From Buggy Whips to Rideshares: A Discussion of Disruptors


Tom Heintjes: Hi, and thanks for coming back for another episode of the Economy Matters podcast. I'm Tom Heintjes, managing editor of the Atlanta Fed's Economy Matters magazine, and today we're joined by Lauren Foley, a financial specialist in the Atlanta Fed's Supervision, Regulation, and Credit division. Thanks for joining us, Lauren.

Lauren Foley: Thanks so much for having me, Tom.

Photo: David Fine

Heintjes: Lauren has done a lot of research into what we've come to know as disruptors, or those companies and forces that dramatically change traditional approaches to business, and I asked her to come on the podcast today to talk about her research and share some of the insight she's gained from it. So, Lauren, let me jump right in: we hear a lot about disruptors, but I guess that can mean a lot of different things to different people, depending on where you sit and your perspective. To your mind, what constitutes a disruptor?

Foley: That's a great question to start off with. A disruptor is an innovation that creates either a new market or a new value network. Normally you'll have disruptors that are innovators, but not necessarily every innovator is a disruptor. Just because something is new doesn't mean it's going to be impactful in the...

Heintjes: It doesn't upend the whole industry.

Foley: Absolutely. With a lot of these, what makes it popular comes from how it gains traction in the community, and that's how it will kind of add on its scale in terms of being impactful as an actual disruptor—so ways that we will maybe start changing the way we do something, or the way we interact with each other, as it spreads larger-scale is really when we start to see impacts.

Heintjes: Lauren, haven't we always had disruptors? I mean, people still refer to buggy whip makers, which is still shorthand for a worker displaced by a disruptor—in this case the automobile, and that reference goes back like, what, now, a century? And the steamships disrupted the sailing ships, etc. Why does it seem like we hear so much more about disruptors today?

Foley: That's a fantastic point. Change is what is moving us forward, and continually hoping to improve our lives by either making them easier, or making the things we do more efficient. So why we're hearing more about them today is the speed at which things are being created, that new technologies are being implemented, the way that we can build on top of something that's already been built before—that speed is really kind of what is making it such a hot topic right now. And that there are also very low barriers to entry, because with all the advancements that have been made, and investments made up front, a lot of that information is being shared more readily than it used to be.

And I also want to point out, too—a lot of the new items being developed are smaller and smaller, it seems, with technology. So if you think digitally, for example, think about the number of new apps that we have that connect various aspects of our lives. The first app, if you go all the way back to Nokia's snake game for their phone that came out in 1997, and July of 2008 was actually when the first app store, Apple's App Store, was launched. From that time, we've grown to 2.2 million apps currently in the App Store, and there's 2.8 million apps in the Google Play Store. So just looking at how quickly just the digital and app space has been able to grow over time and able to connect us in different ways—and maybe help us approach problems differently than we could before.

Heintjes: Yes, I guess that is a much lower barrier to entry than, say, a new car model or new mode of transportation.

Foley: Absolutely.

Heintjes: Well, a lot of the media coverage of disruptors—I don't want to be extreme, but it sort of borders on the alarmist. But while "disruption" implies something undesirable, it's not always a bad thing, is it?

Foley: It's absolutely not. I think that the only aspect of a disruption that really isn't great is if you're actually the one being disrupted.

Heintjes: The employee that's disrupted; right.

Foley: Right—either the employee or the company itself. There might be a company that's been doing things one way, and either new technology or another company comes in with an idea that kind of shifts the game a little bit—if companies aren't looking ahead and trying to say, "Okay, I need to be on top of new innovation, understand market trends and what people are wanting and what they're doing with their time"—the ability to pivot is really going to be crucial for them.

Heintjes: I guess it'd be like, say, making cassette tapes and you're seeing CDs come out and you're thinking, "Gulp, I'd better do something!"

Foley: Right, fantastic example, yes. And one of the big things from the consumer's standpoint, back to my earlier point about what makes it popular, is—for companies, it's about creating things that make our lives better. So I keep going back to an app for example, but there are plenty of other topics that I know we'll jump into that have a lot of impact on the things we either do now, or maybe we don't do now because they've been either simplified or there's been a step taken out. That's definitely something that I wouldn't say is a bad thing, if we are improving the way that we live our lives day to day.

To your point about the invention of the automobile: try to think about getting around in Atlanta traffic on a horse, trying to get to work, you know? I mean, there are disruptions that maybe at the time seem scary and new, but a lot of it is built with the goal in mind that we are advancing where we are right now and improving our lives in some way.

