How established industries are striking back at upstart “disrupters”

Established industry giants are taking the fight to tech upstarts. They will have second-mover advantage, says Matthew Lynn.

Its shares are soaring as it unveils a range of snazzy new electric vehicles. Tesla? Er, no, Volkswagen. The German car maker has unveiled plans for more than 30 electric vehicles across its VW, Audi, Porsche, Seat and Skoda brands. That is going to be quite a line-up for anyone in the market for a new battery-powered car, and investors are, quite rightly, starting to wonder if it won’t look a lot stronger than Tesla’s.

Or how about the stock soaring as customers sign up to its streaming service in record numbers. Netflix? No, Disney. Its streaming service has been a huge hit, signing up 100 million pay subscribers in a little over a year. It took Netflix a decade to reach that milestone. 

It can pay to come in second

Over the last decade a lot has been made of the advantages of getting there first. And while that is often true, there are also benefits to being the second company to come into a market, especially if you have plenty of money, and a long history.

In electric vehicles, for example, VW has the advantage of huge production capacity, a collection of trusted brands covering different parts of the market and a powerful distribution network. An electric Golf already has a feel of reliability and familiarity about it that will appeal to many customers making the switch from petrol-driven vehicles for the first time and VW has the factories ready to meet demand right away. If it can add in extra technology – an extended battery life or super-fast charging – it could easily overtake Tesla. 

Likewise in streaming. Disney+ has raced past 100 million subscribers in a tenth of the time it took Netflix and the revenue generated from all those sign-ups has more than compensated for the closure of its theme parks and the cinemas (and the leisure business may well be even stronger when it finally returns – lots of us will be itching to go on a Mandalorian ride).

When Disney+ was launched, it was widely dismissed as “too little too late”, yet Disney has deployed the Star Wars, Marvel and Pixar brands, along with its own huge library of films and cartoons, to lethal effect. One thing is for sure: Netflix no longer has the TV streaming market to itself and Disney could yet be its dominant player. 

Second movers have two big strengths. They can learn from the pioneer and not repeat its mistakes, and can imitate what it gets right. Tesla has shown that electric-car customers care about design and battery life as well as the environment. Netflix showed you need blockbuster new content with lots of buzz around it. VW and Disney now know that.

The second point is that second-movers typically have deep pockets; they can often spend whatever it takes to break into the market. Volkswagen and Disney are the most extreme examples of that at the moment. But very soon it may be happening across lots of industries from retail to financial services to food delivery. 

Old dogs can learn new tricks

The stockmarket has assumed for a long time that the tech start-ups will always win. The disruptors will always walk away with the market, secure the loyalty of customers, and reap the rewards of that. Sometimes, they might. It is hard to see any rival dislodging Amazon in online retailing, for example. Likewise, it seems unlikely anyone will dislodge Apple in premium mobile phones. Both companies look too far ahead (although we might have said that of Netflix a few months ago).

Sometimes, though, all the pioneers do is demonstrate new business models, which some of the old giants then perfect. And as that becomes clear, investor sentiment is going to change dramatically. Plenty of the high-tech stars will come crashing down to earth – and some very old companies will suddenly reinvent themselves. 

Over the last decade, investors have focused on the tech disruptors turning industries upside down and establishing a permanent competitive advantage. And yet, over the last few months something more interesting, and potentially significant, has been happening. Some very old companies have been doing a lot better than the new ones. The empires are striking back.

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