In a recent catch up with a mentor, they shared a challenge with me:
Think about the big macro trends in your industry that were playing out over a 10-year time frame. This is the reality now.
This is certainly evident when you consider that in the last 5 months as a result of COVID, we’ve seen:
- Appointments with doctors, specialists and psychologists have moved to Zoom & the roll-out of online prescriptions
- Widespread uptake of remote work and digital workplace tools (e.g. Microsoft Team, Slack)
- Significant shifts to video-conferencing for work, learning (school and university), exercise & fitness, conferences and social events
- An almost entire shift to a cashless society
- The rapid growth in online shopping, restaurant, take-out & grocery delivery.
The Diffusion of Innovation Theory
According to Rogers, society can be divided up into five categories based on an individual or organisation’s likelihood to adopt new technology:
- Early Adopters
- Early Majority
- Late Majority
Adding to this theory, Geoffrey A. Moore in ‘Crossing the Chasm‘ in 1991 identified that a critical step in the diffusion of innovation is the period when innovation moves from early adopters to the early majority.
Reflecting on the changes we’ve experienced in the last 5 months, in most cases, we’ve seen an acceleration in the pace at which innovation has either:
- Crossed the chasm from early adopters to the early majority and/or
- Diffused throughout the entire adoption cycle
Acceleration of Adoption
Innovations that have seen a significant acceleration in adoption since the onset of the COVID pandemic include:
Telehealth rapidly transitioned from Innovators, skipping the Early Adopter stage, crossing the Chasm straight to the Early Majority.
According to The Conversation, as a result of COVID, during lockdown:
- 36% of all GP consultations was via telehealth
- Specialist consultations delivered via telehealth increased tenfold in March, from 0.7% to 36% in April.
- Prior to coronavirus, around 4.5% of all consultations with psychiatrists each month were via telehealth, this rose to 26% in April this year
Note: Much of this uptake has also been a result in Australia of additional health services being added to Medicare coverage for telehealth delivery.
In 2010, the Federal Government estimated 6% of the labour force had some form of working from home arrangements (Source)
Digital Workplace Tools
Digital Workplace Tools have crossed the chasm from Early Adopters to the Early Majority:
- Zoom has grown from 10m daily meeting participants in December 2019 to over 300m by April 2020. (Source)
- In November 2019 Slack had a total of 12m daily active users (DAU (Source) and hasn’t updated this number since. They have however announced that they have had 12.5m simultaneously connected users, a figure which grew 2.5m in 2 weeks (Source)
- According to Statista, Microsoft Teams has seen usage go from less than 20m globally in November 2019, to 44m in March 2020, and then a further staggering 75% growth to 75m in April 2020, with over 200m meeting participants in a single day in April.
Exercise & Fitness
Online fitness provider Virtuagym noted a 300% increase in the use of online workouts in 2020. (Source)
Globally, over 1.2 billion children in 186 countries according to the World Economic Forum have spent time out of the classroom.
In Australia, according to the ABC the height of the coronavirus pandemic, school attendance rates were roughly 10 per cent in NSW and Victoria, with 90% of students shifting to home learning (which entailed high levels of online learning). Furthermore, Australia’s 1 million+ university students were also transitioned rapidly to online learning
Globally, enrollment at Coursera – an online platform that offers massive open online courses (MOOC’s) skyrocketed growing from 1.6 to 10.3 million enrolments, representing a 640% growth on mid-March to mid-April than the prior year.
In China, the Chinese government instructed a quarter of a billion full-time students to resume their studies through online platforms, resulting in the largest “online movement” in the history of education with approximately 730,000, or 81% of K-12 students, attending classes via the Tencent K-12 Online School in Wuhan.
Digital Payments and Contactless Mobile Payment Services
Based on RBA data, only the late majority are still largely using cash for payments.
Additionally, there’s been growth in non-bank mobile contactless payments from 7.1% to 10.8% of Australians between March 19 and March 20. This figure will likely be even higher as lockdowns and the shift to contactless payment particular increased in April 2020. (Source) Mobile point of sale payment is also expected to be used by 5.1m Australians by 2024. (Source)
According to the Australia Post Research Report, in 2020, we have seen more people shopping online than ever before – up 31% in April to 5.2 million, when compared to the average in 2019. More than 200,000 new shoppers entered the market in April 2020 and purchased something online for the first time.
It was predicted that by 2025 online shopping would account for 16–18% of total retail spend, but the recent growth suggests the pandemic has brought this forward. We’re anticipating that by the end of 2020, online spend will hold a 15% share of the total retail market.
Are the changes permanent?
Yes with a caveat.
While clearly some of the peaks in usage will drop off as people return face to face interactions, once an innovation has diffused through the cycle and market, it means it’s here to stay.
The extent to which innovations that have diffused throughout the market continue to maintain such high levels of user adoption and use post-COVID and easing of restrictions will depend on:
#1 Similar Digital v Real-World Experience
If digital delivery of the product has similar (or better) experience levels to in-person delivery, usage will remain elevated.
#2 Poorer Digital Experience but Offset by Convenience
If the experience is poorer than real-world delivery BUT, the benefits of convenience of digital delivery outweigh these perceived disadvantages in digital delivery, usage will drop from peaks, but still remain high. Over time, as innovation drives improvement of the digital experience, the added benefit of convenience will drive growth. (Read Clayton Christensen’s Theory of Disruptive Innovation for more on this)
#3 Poorer Digital Experience
Where the digital experience is significantly poorer than the real-world experience, and convenience benefits do not outweigh this, there will be a fairly quick return to old purchasing habits and significantly reduced ongoing usage of digital delivery.
What does this all mean?
There are three clear implications of the acceleration of the innovation adoption cycle:
- Rapid Structural Change in Industries
- Increased Competition
- Increased Innovation
Rapid Structural Change in Industries
Changes bring opportunities and COVID creates the possibility of the rise and fall of different players within industries.
Smaller, more agile businesses who have already been investing in technology and digital delivery (betting on the eventual diffusion of innovation) now find themselves positioned (more quickly than anticipated) for significant growth and the opportunity to take market share from larger more established players.
The extent to which these smaller, upstart firms will be able to hold the market share they have captured will depend on:
#1 Upstarts Ability to Scale
Their ability to build the systems and team to scale to support the rapid growth in their business, and to fully take advantage of the opportunity
#2 Speed of Established Players Transition
The speed at which the more established market leaders in an industry respond, and make a smooth and effective transition to digital delivery.
#3 Length of COVID Restrictions
The length of time COVID restrictions remain in place and the extent to which innovation has diffused throughout the adoption cycle (as this will further disrupt the larger players making it more challenging for them to transition in time). Read more on how the length of time COVID restrictions will impact behaviour here.
As rapid change starts to occur within industries, this will lead to increased competition.
In the short-term, some firms may close down due to struggling to be able to make a transition to digital delivery AND not having sufficient cash reserves to fund their transition. This will whittle players down to larger more established players with cash reserves to invest in transitions, and upstarts who were already positioned for the digital transition.
As upstarts who have already been placing bets on digital delivery grow and steal market share, there will be increasing competition as the more established industry leaders seek to maintain their market position and dominance.
Additionally, as innovation crosses the chasm, and diffuses through to the majority (early and late) the size of a market opportunity materialises and becomes more clear and concrete. Prior to this, while an innovation is only being used by innovators and early adopters, you have a hypothesized market opportunity (it’s all blue sky, but there may, in fact, be no sky at all), and the true extent of the market is not often clear. You’re taking a bet.
As an innovation crosses the chasm, the level of certainty of success and revenue opportunity becomes clearer, and this will lead to many new market entrants (depending on the degree of defensibility of an innovation and the capital investment required) attracted by the market opportunity. For more on this watch Peter Thiel (founder of Paypal, Palantir and first investor in Facebook) discuss the nature of competition here.
This, therefore, will over time lead to additional market entrants and increasing competition.
Increasing competition will also accelerate the pace of new innovation.
As new entrants seek to enter more clearly defined and viable markets (where innovation has now diffused into the majority), this will produce innovation as these entrants seek ways to differentiate themselves.
Furthermore, typically new innovations of existing products occur once the product has crossed the chasm and is at the beginning of adoption by at least the late majority.
At this point, you’ve also got a growing percentage of the existing user base (that will represent a sizeable enough market on its own) that may be starting to hit the edges and limits of the effectiveness of the existing product, and looking for solutions for their developing usage needs.
This, therefore, encourages innovation and new product development to serve this growing base of users of an existing product (who were likely it’s innovators and early adopters).
Overall, this means that the quicker an innovation is adopted and diffused through the market, the faster innovations begin to be developed and the quicker we move into overlapping innovation adoption cycles.
While it might be hard to find any silver lining relating to COVID-19 right now, the acceleration we are seeing in the innovation adoption cycle will result over the long term in higher levels of innovation and improved living standard. Unfortunately, the shorter-term structural change (and unemployment that goes with it) is likely to be painful.
- What industries do you think will see rapid structural change?
- Which services and products do you think will see sustained ongoing usage once restrictions (& fears) subside?
I’d love to hear your thoughts – let me know in the comments!