Given their potential to completely transform a wide array of industries, many assume autonomous vehicles (AVs) are “disruptive”. But disruption is a relative term—it can only be defined within a specific frame of reference. So, let’s ask a more pointed question: are AVs disruptive relative to Uber and Lyft? If so, then these ride-hailing giants are vulnerable to losing their leadership position in the ride-hailing market. But if not, then new entrants will likely face an uphill battle against motivated and entrenched incumbents.
The Theory of Disruptive Innovation, posited by Harvard Business School Professor Clayton M. Christensen, describes the phenomenon in which a product or service initially takes root in simple applications at the bottom of a market—typically by being less expensive or more accessible—and then relentlessly moves upmarket, eventually displacing established competitors. Of course, not all innovations are disruptive. In contrast, sustaining innovations improve existing products—enabling them to advance industries—and enhance the profitability of existing companies. For instance, in the automotive industry, innovations that make cars faster, safer, or more luxurious are typically considered sustaining. More often than not, the industry leaders win sustaining battles.
One indication that an innovation is a sustaining innovation is when incumbents can easily adopt it inside their existing business model. In cases of disruption, incumbents’ business models act like a set of handcuffs, preventing them from commercializing the innovation because it doesn’t fit into their established way of making money. On the other hand, sustaining innovations help incumbents earn more profits in the way they are already structured to do so, and as a result will be readily embraced by incumbents, leaving little room for disruption.
To better understand this, let’s turn the clock back to the 1990s when computers were just starting to be ubiquitous and Dell was a force to be reckoned with as a seller of PCs. When a new, transformative technology called the Internet emerged, many companies flooded the market, hoping to disrupt computer retailers like Dell with an Internet-only strategy. Of course, they ultimately failed to unseat Dell from its leadership position. Why?
Dell pioneered a direct sales model in which personal computers were sold directly to customers through channels like mail order and telephone. When the Internet arrived, it fit well with Dell’s existing business model. Since Dell’s sales strategy did not rely on in-store sales, the Internet was actually a sustaining innovation for Dell—it could help Dell make more money in the way it was structured to make money. In an interview with Harvard Business Review, Michael Dell noted, “We think about Internet commerce as a logical extension of our direct model.” He continued, “I’m only half joking when I say that the only thing better than the Internet would be mental telepathy.”
Consequently, Dell embraced the Internet by launching its online store in 1996, while continuing to benefit from its incumbent advantage: brand, customer and supplier relationships, etc. This left entrants with no choice but to engage in direct competition with the entrenched incumbents, with the odds of success stacked against them. In fact, research has shown that new entrants trying to compete in this fashion have only a 6% chance of establishing a new-growth business. However, this too, often requires large investments for a very long time.
Applying this lesson to AVs, it’s clear their potential to disrupt ride-hailing will, in part, rest on Uber and Lyft’s ability to seamlessly absorb the tech into their business models. Can they do it? If so, how might they leverage their incumbent advantage? How should AV firms like Waymo and Voyage respond? These are some of the questions we address in our just-released research paper, The Race for Autonomous Ride-Hailing: Developing a Strategy for Success.
What do you think? Will AVs disrupt Uber and Lyft? Let us know in the comments.
