The logo of car-sharing service app Uber on a smartphone over a reserved lane for taxis in a street is seen in this photo illustration taken in Madrid on December 10, 2014.SERGIO PEREZ
Settling in for the evening with a glass of wine and a movie on Netflix, it can be easy to forget how remarkably new that experience is. Just a scant few years ago, you would have had to trudge to the video store and rent a DVD. To talk of "digital disruption"—that capacity of the Web to upend what was only recently familiar—may already border on cliché, but it's hard to deny digital companies like Netflix have changed the world markedly and rapidly with novel ideas and services.
That first wave of change wrought by the Internet saw daring new businesses replace physical things with digital ones—DVDs with streaming, traditional newspapers increasingly with online news. Now, we're in phase two: Rather than some digital upstart usurping the physical world, digital is instead infiltrating it. This is the beginning of an era in which businesses are built not on developing radical new products, but on "piggybacking"—hitching a ride on existing behaviour to extract value from it. And it could have significant ramifications for both how and where companies reap profit.
The most straightforward examples of piggybacking are financial applications. PayPal, for instance, recently launched PayPal.Me, a service used to move money between individuals, generally in the small amounts of friendly loans, wagers and other personal transactions. PayPal has taken an activity that's already occurring and put a small toll on it—creating a business by centralizing and then charging a fee for what was once scattered behaviour. In a similar vein, some companies are using apps to tap into global remittances, in which people send money back to their families in their countries of origin. One of them is Transferwise, which significantly undercuts banks' in-ternational transfer fees.
But moving around cash is, in essence, still a digital transaction—money in the 21st century being mostly ones and zeroes. Piggybacking is perhaps most significant when it is applied to those things that cannot be made digital. Consider Uber, the onetime start-up and now enormously valued company that is quickly becoming emblematic of the age. Though it began as a way to simply hail a ride, investments in mapping and self-driving technologies reveal its plans to become something much bigger: namely, an entire transportation platform. An important part of its model, though, is UberPool, the recent offshoot service that facilitates carpooling.
It sounds like a small thing, but as Stratechery analyst Ben Thompson recently argued, Uber sees very little difference between a car driven voluntarily by a person and one that drives itself—that is, what is important is the power of Uber's network to aggregate rides, not the specifics of each one. In both instances, a business model emerges by facilitating a thing people are already doing mostly for free, and then charging for it.
Of course, all business is based on offering a new product or a better, more efficient service. But the case for piggybacking comes from those old digital buzzwords: scale and aggregation. What Uber, PayPal and apartment-sharing service Airbnb are doing is using digital platforms to take once-dispersed, decentralized activity like renting out your apartment or providing a carpool, and collecting it under the umbrella of their apps and services. Then, because digital platforms can grow their user base so fast—making it far easier to find a room or hitch a ride—the minor fees placed on the service turn into significant opportunity when at scale.
As a strategic model, though, what piggybacking changes is the notion of enterprise as a vertically integrated group focused on execution: You have a strategy, and then you deliver on it
through layers of management and em-ployees to successfully offer a product or service to an end user. But in a world in which the smartphone and digital have changed how people interact with and consume services, execution is no longer about creating demand for a radically new thing. Instead, it almost requires entrepreneurs to work backwards, seeking opportunities by looking at existing patterns and then identifying how to embed their own business or platform into them.
In that sense, the key takeaway is to shift from product to facilitation—to find the best way to cast a digital net over currently unmonetized behaviour and then suck value from it using technology. To use an old-school analogy, think of it as mining: Rather than creating something new and radical, like Netflix, the value is already there, waiting. All you need are the right tools to find it and dig it out of the ground.