Competing with Platforms That Ignore the Law

Competing with Platforms That Ignore the Law

nodiving

 

As consumers, it’s easy to love the latest generation of tech startups. Uber reliably provides cheaper and more convenient rides. Airbnb is similarly alluring — lower prices for more space than most hotel rooms. Meanwhile, Zenefits modernizes human resources workflows with slick software to replace outdated paper. And Theranos’s advanced medical tests promise to reduce vials of blood draws with tiny thumb-pricks. Who could resist?

Look more carefully, and there’s reason to pause. For example, Uber promises to be safest, but its partner drivers and their cars are not subject to the safety rules that govern taxis. Similarly, Airbnb hosts rarely install the protections required at hotels, such as sprinklers and fire escapes. So an Airbnb property may offer one-of-a-kind charm at an affordable price, but could turn into a death trap in the event of a fire.

Zenefits’ HR software has clear appeal, but regulators across the U.S. were alarmed to find that most of its sales agents are not properly licensed and trained to sell group health insurance. Some admitted Googling for answers to customer questions rather than replying on training or experience. Zenefits’ recently-ousted CEO even created a tool that enabled its agents to skip state-mandated online training courses.

And then there is Theranos, which is now in the eye of a cyclone: Its tests were long known to be uncertified and regulators had begun to challenge them, but a further investigation has found the company’s tests “deficient” and inaccurate, causing “immediate jeopardy to patient health and safety” (according to a report from the federal Centers for Medicare and Medicaid Services).

So savvy customers have every reason to be concerned by offers that might at first seem too good to refuse.

What about the companies that have to compete with these firms? One might imagine incumbents starting with a media campaign to tell customers about the corners that entrants cut. But talking about a competitor’s shortfalls risks sounding like a sore loser unable to prevail on the merits.

Nor can incumbents necessarily rely on regulators to enforce legal requirements. For one, in many jurisdictions, regulators face pressure from consumers or the political process to let new entrants provide services that consumers consider exciting and attractive. Furthermore, regulators need time to investigate new situations, and procedural requirements may limit their ability to act quickly. From the perspective of a company that follows the rules, it’s risky to count on a regulator; even if the regulator ultimately requires changes, the new service may by that point be entrenched and even more difficult to stop.
Insight Center

Other incumbents turn to lawsuits, directly challenging the entrants’ tactics. But outcomes are unpredictable, and we’ve already seen several cases where incumbents’ cases were rejected on technicalities without considering the merits. If a case proceeds, it may be costly and the resolution may again be so slow as to be overtaken by entrants’ entrenchment.

Despite these challenges, we don’t think incumbents’ situations are necessarily hopeless. In April’s Harvard Business Review, we offer a menu of options for concerned incumbents. Among other tactics, we suggest that incumbents may wish to embrace some aspects of these new entrants’ business models — perhaps somewhat greater flexibility, modernization of customer-facing operations, and certain kinds of cost-cutting. But incumbents should also play to their strengths, such as emphasizing the convenience and safety of their services as well as the assurances provided by their trusted methods.

So how might a hotel operator respond to the rise of Airbnb? In general, Airbnb seems to attract the most price-sensitive customers, so it might seem that a midrange hotel should move up-market, adding amenities to attract customers less interested in Airbnb. But if these additions compel a price increase, this approach could backfire and the hotel may actually reduce its appeal to the price-sensitive customers already at risk.

A more promising response might be to make improvements that Airbnb can’t easily match. For example a hotel can accommodate check-in any time, which guests generally can’t count on doing at most Airbnb properties. A hotel operator might do well to emphasize and assure that benefit by having counter staff present round the clock or by providing automated check-in kiosks for extra convenience. Similarly, the operator could focus on delivering a consistent and predictable brand experience, as a contrast to the almost-inevitable idiosyncrasies of Airbnb’s model. To that end, the operator should take a look at the quality of the rooms and revisit the low end of its portfolio to make sure that all rooms and properties are up to brand standards.

Another interesting response to Airbnb is pod-style hotels which offer guests relatively small rooms and standard furniture. What they focus on instead are the common areas, where they can bring travellers together in social environments that distributed Airbnb properties struggle to match. And with smaller rooms and basic fixtures, their costs may approach or even beat those of informal competitors. CitizenM, the Pod Hotel, and Yotel are testing this model in New York City and several cities in Europe, and it seems to be gaining traction.

It’s easy to accuse platform-based companies of unfair play, but there is little doubt that they’re here to grow. The savviest incumbents are fighting back by playing to the strengths they have — or could develop, if they thought about it. Uber and Airbnb succeed by seducing customers disenchanted with the services typically provided by taxis and hotel chains. Would those customers have switched affections so easily if taxicabs always met expectations and hotels were reliably delightful?

Benjamin Edelman is an associate professor at Harvard Business School and an adviser to various companies that compete against major platforms.

Damien Geradin is a professor at Tilburg University and at George Mason University School of Law, as well as the founding partner of EDGE Legal, a Brussels-based law firm specializing in EU competition law and intellectual property law.

 

[HBR]

March 30, 2016 / by / in , , , , , , , , ,

Leave a Reply

Show Buttons
Hide Buttons

IMPORTANT MESSAGE: Scooblrinc.com is a website owned and operated by Scooblr, Inc. By accessing this website and any pages thereof, you agree to be bound by the Terms of Use and Privacy Policy, as amended from time to time. Scooblr, Inc. does not verify or assure that information provided by any company offering services is accurate or complete or that the valuation is appropriate. Neither Scooblr nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising, for any error or incompleteness of fact or opinion in, or lack of care in the preparation or publication, of the materials posted on this website. Scooblr does not give advice, provide analysis or recommendations regarding any offering, service posted on the website. The information on this website does not constitute an offer of, or the solicitation of an offer to buy or subscribe for, any services to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful.