By Thales S. Teixeira & Peter Jamieson
A new wave of Internet startups is disrupting established businesses by the process of “decoupling”. In this article, the authors discuss how these new digital disruptors allow consumers to benefit from one activity (e.g., watching shows) without incurring the cost of the other (e.g., watching ads), and offer strategies for established businesses to respond to this threat.
The Internet’s 1st wave of disruption, unbundling; the 2nd wave, decoupling.
The trade press routinely describes the current stage of the commercial Internet as Web 2.0, largely in reference to the increasingly social usage of the web since 2005. Web 2.0 has been associated with the rise of social network sites, blogs, video sharing, virtual communities and social apps. This is in marked contrast to the predominant usage of the web for individual consumption of content pre-2004. While this consumer-centric distinction is interesting, it fails to account for the arguably even bigger distinction characterising the modern web, one that is centered around the type of disruption and players disrupted by new online business models.
The first wave of Internet disruption enabled purely digital products to be sold and delivered online. New digital players grabbed the opportunity to distribute content online and deliver only what people wanted to consume, even if that meant just a portion of the full content. This unbundling of content was the hallmark of the first wave of digital disruption. Google unbundled news articles from newspapers while Craigslist took the classified ads. Apple’s iTunes unbundled songs from albums. Amazon’s Kindle unbundled chapters from books. In aggregate, consumers purchased less content, not because they consumed less but because, for the first time, they could buy only what they wanted to consume. This greatly disrupted bundled-content firms and initially brought about significant losses in revenues from established players such as The New York Times, EMI records and McGraw-Hill.
In recent years, a new wave of digital disruption has been taking over the web. This time, the effects are not limited to content providers and other purely digital products. This second wave is characterised by the separation of consumption activities that traditionally go together, hand-in-hand. For illustration, let’s start with an example that does not involve the Internet. Historically, the consumption of television content involved the joint act of watching programs and viewing ads. In the early 2000’s, TiVo , a maker of digital video recorders, started commercialising a hardware technology that allowed people to watch programs but skip the ads, in effect separating the consumption of these two sequential activities. While it was possible to avoid watching ads at that time by switching channels, this was burdensome and most viewers, as much as 80% of TV audiences, also watched the ads in the show. With TiVo, a reported 70% of viewers were now skipping all ads. More recently, Aereo has taken this concept one step further and allowed their subscribers to record broadcast television content over the web and watch it on any device connected to the Internet without the need to watch ads. These innovations have been disrupting the television broadcasting industry.