From Uber, Airbnb to Shopify, Software companies have freed up access to key services and business opportunities that were otherwise constrained and difficult to manage.
This trend does not completely involve technological innovation. The aforementioned apps are among many that use old technology. Client server model, REST API’s, a database technology and some GPS location services.
The innovation isn’t as technological as it is very fundamentally a redesign of old cumbersome business systems.
Aside from the GPS technology and the obvious underlying match making algorithms that allow users and drivers to link up. The underlying business system this app effectively overtakes: The conventional Taxi system.
Under the old system it is very time-consuming and expensive to become and stay a taxi driver. A taxi license in Toronto at the time of writing this can cost more than 100k+. This barrier alone adds stress to the taxi driver who is a key actor in the business, and it is very exploitative and prevents the underlying business to be efficient. The cost must be passed on to the consumer and both parties end up dissatisfied.
Imagine having to pay an amount close to a low-end condo unit just to share your vehicle and make money on the side. It is absurd. The driver in this case has to charge more to cover the cost of the license and breaking even becomes a priority.
Uber resolves this by allowing the ride sharing system to be more efficient than the taxi system by making it accessible both to the service provider the driver and the consumer in a cost-effective manner.
The consumer has greater accessibility through the app relative to their location. This component can be easily copied by the taxi companies and it definitely has. What the Taxi companies cannot copy is the quality of the ride and the pricing structure. Uber facilitates the driver with how it charges consumers for rides. Uber facilitates the consumer in terms of quality by ensuring the vehicle is decent at a minimum and with allowing drivers to be rated.
These practices allow for both parties to be satisfied and the overall system can be used with greater access and efficiency. Again the technology isn’t very new but the access to the system is greatly increased at an affordable price.
Hotels and resorts are largely very big buildings with limited space and a high cost to build and maintain. Houses and condos usually do not take as much capital to maintain for individuals. However, both can provide similar experiences in terms of location.
In real estate, location is the central component. Big clunky hotels cannot be everywhere and being around other tourists may not yield an authentic experience. A full hotel or resort can be a nightmare for tourists!
Therefore a system that would be pleasing to both parties would be a piece of real estate that is not crowded, affordable and financially profitable for the renter. Enter Airbnb.
Airbnb solves this problem by allowing a user to rent out their property to other users. Although the location could be in a crowded area the price is usually lower than the equivalent at a hotel. Also because the app has a wider reach it can access more locations and provide access to anyone trying to rent out their unique property.
This access does not limit the user to a huge resort or hotel. It allows them a degree of privacy depending on the location at a much lower price. For the renter they get to list their unique property to tourists without charging excess fees profitably or having to deal with tour operators and any other unnecessary sub systems.
The fact that you can access or sell access to a location simply is the main business driver for this innovation.
Starting a business can be cumbersome. If you don’t know web development it can be a nightmare. Even if you know software development. Why would you waste your time coding a shopping cart, authentication, inventory management, payment gateway integration yourself? Not to mention testing for quality and following good development practices for success.
Shopify allows access to the online market. That simple. You can set up a website and set up what payment channels you accept. The overhead of building your own site or hiring an intern to do a sloppy job doesn’t exit. The fast access that this service provides the merchant to consumer and consumer to merchant is what makes Shopify successful at a fundamental level.
The best way for a business to succeed early on is to be accessible online as fast as possible. Shopify gets the merchant online and makes them available. This effectively reduces the break even time and allows consumers to access a potentially innovative product faster than they would in the past. Another scenario where everybody wins!
What do all of these software companies have in common?
Aside from technological innovation these firms have intrinsically found a vulnerability in an old and inefficient business system and have provided more efficient access to that system via their own software. Whether that is a ride, a rental property, or selling nick knacks online.
When deciding on what to build or where to innovate. Look at existing business systems and ask yourself: What’s annoying to use? What should be available faster in terms of product or service? Is there unnecessary red tape in the way? Is the middle-man truly justified?
Seller’s perspective: If I want to sell a product or provide a service what types of unnecessary constraints or obstacles are places in front of me? Can they be removed, replaced or ignored if out of date?
Consumers perspective: why can’t I purchase something on time? Why is it so expensive? Does the service have everything I need? Can I get help or information efficiently? Can I use the product efficiently? Availability?
The benefit of identifying a weak system is to exploit its vulnerability. Once you have a target. Building software to cover the problem will allow you to get ahead and the weak system will effectively fund the new more innovative system by granting more efficient access.
Each of the above apps have done this to great success and it leads to rapid growth. Technological and business innovation in tandem can be a very disruptive and high growth ordeal.
Most Software developers need grounding(Myself included) when it comes to coming up with cool ideas to work and I think this strategy can provide some of that.
After such a process has occurred the innovation can focus on the technological side such as using machine learning, AI, internet of things, drones, virtual reality, augmented reality and more. But those are other things among many that I hope to learn in the future!