MIT_Sloan_Management_Review_-_Spring_2020

SLOANREVIEW.MIT.EDU SPRING 2020 MIT SLOAN MANAGEMENT REVIEW 31

Given the success, reliability, and proven value of
these new D2C competitors, it’s hardly surprising
that the value of many established brands is in sharp
decline. Just as digital technologies allow companies
to build businesses almost overnight, social media,
digital channels, and online influencers can help new
brands build meaningful identities and reputations
at warp speed.

The Digital Elements of the
New Disruptive Model
These new D2C businesses have several similarities,
each driven by digital technologies, algorithms,
data analytics, and new forms of connectivity.

• Access to assets, not ownership of assets. Tr a d i-
  tional organizations used the assets they owned
  to both create competitive differentiation and
  establish entry barriers. The D2C organizations,
  instead, participate in digital platforms that can
  virtually represent both sides of an on-demand
  transaction, removing friction and risk. Contract-
  ing for asset usage on an open market allows them
  to scale quickly. However, it also makes their busi-
  ness models relatively easy for others to copy. The
  online mattress-in-a-box business, for instance, is
  thought to have as many as 150 new entrants. The
  amount of new entry echoes what Harvard pro-
  fessors William Sahlman and Howard Stevenson
  years ago called capital market myopia, in which
  startups charge into a category that can’t possibly
  sustain all of them.^4


• Cocreation with customers. Digital channels
  eliminate middlemen. As their name implies,
  D2C companies create a direct relationship with
  their customers. This gives them powerful feedback
  loops in which they can more rapidly experiment,
  iterate, and customize offerings with far more flexi-
  bility than a traditional retailer. The best D2C
  brands create a complete end-to-end experience,
  capturing the customer’s attention, loyalty, and
  data through the entire process rather than sharing
  it with anyone else.


• Always-on and mobile. There have always been
  organizations that sold directly to consumers
  (think L.L. Bean or Lands’ End). The new breed of

D2C companies, however, uses mobile technology

and mobile infrastructure to make interaction a

24-hour, always-on experience. Consumers have

come to expect that a D2C company is an easy and

accessible partner for transactions and support,

giving them what they want when they want it.

• Capital-light ecosystem business models. One
  common hallmark of D2C startups is that they
  require relatively little in terms of conventional
  capital. They outsource much of the operations,
  joining ecosystems built on digital platforms,
  where infrastructure becomes a shared resource.
  These companies don’t compete on better distri-
  bution or supply chains — they can put together
  complex supply chains in a fraction of the time
  and expense it would take in an analog world.
  Instead, they compete on what really matters: a
  better customer experience.

The Theory of Disruption:

What Stays the Same

Christensen’s original theory of disruption has

held up very well in explaining why startups with

little in the way of assets or existing brands can

capture market share from well-entrenched in-

cumbents. Just as the theory predicted, incumbents

considering investments in innovation that has the

potential to cannibalize the existing business still

find it unattractive and dangerous. They have little

incentive to pursue opportunities with thinner

margins than those enjoyed by their core business,

and their corporate metrics tend to reinforce this

status quo.

As Christensen also predicted, the “jobs” cus-

tomers seek to get done in their lives remain

remarkably stable^5 — even though digital technol-

ogies have created entirely new ways to get those

jobs done. Consider the job of making an apart-

ment comfortable by furnishing it. Today’s young,

nomadic urban workers often find that it’s more

convenient to accomplish that job by leasing furni-

ture than buying it. Incumbents can get blindsided

by this kind of shift in how a job gets done. In par-

ticular, they may find that their competitor isn’t a

traditional one but a company from a different in-

dustry altogether that has mastered the new digital

technologies. Apple, for instance, is partnering

These

companies

compete on

what really

matters:

a better

customer

experience.