Wednesday, January 14, 2009

Guerrilla Warfare in Business - Armed with New Technology and Business Models

When the founders of PayPal and Skype appeared, they were heavily armed with new ideas, technology and business models. They established new paradigms by challenging existing companies and conventional banking and telecoms strategies. All the time with their customers' needs in mind. And the story continues.

The idea behind PayPal ( when it started in year 2000 was to provide its customers with a simple and inexpensive method of sending and receiving money using an electronic wallet. Eight years later the company has in excess of 164 million accounts (of which 65 million are active), reaching customers in over 190 countries. It processes transactions in 19 different currencies, totalling US$15 billion in 3Q08.

To put PayPal's growth in perspective: American Express spent over 50 years to build a customer base of 80 million cardholders!

Skype has enjoyed similar exponential growth for its internet based phone service( In five years, Skype has reached 370 million users who enjoy free phone calls, instant messages and video conferences via the web. The company is as such a serious threat to existing telecoms suppliers.

Disruptive Innovation Creates Business Earthquakes
Years before PayPal and Skype, Mr. Clayton M. Christensen launched the term ”disruptive technology” and ”disruptive innovation” to describe these types of business earthquakes. However, the phenomenon is by no means new. We could for instance have gone back to the introduction of the first automobile, and how transport has evolved since then.

Look at digital technology, and how it almost drove Kodak out of business. Our behaviour as consumers have changed dramatically since Kodak (!) introduced the first digital camera 17 years ago. We now take lots more pictures (lots!), we frequently "develop" them ourselves by printing them on our own printer, and the old-fashioned photo album is replaces by a giant flat-screen TV in the living room.

The similarity between these disruptive innovations is frequently the wish to offer simple, user friendly, inexpensive or even free services to the mass market. Niklas Zennstrom, one of Skype's founders, has more than once touted Skype's user friendliness - "if you know how to use a web browser, you know how to use Skype."

The Next Earthquake in Media
The competitors do whatever they can to retaliate and retain its customers. All resources are deployed to remain competitive, including technology, marketing, and price dumping. Other stakeholders also engage in the battle, such as the Indian government who announced that it would ban internet telephony for security reasons and loss of revenue.

Skype and PayPal have since joined forces under eBay's protective wings, and PayPal's e-wallet is widely used to pay for eBay purchases or top-up Skype for SkypeOut calls.

The founders of Skype have since launched Joost (, an interactive internet service for distribution of TV and video on the web. It's highly likely that Joost will contribute to another business earthquake, this time in the media industry. The guerrilla war is by no means ended.

No comments:

Post a Comment