PARIS, August 20, 2014 /PRNewswire/ --
A study by Tradingandipo.com
In the French electricity sector a "disrupteur" is a circuit breaker. In English, the verb to disrupt means to throw into turmoil or disorder, to upset, to disturb.
Over recent years, and within an astonishingly short timeframe, technological innovation and the Internet have triggered major upheavals of the established order of things with the emergence of new economic and social players that are today unavoidable global players. In many respects, the existence of these players looks like a logical - albeit accelerated - evolution in the direction that globalization has been heading for over a century. New vertical markets have appeared sweeping away or modifying the markets that served as their original foundation, generating unprecedented shareholder value in the process.
The Internet has profoundly modified global trade. Lots of firms that have been unwilling or unable to embrace the digital era have disappeared.
It is in fact impossible to resist the natural evolution of the economy and today's economy has become a "disruptive" economy. According to Clayton Christensen (1), Professor of Economics at Harvard Business School, capitalism is currently in the throes of a major and fundamental evolution. He first explored this theme in his book The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. The history of Kodak is an obvious example. With the arrival of digital photography, the company almost went under and only managed to escape bankruptcy by selling off its "Photos" activity in extremis, precisely the activity on which its reputation was originally founded.
To qualify as a "disruptor", a firm needs to be subject to the laws of Robert Metcalfe (2) (founder of 3Com) and Gordon Earle Moore (3) simultaneously. According to Metcalfe the utility of a network is proportional to the squared number of its users, and according to Moore, the performance of IT tools is improving at an exponential rate (doubling every 18 months). The combination of these two laws allows the disruptor to reduce its operating costs over time on the back of the "ever-improving" performance of digital and IT tools, and thus to create more and more shareholder value. We will now analyze whether Artprice is a pure disruptor in the Art Market.
Economic systems evolve incrementally whereas technology evolves exponentially, becoming the primary fuel of disruptors. Disruption manifests itself via the imaginative will of its instigator to break through the conformism that sets in either by habit or by monopoly, or both. Technological change thus allows the materialization of disruptive projects. Thirty years ago, who would have thought that we would one day be able to perform stock market transactions from our homes in a fraction of a second?
Nowadays the natural targets for disruptors are activities that can be dematerialized, where service costs can be substantially reduced, particularly those costs related to intermediation. One of the most recent examples is Uber, which is completely modifying the urban transport and taxi sector and is today valued at over 17 billion dollars.
The profitability of such projects is facilitated by ever-diminishing operating costs resulting from the combined impact of the Metcalfe and Moore Laws. As a result, investment risks are lower and profit targets are reached in much shorter timeframes. In this context, investor behavior follows a common-sense logic that favors disruptive projects at the expense of traditional ones, as the recent large-scale capital raising operations by Uber and Airbnb (4) have amply demonstrated. The high levels of market valuation reached by disruptive firms are therefore a perfectly understandable expression of this investment logic.
However, this logic does require a radical change in investment philosophy. Once obsessed with short-term profitability, capital is now targeting projects with the potential to create leaders that can generate very substantial profits in the medium to long term. The disruptor is an ideal and natural vehicle for this type of investment.
The disruptor short-circuits markets by placing demand in direct contact with supply. But to do so, the two sides of the market need to be standardized. The digital revolution and the Internet have allowed this standardization by offering an intuitively ergonomic environment that combines the description of the product or service with the necessary actions to complete the transaction. More importantly, the description and the actions are available in almost any language so that nationality is no longer a barrier to the market.
Through the capillarity of the Internet, these new players and these new networks and circuits have shown exponential growth rates. They ignore the notion of the Nation-State. The growth of the delocalized, dematerialized and virtual economy is giving birth to a common and unifying world. The driving forces of this evolution are global players like Artprice.
Social networks are an integral part of the disruptive economy and they play a decisive role by effectively acting as global advertising agencies for new services, concepts and ideas. Indeed, they act as unprecedented accelerators and are themselves disruptors.
There are plenty of other examples of disruptive activities: "crowdfunding" is a concept that is revolutionizing the banking sector by short-circuiting traditional calls to the market by banks and by considerably reducing the fees and commissions associated with such operations. Moreover, it gives donors freedom of choice by simultaneously offering a broad range of different projects. Crowdfunding offers a capital raising success potential proportional to the project's global exposure and it attracts new investors precisely because of this unlimited horizon.
In the accommodation sector, the AirBnB website has challenged the historical players of the hotel sector by offering hundreds of thousands of short-term rental solutions all over the world at prices way below hotel tariffs, simply by bringing supply and demand into direct contact with each other on its website, and without the inertia and operating costs of a hotel group.
Every time a disruptor has appeared, the traditional players, disturbed by the sudden arrival of an unexpected competitor, put pressure on governments. They try to slow the development of the disruptor by calling for the adoption of restrictive regulations, or by initiating legal actions or by engaging in intensive lobbying in rear-guard actions that are more often than not lost before they even begin. Because as Clayton Christensen emphasized "disruption represents an irreversible transformation of capitalism".
(1) Clayton Christensen, born in 1952, author of "The Innovator's Dilemma: when new technologies cause great firms to fall " In 2011, Forbes considered him "one of the most famous business theorists of the last fifty years".
(2) Robert Metcalfe, born in 1946, engineer and inventor of the Ethernet and founder of 3Com.
(3) Gordon Earle Moore, born in 1929, co-founder of Intel.
(4) Uber raised $1.2 billion in June 2014 and Airbnb raised $450 million in April 2014 with respective market valuations of $17 billion and $10 billion.
Trading and Ipo will analyse why Artprice is the disruptor of the Art Market ahead of the activation of artmarket.com [http://artmarket.com ]. Trading and Ipo will conduct regular studies and analyses focused on the major disruptors of their respective sectors.
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