Thursday, 16 April 2015 10:57

Disintermediation: What do shale gas, Uber & Netflix have in common?


What do shale gas, Uber and Netflix have in common? Apparently nothing. Those are completely different industries with incomparable impacts on a country's economy. But they are all great examples of one of the most powerful trends for 2015 and beyond: the disruptive power of "disintermediation".

Silicon Valley venture capitalists often talk about "disruption" as a key aspect of an investment-seeking start-up. Do they challenge the status quo? Can they create new markets? Do they have the requisite scalability to grow exponentially?

On the other hand, disruption can be seen as an undesirable outcome of the impact technology can have on everything that surrounds us. It is a double-edge sword where disrupted industries (or companies) face a battle against obsolescence while those who cause it – the disruptors – stand to sow the seeds of market domination; think about Amazon, Uber and Airbnb just to name a few.

Disruption, however, is not an innovation trend per se; it's an outcome. The wider trend we are really seeing is what in my opinion will define 2015 and years to come: Disintermediation.

At a very fundamental level, disintermediation is the phenomenon whereby a certain market agent is so disruptive that it makes one or several pieces of its value chain obsolete.

Established companies (eg. GM vs Tesla), industries (eg. Taxi syndicates vs Uber) and even economies (OPEC vs shale gas) risk losing ground to more nimble new entrants who dare to challenge the status quo by creating more value than current players in existing value chains do.

Tesla's commercial approach is based on direct sales rather than dealership. It caters to a specific type of customer to which its superbly designed, connected and environment-friendly cars appeal. Established dealerships across the US tried, unsuccessfully, curb Tesla's advances.

Likewise, Uber has not only been transforming how people hire taxis, but also how cities (and countries) deal with the sharing economy. In the process, the company is creating thousands of jobs, offering more choice at affordable prices and commanding a valuation of around US 40bn.

Although the reasons for the recent plunge in oil prices cannot be solely attributed to the shale gas boom in the US, one cannot underestimate its impact on large oil companies as well as the OPEC. This is causing a major realignment in market dynamics - with rumours of looming M&A activity as a consequence of necessary consolidation if oil price remains under US$50 - as well as having relevant long-term geo-politics ramifications, which are still difficult to quantify.

In order words, low value-add players risk slowly becoming surplus to requirements and be bypassed; this is disintermediation at its best.

Having an established business is every business leader's ambition, but if there is a downside in being established it is the risk of becoming complacent and therefore losing the ability – or willingness - to keep innovating. In the end it's a matter of reinventing itself or becoming a victim of its own success.

Fernando Faria
Founder, innovaBRICS & beyond