When James Monsees and Adam Bowen were studying product design in Stanford University, they became friends during the smoke breaks. Their struggle to quit smoking led them to try and create a product that might help. In 2007, they founded Ploom Inc, which became Pax Labs, and began development on a line of cannabis and nicotine vaporisers. This eventually created the product now known as Juul — a slim, silvery USB-stick like device that has become a massive hit, particularly among the young. Its unusual look, approach to marketing, and product was a huge disruption that paid off. It sold 2.2 million devices in 2016 during its first full year on the market, and has made $1.26 billion during the first half of 2019. Its flavoured pods are wildly popular — accounting to 80% of its sales — and it’s become part of pop culture, spawning its own hashtags on Instagram, and even accounts that follow celebrities like Sophie Turner / Sansa of Game of Thrones using its product. The beautiful silver device could be easily hidden, could be charged via USB, and didn’t look like the weird tacky devices that its competitors used. Juul disrupted the market by looking nothing like the market, and by being aggressive in its marketing.
It’s paying for it now. Via TIME:
On Sept. 9, the Food and Drug Administration sent Juul a warning letter accusing the company of violating federal regulations by promoting its e-cigarettes as a safer option than traditional cigarettes and threatening the company with fines and product seizures if it continued. Two days later, the Trump Administration said it planned to pull from the market flavoured e-cigarettes such as Juul’s mango, creme and mint pods. […] Given the possible risks to the nation’s youth, Juul’s rapid growth has been accompanied by remarkably little oversight or regulation. And while there is a legitimate debate over whether e-cigarettes are safer for adult smokers than traditional cigarettes, and whether they can help addicts quit smoking, critics argue that Juul has assiduously followed Big Tobacco’s playbook: aggressively marketing to youth and making implied health claims a central pillar of its business plan.
Disruption isn’t always a good thing, as you can see. Laws often race to keep up with new products, and as companies move to maximise profit in a climate of late-stage capitalism, they have the potential to spread harm more quickly than overloaded courts can keep up.
We Need to Talk about Uber
When Uber first started gaining traction in Australia, I didn’t dare to use it by myself. Getting into a stranger’s car? Trusting your safety to an app? It took me several trips with a friend to download it to my phone, and when I first used it in Singapore, my parents freaked out and insisted I get a cab. Now, Uber is ubiquitous. Not even my parents question it any longer. In Singapore, Uber has been eaten by the taxis’ Grab App, but in Australia Uber is not just going strong, it’s getting more popular. I use UberEats almost exclusively, and I hardly ever use cabs here.
That being said, the last time I was in an Uber car, the driver asked me and my passenger to download Didi, another app. It was a Chinese competitor, one that gave drivers a larger share of the profits. It got me thinking. Is Uber really the great disruption that it claims to be — that people usually raise when they even talk about disruptive brands — or is it a fraud, a cancer on its drivers and an investment disaster that people don’t want to see?
Uber itself has warned that it may never make a profit. Via Wired:
Everyone knows that Uber is loss-making — something that, in Silicon Valley circles at least, has become almost a badge of honor. But the extent of its losses, slowing revenue growth, potential overvaluation, and the fact that Uber has warned it may never actually make a profit, casts serious doubt over its plans for world domination. It has turned into what Alyssa Altman, transportation lead at digital consultancy Publicis Sapient, called “the magical money burning machine.”
Less than five months after the confirmation of its US $3.1 billion acquisition of Dubai-based rival Careem — which had been one of the worst-kept secrets in Mideast tech — Uber posted the biggest loss in its history: a cool $5.24 billion in the second quarter. Little wonder that the August 8 filing prompted a selloff in Uber stock, which in mid-August hit $34 a share, 25 percent below the price set in its disappointing IPO.
So just how did the world’s largest ride-hailing app — and multiple millionaire-maker for Careem employees and investors — lose so much money? One factor was the stock-based compensation that Uber paid its employees, which cost it about $3.9 billion — yet there are multiple factors behind the higher-than-expected additional loss.
There have also been rapes and more, even in Melbourne, and the response of ridesharing companies have tended to be lukewarm. Safety and profitability aside, Uber has been effectively abusing its drivers, the people who make the app possible in the first place. Drivers are not entitled to minimum wage, sick leave, or any benefits that full-time employees get, even though some of them do work full time. In Australia, Fair Work has determined that drivers aren’t classified in as employees. In California, it’s another story:
Workers in California have just won a major victory. On 10 September, California senators voted to pass AB5 – a groundbreaking piece of legislation that permanently closes a loophole allowing companies to misclassify their workers as contractors, denying them benefits and livable wages.
As a Lyft driver, I share this victory with other gig workers: the janitors, construction workers and housekeepers. I and thousands of other misclassified workers will finally get the rights and protections that all workers deserve. What’s more, AB5 could lay the groundwork for other states and countries to stand up and protect gig workers like me.
Another disruptor, AirBnB, has created unique problems for cities:
Many cities say the short-term holiday lettings boom is contributing to soaring long-term rents, although speculation and poor social housing provision are also factors. Last year Palma de Mallorca voted to ban almost all listings after a 50% increase in tourist lets was followed by a 40% rise in residential rents.
Many are now trying to take action: in Paris, landlords face a fine if they fail to register with city hall before letting any property short-term (although many do not), while Amsterdam has tried to cut its annual limit for holiday lets to one month in 12, and last year Barcelona suspended all new short-term rental permits.
But city authorities now fear that the EU’s attempts to promote e-commerce and the “sharing economy” across the bloc are impeding their efforts to ensure that neighbourhoods remain both affordable and liveable for residents.
“The cities are not against this type of holiday rental,” they said. “Tourism provides a city with income and jobs. They do think they should be able to set rules.”
If you think about Uber as “cabs, but unregulated”, and AirBnB as “renting, but unregulated”, you can see how and why the damage caused was so widespread. Laws are often put in place to regulate industries for a reason. By finding loopholes within the system, the gig economy — while extremely useful for many — has also created a host of problems that it’s ill-equipped to address. That’s unregulated disruption for you, and we should’ve seen it coming.
Is Disruption Really That Bad
Disruptive brands become successful because they address an untouched niche in the market. Being able to summon a car to you from anywhere using an app and watch it approach on your screen is great. Being able to book an apartment for a short holiday stay instead of a hotel is fun. Having a vaping device that looks futuristic is cool. They are, in a way, a natural result of market forces. Brands hope to come up with a disruptive product because of the way it has the potential to not just create tons of profit, but also because of the way they can then manoeuvre to dominate their particular industry.
In a way, by having identified these niches in the market, these brands have opened the way for competing brands to proliferate, brands that might address the ethical problems in their progenitor apps. FairBnB, for example, is trying to become an ethical alternative to AirBnB, with a pilot launching in a handful of European cities this year:
Fairbnb is launching a pilot in five European cities in April – Amsterdam, Venice and Bologna in Italy, and Valencia and Barcelona in Spain. The company pledges to give half its profits to local projects, such as housing for neighborhood associations, nonprofit food cooperatives or community gardens.
Veracruz said members of the community, as well as travelers, would be involved in suggesting which causes to support. He added that this investment policy would not make it more expensive than Airbnb, as the company will take the hit rather than passing these costs onto renters or hosts.
The company also promises to share data with regulators to help enforce local rules, and ensure each host rents out only one home. This might not eliminate some of the issues that annoy neighbors of Airbnb guests, such as noise. But it would stop people from posting multiple houses where they don’t live and don’t have to face the neighbors the next day.
For ridesharing, there’s now Via, which is trying to position itself as a more ethical company than Uber or Lyft. Some companies also try to course-correct, conscious of their public image. Juul has had to cut out all US advertising, and its CEO has stepped down. Too late, maybe, but it’s a start. Disruption for the sake of disruption might make a brand a lot of money (or the semblance of a lot of money) in the short term, but sooner or later, legislation will catch up. Building a great brand — a great company — can’t just be a case of having a cool idea. It has to be an adaptable idea too: one that will change according to raised challenges and issues.
Have a cool idea? Need some help working out the marketing and brand kinks? Get in touch.