In Australia, there’s been a lot of focus on innovation and entrepreneurship lately, not least because of the policy agenda (and dare I say propaganda) being pushed by our federal and state governments. As a result, perhaps more than ever before, there are a lot of people out there dreaming about coming up with “the next big thing”.
This is understandable (I’ve daydreamed about it myself). Wouldn’t it be great to be the next Uber, or Airbnb or Netflix? What great business models! Uber makes money from providing (or facilitating) transport services, but they don’t need to own any cars. It’s similar for Airbnb – they facilitate accommodation bookings, but they don’t need to own any hotels or accommodation facilities. Netflix is perhaps a little different because they’re not so much part of the sharing economy. But even so, Netflix would seem to be a wonderfully scalable business model.
So, from the outside, it might be easy to think that, for each of these, after the initial idea was conceived, the company simply “took off” and proceeded on a path of spectacular global expansion, without much effort, largely unhindered. But is that really the case? Is it really all plain sailing?
The answer, I think, is “no”. (At this point I should say that I have no relationship or affiliation with any of the companies mentioned here, so everything I’m saying is based purely on conjecture and what I’ve read elsewhere in the media.)
Take Uber for example. It’s well known that they’ve faced a lot of difficulties in a lot of markets, mostly due to resistance from existing taxi service providers and local authorities who struggle to decide whether Uber’s operations are legal under regulations that were made back when only traditional taxi services existed. On top of this, Uber has also faced a range of other expansion challenges. And I’m referring here to what happened to them in China recently. You’d think that China would be a massive focus for Uber, given the country’s population and therefore the size of the potential market for them. However, despite this, Uber recently made a decision to largely capitulate and allow its China operations to be acquired by local competitor Didi Chuxing (“Didi”). Under the deal between Uber and Didi (as I understand it) Uber agreed to sell its Chinese business to Didi in exchange for a share (roughly 20% I believe) of the ownership in the newly combined company. The deal also involved Didi buying a roughly $1 billion stake in Uber.
But why did Uber do this? A recent comment by Tech Crunch explains:
“While some may focus on the terms of the deal, the crux is that Uber was in a no-win situation in probably the largest ride-sharing market in the world, and now it can maintain a stake in that market without the continued financial bleeding it was experiencing ($1 billion in losses per year is nothing to sneeze at when you’re prepping for an initial public offering). Factor in the new regulations Uber was facing coming from the Chinese government that would tilt the scales even further into Didi’s favor, and Uber and its investors are probably more than a little relieved to become passive participants in China—even if it does bruise the ego a bit.”
So what this seems to suggest (to me anyway) is that whilst the power of Uber’s brand, not to mention its willing and loyal customer base in many places, might seem to be winning out in the war against traditional taxi services and hesitant government regulators (e.g. the state government here in Queensland, Australia recently announced that Uber will be made legal here), this is actually not true everywhere, especially in countries/jurisdictions which are legally and culturally very different to the Western markets where these brands originate.
And Uber is not the only example of this. I mentioned Netflix above. In a fairly short period of time, Netflix has become arguably the world leading video streaming company. It began its global expansion based on success in its home US market, and by early 2016 it had launched services in 130 countries. What then, could stop Netflix from becoming the world-dominating video streaming provider? The answer, if there is one, is perhaps the very different market realities in many other countries. As an example of this, Netflix apparently made a decision (some say a mistake) to maintain its price of $7.99 per month for a subscription in Cambodia. But the average annual income in Cambodia is only about $1000 per year. On top of this, less than 3% of the population in Cambodia have a credit card. Looking at Southeast Asia more generally, whilst this region has a population of over 600 million, apparently fewer than 50% of the population has a credit card, and most of these countries also have pretty lousy Internet speeds. Against that backdrop, Netflix’s expansion in Southeast Asia begins to appear a bit more challenging.
Anyway, the point is, even for these kinds of companies which might at first glance appear to have limitless scalability, there are nevertheless significant challenges to global expansion. Imagine, then, the difficulties faced by more traditional business models seeking to expand globally – businesses who sell actual physical products, for example – who face many of the same challenges but also, in addition, challenges relating to manufacturing, distribution, legal and regulatory compliance, quality control, theft and loss prevention, etc.
So, is it really a matter of coming up with an idea that is “the next big thing” and then just sitting back to let the money roll in? No. I don’t think so.
HOWEVER, that doesn’t mean that the initial idea isn’t important. The initial idea is still CRUCIAL – everything starts with the initial idea. And it’s often just as important to ensure that the idea is protected before it is made public. Otherwise you may not have the protection or exclusivity you need to get the idea off the ground, or to fend off competitors. But the point I’m making is that whilst the initial idea (and protecting it) is crucial – the idea alone (even if it is protected) does not a global brand or multinational corporation make. There is still a lot of work and struggle involved to get there.