Welcome back to our course on FinTech Disruptive Innovations: Implications for Society In this session, we're going to look at the concept of evolutionary disruption versus revolutionary disruption Or to what degree as an innovation truly a disruptive innovation to industry structure, or may it just be a level of change that the industry is able to adapt to, evolve within, and embrace Now, some revolutions, or technology revolutions, or technology innovations that are not inherently disruptive to an industry For example, go back in history the first automobiles were not disruptive of the horse and carriage industry They weren't that good, they were kind of niche products They worked, but they need a lot of work and they were kind of niche applications, and they were also kind of expensive In much the same way you could say that Teslas early cars were not that disruptive to Detroit or Tokyo auto industries Yeah, they took some high end sales, they might annoy you if you're Ferrari and you lost a couple of sales to a Tesla car But maybe not, and their niche high end products that relatively speaking in the market They may compete with Mercedes and you may not buy your Mercedes you might buy a Tesla, but it's not going to disrupt the entire industry structure Tesla Model 3's different And it might be much more disruptive, and as you move down in cost and more into mass market, you start to see a much more disruptive effect So what happened in the early auto industry is we said cars are kind of specialty, unique, a little unusual not mass market market things, and not going to challenge horse drawn vehicles The horse was the common way of getting around in carriage was common But then came Ford Henry Ford had a vision and a new process for making cars He didn't make cars as a new idea He found a new way of producing cars at much, much lower cost And it was the mass production process and driving down the price and the cost that created a disruptive innovation it created a car that was very attractive as an economic proposition, versus a horse drawn carriage Now you're talking about a market that's huge compared to the niche market of cars and Henry Ford had a vision of every man being able to have a car He'd be proud to see Americans every man having a car today Unfortunately, he might not like the fact that those cars are from Honda or Toyota and not necessarily Ford's that people are driving unless they're driving a truck But still, cars are common in society Ford did that, he was the first mass produced automobile manufacturer and he created a new market, a new disruption Now, some products may be disruptive for society or disruptive for some types of jobs, but the industry can adapt So AI and the automobile industry, let's go to today Self-driving cars How big a deal is this? Well Mercedes Benz has said if we do not get into this AI world and self-driving cars, we may not be in the automobile industry in ten years They see this as a big deal General Motors, Ford, others, heavily investing in AI Very concerned about what Google's doing, very concerned about what other firms are doing, and innovations in AI And looking and saying, we don't want to be left behind as people rethink what a car is and what this means for the industry I might talk to my brother about this who works in high-tech in Silicon Valley business and says, don't worry about it you're not going to be driving a self-driving car for at least ten years it's going to be too expensive, it's going to be high-end thing It's going to be for competing with taxis like Uber self-driving cars You're not going to have it as a mass market vehicle If that is the case, if my brother's vision is right, and I'm not saying he's wrong I'm saying my brother is not always right, but if he's right in this case, that is not a disruptive innovation That's an evolutionary innovation We'll have high cost cars, the automotive industry will be able to adapt there will be some leaders But eventually they'll acquire some leading firms or they'll acquire the capabilities and they'll be able to have time They'll have time to adapt, they will evolve But if self-driving cars within three years come out as mass market vehicles if Uber starts to provide lots of self-driving cars at low cost then this is incredibly disruptive to taxis if self-driving cars start to become a mass market items Tesla can make self-driving cars that work well, and don't kill people And sell them at a price point where you can say yeah $30,000 I can get a self-driving car Why would I get something that isn't self-driving? Now I'm not always sure I want a self-driving car I mean, my wife and I were talking about this and we love Corvettes If you're not an American, maybe you don't know what a Corvette is But if you've never driven a Corvette you've missed out on a really cool experience They're like a Ferrari for poor people or medium-class people they're really cool cars And I was thinking about this and saying you know what, I don't want a robot driving my Corvette Part of the purpose of owning a sports car is the thrill of driving it But I also don't want to drive home from the office I want to be able to get my car to come pick me up and take me where I want to go and be able to read or talk or do whatever I want to do I love the idea of self-driving car And there is no way I would be buying a car that is not self-driving if I have the self-driving option That would be saying, do you want a dump phone or do you want a smart phone Now, I of course want a smartphone Yeah, how stupid am I? I may take a cheap smartphone I may not need the newest Apple product, but I at least want a lot of these capabilities of an intelligent phone I like Apple better, I'm just not sure willing to pay the premium, but I definitely want a smart phone And I definitely want a smart car Is that a disruptive innovation? We don't know The automobile industry is trying to make sure it's not and so they're investing heavily in AI and they're trying to stay close enough to Google And close enough to other market leaders that they don't get bypassed because the danger is if they go three or four or five years they may be lost They may be obsolete In FinTech, what does this mean? For this, the question becomes how long do banks have to catch up? How long do they have to react? If market penetration of products, or ideas, or avocations is fast If consumer take up is fast, this could be devastating So if we look for example to China, and we look at what's happened with payment systems in China you've gone from a society largely based on cash where credit cards were not that common to a society largely based On smart phone payments with Alipay or Tencent Bank, or WeChat pay This is amazing This is fast And so you start to see this evolution happening so fast that it's going to be very very hard and probably impossible for traditional banks to react They're not going to get people back to a credit card when they've gone to a smartphone app and they're used to it It is so much more convenient Now in the US, we use Apple Pay, we use other forms of payment systems And we have Venmo, we have other things Some of these are real challenging But by and large banks have had time to react, in China they have not This is the difference between disruptive Innovations which are revolutionary in their change and disrupt an industry, versus evolutionary when you have time to adapt So one of the questions is how fast, how quick, and do we have time to react If we don't, we may be like a retailer who says I'm done I gotta go bankrupt, I can't make it Or we may be like a retailer who says, I see what's happening I can react, and adapt, and I'm still in business Thank you [MUSIC]
