What if Apple, the world’s richest company, bought a bank? What if Alphabet (Google), the world’s most powerful data company, bought an insurance company? What if Amazon, the world’s most valuable retailer, privatized the mail service? And what if Facebook, the world’s powerful media company, bought a television network?
The world can change in the blink of an eye.
When Amazon bought Whole Foods for $13.7 billion, the threat landscape for disruption changed forever.
Within hours of the news, the stock prices of the other major grocery chains tumbled downward beneath waves of market pessimism. Amazon, however, rode the market upward, its stock price rising by over $15 billion.
The market seesaw effect made the acquisition arguably free for Bezos and company.
The Tech Superpowers, the five most valuable tech companies in the world — Apple, Alphabet, Amazon, Facebook, and Microsoft — are worth more than $3 trillion in market cap in total. That’s greater than the GDPs of Russia and Canada combined.
What else could the Tech Superpowers buy with their incredible cash holdings and the market seesaw weighted so heavily to their advantage?
The Narrow View of Disruption
For decades, entrepreneurs and executives have referred to Clayton Christensen’s Innovator’s Dilemma as the book that defined disruption.
In his book, Christensen describes how industry leaders repeatedly lose to new entrants, who build simpler solutions, targeting a small, neglected segment of the market, and then add features and move upmarket over time.
In the end, the new entrant overthrows the complacent king, who has spent too much time delivering incremental features at the behest of a few large customers, making their products too complex and ripe for disruption.
If legacy companies only had to worry about bottoms-up disruption, the world would be a much more predictable place.
The Innovator’s Dilemma Disrupted
Apple recently announced iPhone X, the future of the smartphone, a $999 phone that will likely drive enough sales to crown Apple as the first trillion-dollar company in market cap.
The original iPhone, of course, was once the quintessential proof that Christensen framed disruption far too narrowly.
Instead of targeting a small, underserved demographic, Apple went over the top.
Yes, Jobs and company built a simpler user interface, but they loaded their device with sensors, functions, and an app store that unlocked a Pandora’s box of features and capabilities. Instead of targeting the underserved, they went after the high-end of the market with a significantly higher price point than competitors.
The result? The whole world made room in their wallets to buy the iPhone. And they’ll do it again, even with Apple raising prices significantly for iPhone X.
Companies such as Tesla, Nest (acquired by Alphabet), and newer entrants like Otto have followed the over-the-top strategy by focusing on superior, not simpler products.
But industry kings need to worry about more than bottoms-up or over-the-top product disruption today. They need to worry about wholesale industry disruption.
As the Tech Superpowers run out of room to grow in their mainstay markets, they will hunger for new industries to consume. And they’ve already spread out roots across countless industries.
A Generational Banking Divide
I recently met with the president of a top ten US bank. He discounted the threat of disruption by startups or even by the Tech Superpowers. “I don’t see them signing up for the regulatory requirements of becoming a bank,” he remarked.
He did worry about one thing, however, a generational shift in behavior that could dislocate the valuable client relationships banks have built with the wealthy. Millennials — who will eventually inherit the wealth of earlier generations — don’t want relationships with bankers and wealth advisors.
They want an app.
And guess which companies are conveniently placed to give it to them?
What happens if Apple or Facebook buys a bank, like E-Trade?
E-Trade would cost Apple $14.5 billion if they paid a 28% markup (Amazon’s markup to acquire Whole Foods). Less than a 6% drop in their massive $261 billion cash bucket to establish a major beachhead into the banking industry.
Almost overnight Apple could weave full-service banking — savings, checking, and securities investments — into their phones and other iOS devices. After all, Apple, Amazon, Alphabet, and Facebook have already dipped their toes in the water with payments.
What if Facebook bought AMC Networks ($5.3 billion at a 28% markup), producers of The Walking Dead, to suck a portion of the television advertising industry down into our phones? Millennials will watch just about anything on their phones.
What if Amazon privatized the United States Postal Service? With their existing, daily delivery routes throughout metropolitan areas and their knack for automation, wouldn’t they be able to run the postal service at a consistent profit while dramatically reducing their own cost of delivery, to the benefit of taxpayers and Amazon shareholders alike?
And what if Alphabet bought Mercury Insurance ($4.2 billion at a 28% markup)? With self-driving car data from Waymo (their self-driving car subsidiary) and data coming in from Nest, Dropcam, and Google Home devices, wouldn’t they have a prohibitive data advantage in offering competitive rates and services for home and auto insurance?
In 2016, Walmart’s acquisition of Jet.com for $3 billion looked like a significant move by an industry king to check its competition. After Amazon’s acquisition of Whole Foods, however, it’s now apparent that it was too little, too late.
The innovation cycle is the wheel that turns our world, and it turns ever faster at increasing scale.
With startups disrupting from below and the potential for mega disruption by the Tech Superpowers, what will the Walmarts of the world do now?
About the Author
Jedidiah Yueh has spent two decades decoding innovation, collecting the hidden frameworks that drive many of the most successful entrepreneurs in technology today. He has personally implemented these frameworks, inventing software products that have driven more than $4 billion in sales. As founder and executive chairman of Delphix, he works with industry giants from Facebook to Walmart to drive faster internal innovation through radical improvements in data management. Previously, he was the founding CEO of Avamar, which pioneered the data deduplication market. In 2013, he was named CEO of the Year by the San Francisco Business Times. His first book will be available in October 2017—Disrupt or Die: What the World Needs to Learn from Silicon Valley to Survive the Digital Era.
If you’d like to learn more about frameworks used to drive disruptive innovation and build multi-billion dollar software products, sign up for updates on the launch of the book and get the first five chapters now.
You can also find the signup page here: https://disruptordie.net/
And here’s a preview of the hardcover for the book: