. If you can’t find these types of investors who can share your vision and will invest for the long term, then you might be doing something wrong.

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May 18, 2017
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