Ever heard of Blockbuster On Demand? Yep, that Blockbuster, the once-dominant video rental store that ran itself into oblivion by sticking to brick-and-mortar. While iTunes, Amazon Movies, and Netflix revolutionised home entertainment in 2006, Blockbuster hesitated to embrace streaming until it was too late – entering the game five years behind the curve.
Funny thing is, Blockbuster had the chance to buy Netflix for $50 million in 2000, but dismissed the offer and laughed at the idea. Sound familiar?
Enter the Disruption Dilemma
Disruption is the seismic shift that occurs when new technologies or strategies upset the status quo, rendering old ways obsolete. Its the way Uber overtook taxis, how Amazon changed the way we shop, or the iPhone outperforming and ultimately ending Blackberry. Right now, its the way digital currencies are reinventing finance.
The dilemma arises when the traditional business practices that once drove a firms success end up becoming the thing that could upend its own future. The legacy incumbents may overlook or underestimate the potential of disruptive innovations because they don’t fit their current strategies or customer base. But, if they ignore these innovations for too long, they risk being overtaken by smaller, more agile competitors who capitalise on the new technology.
The essence of the Disruption Dilemma is finding the right balance between staying competitive with existing products while also adapting to disruptive innovations. Established players must confront a critical decision: adapt to the changing landscape or risk obsolescence.
Watch out, here comes crypto
The global finance market is currently facing digital disruption. Since blockchain technology emerged 15 years ago, the future of money has become uncertain. Tech and crypto companies are muscling in on traditional finances turf with digital currencies that are on an exponential adoption curve. The worlds most famous cryptocurrency, Bitcoin, is going from strength to strength, breaking into mainstream traditional finance with the introduction of 11 spot ETFs and reaching a new all time high of $73,000 USD earlier in the year.
Consumer interest in cryptocurrency is significant and growing fast, and while history has repeatedly shown that failing to embrace innovation can have dire consequences, many mainstream financial institutions have been slow to respond. Theyre sitting at a very important fork in the Disruption Dilemma road.
First outlined in Clayton Christensens 1997 The Innovators Dilemma, legacy incumbents respond to disruption the same way a child would grapple with a new baby sibling, and the clash between traditional institutions and the crypto industry echoes an age-old dynamic.
Stage 1: Dismiss Things are fine as they are
Initially, established players may disregard or underestimate the threat posed by disruptors. They may view the new entrants as serving niche markets or catering to customers with different needs, believing that their core customer base will remain loyal to their products or services.
We’ve seen this recently with Reserve Bank (RBNZ) Governor Adrian Orr weighing in on stablecoins and other cryptocurrencies, asserting they are not suitable replacements for central bank money and are primarily speculative investments. Adding, Concepts such as bitcoin; its neither a means of exchange, it’s not a store of value, and it’s not a unit of account. Yet people try to use it as that.
Stage 2: Denigrate Its just a fad
As disruptors gain traction and start encroaching on their markets, legacy companies may adopt defensive strategies such as aggressive marketing or leveraging their brand reputation to maintain market share. This is where legacy incumbents start to feel the pressure, and their responses are often attempts to drown out the disruptors with noise.
Last month, Jamie Dimon, CEO of JP Morgan, reiterated his long-held scepticism towards Bitcoin, dismissing it as a “public decentralised Ponzi scheme” and questioning its viability as a currency.
These comments echo a prevailing sentiment within traditional financial institutions aimed at undermining the credibility and legitimacy of cryptocurrencies. But defensive tactics do not address the underlying and unstoppable shifts in customer preferences and technology.
No matter how hard incumbents try to dismiss and, denigrate, and prolong the new era of decentralised finance, theyll need to make a decision. Do they go for digital gold, or do they settle for silver forever?
Stage 3: Imitate We do that, too!
If you cant beat them, join them. Were now witnessing a shift within traditional finance as one by one mainstream institutions around the world are turning to digital currencies for fear of being left behind.
Despite Dimons well documented and longstanding criticisms of Bitcoin, just this year JP Morgan became intimately involved with the new bitcoin fund. Its one of two authorised participants for BlackRock’s Bitcoin ETF, and participants for Invesco/Galaxy Digital and Fidelity. They now directly facilitate capital flows in and out of the funds.
Last year, British banking giant Standard Chartered launched Zodia Custody, a digital assets custody platform for institutional clients in Australia and New Zealand. The platform provides institutions with safe, secure access to crypto exchanges and bank-grade cold wallet storage.
And despite Orrs vocal criticisms of stable coins and cryptocurrencies the RBNZ recently opened consultations for a new digital currency for New Zealand. Intended to replicate the technological advantages of digital currencies we see in the free market, Orr admitted the central bank was working on the more efficient and effective way of circulating cash.
The RBNZ is not alone, as more than 100 countries are currently exploring Central Bank Digital Currencies, with the United Kingdom, India, Brazil and China at the forefront.
Reading between the lines
The disruption dilemma is not unique to any industry; it is a fundamental aspect of progress and well likely see this continue to play out in the crypto space.
I hope that consumers will take the antagonistic headlines with a pinch of salt and stop to question where it comes from and what the vested interest of the source might be before making up their own minds.
As we always say in the crypto industry, do your own research – it really is the best way to solve the disruption dilemma. This adage is often meant for consumers and users to make sure they do their due diligence before any investing – its just as well suited for businesses and industry players to do theirs when it comes to the disruption dilemma.