Heintjes: Well, you've actually given me the perfect segue to my next question: almost every industry is touched in some way, directly or indirectly, by technological disruption, and the list of disruptions seems endless. But today I wanted to focus on some of the most popular disruptors and discuss their impact that might not be so apparent or immediate in our society right now. I guess the big ones that we hear so much about are Uber and Lyft and the other ridesharing services. I think they're great, but I might feel differently if I were a cab driver.

Foley: Yes, there are absolutely a lot of benefits to the ridesharing app that has come out. So let's start with your point about cab drivers and the effect on them. They have in fact seen a decrease in the salaried drivers aspect—they've seen about a 10 percent decrease in their earnings. However, the number of new people that have been employed as a result of these apps has actually far outweighed the economic impact of a salary decrease in cab drivers.

And to an earlier point that I made: adaptability is something that I already mentioned, and that is key here. So think about taxis: they have been around for a long time. The ability to have somebody come and pick you up and take you somewhere is not a new concept, but what these two companies—Uber and Lyft—have done is make that process easier and potentially more efficient. I personally have not ever called to have a taxi to come get me, but I hear it's much more reliable to be able to watch the driver approach on your phone and track where they are. And something else that these apps did was make the payment process much easier, so I can get into my Uber when it shows up, and as soon as I'm dropped off I can leave. There's not those few minutes of me trying to find cash or pay with a credit card, and it makes the entire transaction much smoother. To the point again about being able to pivot: what we're starting to see now is taxi companies are coming out with their own apps to make themselves still competitive with these companies.

Heintjes: Interesting. So it's forcing innovation on their part.

Foley: Yes, absolutely, and so they're starting to incorporate the aspects like payment via the app, so that now the taxi driver can come, show up, same type of thing: you hop in, you get to where you're going, and you hop out—and I think that that's something then that's adding to the competition, because now that you've taken ease of use out of play, it's going to come down to quality of the products and the pricing that's available.

Heintjes: Sure. I'm still wrapping my head around the fact that you've never called a cab, but that's another conversation [laughter]. We hear a lot about real estate rentals like VRBO and Airbnb. There's a concern there about obviously competition with hotels. What does your research show about how that's shaking out?

Foley: It's actually something similar that we saw with the taxi and then the new apps coming out. There is a company that you mentioned, VRBO, that's actually been around since 1995, and it's actually targeted at a different clientele—so that's one reason for the differentiation between VRBO and Airbnb.

Heintjes: Oh, so they're not synonymous terms?

Foley: Correct.

Heintjes: Well, now I'm betraying the fact that I've never used them, so... [laughs] I thought they were interchangeable terms.

Foley: They are not. They are actually two different companies, and as I mentioned they have different clientele. So VRBO is catered more towards...well, first off, it stands for "vacation rental by owner," so it is more for getting maybe an entire home or entire space for your family, maybe for vacation. Airbnb is a little bit more geared toward either somebody just stopping in—maybe it's a quick trip and not necessarily a weeklong vacation, and they just need somewhere quick to stay because they're visiting a friend for a night, maybe. With Airbnb, you have the opportunity to stay in just a room in somebody's house. You could maybe stay in their entire basement, so like part of a house, or you could rent an entire space—a full apartment or a home. So there's a lot more flexibility there in terms of what it's offering to the customer.

And another interesting thing is that Airbnb is slowly starting to branch out into including experiential aspects with the app—being able to actually link to an excursion, for example, through either the hosts that you're staying with, or they'll put you in contact with people in the city that you're staying in. So they almost have marketed themselves as their own little travel agency as well: not only can I get the cool experience of maybe staying in a local's house, but I can also do local things and not necessarily do all the tourist attractions that are around the city.

Heintjes: So do you find them to really be disruptors, in the usual sense of what we call disruptors?

Foley: That is a fantastic question. So, similar to what we saw with the taxi companies, there's been a lot of competition with hotels, and that's been a big concern: are hotels now going away? And for many reasons, no, they're not. One of them is that there's a brand—there are people that choose to go to a Marriott or a Hilton because they know what they're going to get.

But there is kind of a different approach now that hotels are taking. There's actually a new Marriott development in New York City that is being designed to mimic the small apartments that you could otherwise stay in with an Airbnb—so to try to give you the feel of, "Okay, I don't want to stay in a big hotel room in New York. I want to know what it feels like to live in New York." In most cases, that's a small apartment, and so what they're actually doing is building very, very small hotel rooms that are kind of giving people that local experience.

