Weekly Update

Leveraging existing assets for disruption

Let’s compare two ways big tech companies are differentiating themselves this week: using contrarian marketing angles and using existing assets to enter new markets. We’ll look at four stories of disruptive moves. A common strand we find in each of them—whether a move of market enhancement or market extension—is the value of low-cost infrastructure and a large-scale customer base for continuing disruption.

Two of the stories involve going at competitors from a different angle:

And two of the stories involve using built-out infrastructure to enter a new competitive niche:

T-Mobile using a new technology

T-Mobile is known for disrupting the market for mobile service on a price basis. This makes sense given that the company hasn’t historically been known for being first to market with the highest-speed networks. Now, however, T-Mobile is an early adopter, rolling out a new technology that should significantly increase the consistency of call quality within its LTE network.

Gigaom’s Kevin Fitchard had a scoop on the story last June, but he was able to get confirmation on the deployment this week from Mark McDiarmid, the company’s VP of technology. The 4-by-2 multiple input-multiple output (4×2 MIMO) technology uses multiple antennas to send twice as many transmissions to a phone as is usual in  LTE (2×2 MIMO). While this doesn’t crank up network speed, it does improve transmission around obstacles or at the fringes of a network.

Amazon challenging online grocers

On Wednesday, Amazon launched Prime Pantry, which unlike its Prime Fresh service doesn’t compete with FreshDirect, Peapod, or Instacart on speed of service. However, Gigaom’s Laura Hazard Owen, who had the story and has already done price comparisons with FreshDirect, Instacart, and local New York City grocers, has found that Prime Pantry clearly undercuts its competitors on price. The service allows customers to mix and match small quantities of low-cost groceries for a combined delivery charge of $5.99 per 45 pounds of product.

Amazon using its own trucks

No, there’s no need to look overhead for the drones quite yet, but Amazon is testing the use of its own trucks for ‘final mile’ package delivery in San Francisco, New York, and Los Angeles. The company is moving to vertically integrate its supply chain by supervising contractor-supplied trucks and drivers. This trial does compete on speed of service, as it enables same-day delivery of packages that FedEx, UPS or the U.S. Postal Service can’t match. These trials were started late last year, following an earlier rollout in the UK. But the Wall Street Journal has the story, reporting that last year’s Christmas delivery snafus with the usual carriers created a greater sense of urgency for Amazon to control its last-minute delivery.

The move can also be seen as an effort to counteract the advantage that brick-and-mortar retailers like Wal-Mart have in providing same-day, local delivery in combination with the proficiency they have now also achieved in Amazon’s online turf. However, Amazon’s scale of delivery and prowess in logistics present a direct threat to the traditional package delivery services.

Facebook filing to provide online banking

Fortune this week picked up on reports earlier this month in the Irish press of Facebook filing with Ireland’s central bank for an e-money license to provide its own Bitcoin-like currency. With approval possible within the month, Facebook would be able to provide the service across Europe.

In leveraging its customer and technology network to provide a form of payment services, Facebook would be joining non-banking companies like Google, T-Mobile and Sprint that are similarly looking to leverage their technology platforms in financial services. Facebook’s approach is slightly different, however; and with its services and reach, the company may be especially suited to serving the many under-banked customers in developing markets.

The value of low-cost infrastructure

A common strand in all of these moves—whether market enhancements or market extensions—is the value of low-cost infrastructure and a large-scale customer base for continuing market disruption. In that sense, this dynamic is just a modern update to the manufacturing advantage that the Japanese automakers used successfully against Detroit in the 1970s and 1980s.

While Toyota and Honda initially competed against the American car manufacturers at the low end of the market, they used factory automation, in part, to gain a cost advantage in producing small and simple automobiles. Having solidified that niche in the market, however, they were able to leverage that same technology to provide better and better made cars. First they were able to establish a quality advantage, then they moved up-market to producing larger autos. Finally, they were able to disrupt the luxury segment with their Lexus and Acura brands. (Even earlier, Honda had been able to leverage its manufacture of motorcycles and motorcycle engines to get started as a low-cost manufacturer of autos.)

The implications for enterprise IT

The implications of this dynamic for enterprise IT are pretty clear. A low-cost technology delivery platform becomes a vessel for delivering more, new, and better products both within traditional markets and beyond. Companies that have achieved a common, low-cost and flexible technology platform are in a position to roll out new competitive offerings, enter new markets, and counter competitive challenges. Those that have not are sitting ducks for sharp-shooting competitors within their own markets, as well as for hunters from neighboring or foreign markets—or putative partners within their supply chains.