Depending on your point of view, Uber, the mobile taxi-booking app, is either a triumph for consumer choice or a failure of regulators to protect the livelihood of the traditional taxi driver.
On June 11, in fact, thousands of taxi drivers in London and other big cities across Europe protested against the failure of regulators to protect them from what they perceive as the unfair or unlawful competition presented by Uber-operated cabs. Downloads of the Uber app jumped 850 percent in London in a span of just 36 hours last week, and rose to second place from number 26 on Apple’s iTunes U.K. store throughout the protests, making it clear that consumers are voting with their smartphones for choice, convenience, and possibly lower fares.
What is also clear is that the disruption of another industry by new digital technologies is well under way, and not everyone is as thrilled as consumers that innovation is turning many traditional industries inside out. This is not to say that the consumer view should always trump the concerns of, in this case, regulated taxi drivers. It is just that disruptive service providers, by their very nature, innovate at a speed that makes it harder than ever for regulators to balance the needs of value-seeking and innovation-hungry consumers with the needs of the very industries they regulate.
Uber is just one such example, but as digital technology removes barriers in the way of companies seeking to enter new industries, the existing model of industry-based regulation is being challenged, and the machinery of regulation must adapt.
New, convenient and often cheaper market entrants are encouraging consumers to abandon traditional service providers. Hotel chains and car-rental companies, for example, face a huge challenge with the explosion of sole trading — or “sharing” — enabled by websites and apps such as Airbnb. With more than 600,000 small and medium enterprises on its books, Airbnb makes enough on its bookings to generate an enterprise valuation greater than that of Hyatt Hotels and Wyndham Worldwide. It is now in advanced talks to raise capital that would value Airbnb at around $10 billion.
But Airbnb is not immune from the scrutiny of regulators, and the company has just agreed to provide some of its customer data to the New York attorney general, who is concerned that some of its members may be violating state housing laws.
Digital disruption isn’t just a consumer story. It is also reshaping how businesses buy goods and services from other businesses. For example, Alibaba, an Internet e-commerce marketplace in China, analyzed the data it had on its small-business customers and vendors, rated their creditworthiness, and targeted them with offers of commercial loans. As of July 2013, it claimed to have extended more than $16 billion to more than 300,000 small businesses. Stretching the brand, it is set to launch its first online marketplace in the U.S., and also launched a money-market fund that grew into China’s largest within seven months, and acquired an asset-management firm to manage the money.
An Accenture survey of 500 business leaders from 10 economies found that 80 percent planned to pursue growth opportunities outside of their own industry — in collaboration with other industries, the public sector, or the nonprofit sector. As a result, the approach to regulation that has been built around traditional models of industry — from telecoms and taxis to banks and hotels — needs to be adapted to address these emerging “digitally contestable markets.”
First, there is a need for a shift in mindset from the regulation of industries to the regulation of “customer markets.” This means regulators need to fully understand how the relevant market they’ve traditionally addressed has changed, and to survey the industrial landscape through the lens of the customer experience. Consumers’ use of mobile wallets or PayPal, both online and in-store, for example, means they must think of the wider marketplaces for paying and saving, rather than focusing on formal financial services. Instead of health care, think staying healthy; instead of education, learning. Shifting the focus in this way will help regulators understand the broader array of players now helping customers to fulfill their life goals.
Collaboration will be extremely important, both with the wider business community and with other regulatory bodies. As the boundaries of customer markets shift, regulators will need to monitor developments together, figuring out as they go where responsibilities should most appropriately sit.
For regulators, change is really nothing new. Business innovation invariably challenges the ability of government agencies to keep up. What is new is the speed at which the business landscape is changing — rocket-fueled by digital technology.
As regulators attempt to keep pace with these digitally contestable markets, they will be seeking to not constrain the benefits of innovation or protect existing practice providers from disruption. What may appear today to be a phenomenon led by technology upstarts will become embedded across old and new companies in multiple sectors as they learn to embrace new digital business models at an increasingly rapid rate.
Matthew Robinson is the managing director of policy research at the Accenture Institute for High Performance, Accenture’s macroeconomic, geopolitical and business think tank. He focuses on innovation in markets, industries and corporate & public policy. Tim Cooper is a senior research fellow at the Accenture Institute for High Performance. His research focuses on the intersection of business and public policy, innovation in public service delivery and cross-sector collaboration. Both are based in London.