06/07/2017 Business Models Which Bypass The Law Just like a great creative should not be the sole/key driver of any marketing activity, should bypassing laws be the basis of any new disruptive business? For most of us, Uber is a godsend. And why not? With fares much lower than taxis, cleaner interiors, courteous drivers, electronic payments & supreme ease of booking, Uber has maintained a great image (so far). A decade ago, Napster showed how early technology could make it easy to share songs & digital content until regulators practically forced a shutdown. Current regulatory concerns about Uber are similar to those raised against Napster a decade ago – because both the business models were based on breaking existing laws. The Uber Model Uber showed how easy it can be to run a taxi business – without owning a single vehicle. And actually created benefits for multiple stakeholders. Coming in at a time when “radio taxi services” with telephone-based customer-booking were already popular, Uber smartly replaced voice calls with smartphones connected to Google Maps at the customer’s end. At the drivers’ end, Uber asked drivers’ to use their smart phones in place of deploying expensive, radio taxi hardware. This created obvious infrastructure savings for the taxi operator. But Uber’s biggest advantage over incumbents went beyond this. It used ordinary vehicles with no special licensing or other legally required formalities. This cut costs of additional fees for commercial insurance, commercial registration, commercial plates, special driver’s licenses, background checks, rigorous commercial vehicle inspections, etc. And these hidden savings were significant enough to help Uber get a significant cost benefit over existing taxis & car rental services, which it passed to consumers & car owners, resulting in high popularity and growth rate. Napster Not more than a decade ago, it was Napster who disrupted the then-nascent digital music industry by skirting the legal system of paying for songs. It made it extremely easy for users to download & share a single copy of a song with millions of users. Thus, a single song purchased by a few hundred users was shared free of cost with millions of other users – reducing the legal income of copyright owners to less than 1%. Of course, users were delirious because digital content became available for less than a song! But record companies & artistes ensured that this model was ultimately unsuccessful. No Saints Let’s face it – companies break laws all the time, especially large ones. But these malpractices are usually executed at a B2C level, where individual customers are systematically scammed. Insurance companies mastered this art (by not paying / underpaying claims). With digitalization, telcos & banks took it to the next level for (underhand) micro-revenue generation. Today, all consumers accept such malpractices on a daily basis. (Given the state-of-the-art technology available, it is apparently too tempting for a bank or telco NOT to indulge in covert malpractices!) The Question There’s a clear difference though. While banks & telcos & other large companies may continue to indulge in covert malpractices for extra profit, their business models are not based on bypassing the law. Napster, Uber, Lyft, Didi on the other hand, based their business model with the overt assumption that they could bypass the laws (until at some point of time – hopefully – they can get the laws “suitably” changed!) Bringing us back to the question: Should the basis of any disruptive new business model hinge on deliberately ignoring existing laws?