Heintjes: So that's another case of the disruptors forcing the big players to innovate, the old-line players.

Foley: Absolutely. And something else hotels are doing is integrating more technology. So if you think about, too, what we have in our homes right now. If you start to get the Alexa or using Siri or "hey, Google"—whatever it is, the smart technology that you're talking to in your home, or you have your DVR, your Netflix, or your smart TV, whatever it is—more and more is that starting to be incorporated into hotel space, to just again maintain not only being competitive with Airbnb and different companies like that, but also just to maybe make you think twice about, "Well, you know, maybe I will stay at the hotel." Their goal is to make you feel like you're at home, and so by adding in more of those aspects that you have in your home and making it not necessarily so cookie-cutter without losing their quality from a brand perspective, it really is keeping them competitive.

Heintjes: Interesting. What do you find the effect has been on rental rates and prices at hotels? Is there an impact on that?

Foley: It is one of the classic "it depends" answers. It really does depend by market, it depends what the hosts, for example, on Airbnb are charging for their space—because it should be cheaper for you to rent a room in somebody's house, and, you know—maybe you're even sharing a bathroom with your host—I've actually done that myself, it was quite a fun experience—but that should be less than having an entire maybe full kitchen and bedroom and bathroom in a hotel. So part of it, too, is having the option of only paying for what you really need to make your experience what you want it to be, but also there are some really nice places on Airbnb, and the hosts are charging way more, and it is way cheaper to stay at a hotel.

There's also the aspect of location as well. Some are smaller cities that there's not as many people that want to host on Airbnb. It might be either too new of a concept for that city, or there's just not a lot of people that are willing to do that, and so sometimes you will only have the option of a hotel, and vice versa if you're going somewhere that's really not very populated—maybe you can only stay in somebody's basement.

Heintjes: Right. Well, Lauren, let's change gears. I want to touch on—you really can't talk about disruption without talking about retailing and how much that's changed. We hear a lot about the "retail apocalypse," and it seems to be mentioned in every other headline that comes out. Is that hype? Is there something to it? What is really going on with retail space in the U.S.? And you know, we hear a lot about so many store closures—of course, Toys R Us now—but is it all bad news? I mean, how disruptive have these technologies been to retail?

Foley: This is a fantastic topic. A lot of the work that I do here in the Supervision, Regulation, and Credit division has to do with looking at commercial real estate trends and what is happening as a result of this, so this is actually a topic very near and dear to my heart. First off, what is the hype about? The "retail apocalypse" has to do with the large amount of popular retailers that are going out of business, so to your point it seems like every other headline has "retail apocalypse" in the title and "Oh, yet another hundred stores are closing."

Part of it is that's what the news likes to do—to paint sometimes a negative picture. But part of it, too, is that it's because these are such big brand names that we've known for so long. You brought up Toys R Us—that's a fantastic example to start with. There are companies like Walmart, Amazon, even Target, that are actually outpacing Toys R Us in their toy sales, and part of that is because if you look at Toys R Us—and this is just one example—they really are very specific in what they sell. It's just toys for kids. But if I am already going out, or if I'm ordering online from Amazon, I can just get everything I need in one place, and part of our fast-paced lives right now, taking out an extra step of when I have to go do errands on the weekend really does make a difference.

Another aspect, too, is how much retail space is currently in the U.S. This is one of my favorite statistics: in the United States, we have about 24 square feet of retail space per person. To put that in perspective, Canada has 16 square feet per person, and then followed by that is Australia with 11. So we are vastly over-spaced, you could maybe say, in the retail sector. And so maybe what used to be great—you know, the pop-up of these super malls and department stores of the same type of idea of a place where you could go and get everything, that is starting to change because we're starting to see more e-commerce pop up, the ability for me to just sit at home and click around and get whatever I need brought right to my door, to me personally is quite appealing. Sometimes you don't want to fight traffic, or sometimes it's, "Hey, I know exactly what I need, why spend more time to get it?"

A lot of it compounds on the changes in preferences of people today and where we've not only gone because of technological advancement, but the expectations we now have because of it. So saying, "Okay, well, now I have experience that Amazon will deliver this to my doorstep. I am now expecting"—you know, they have their two-day shipping—"I'm now expecting overnight shipping. How fast can I actually get it?"

Heintjes: The drone shipping.

Foley: The drone shipping as well. I think that's absolutely fascinating. Just an aside: Amazon actually has a patent for a packaging label that has a parachute inside of it. So not only are we having drones bring the package to your door, they have even removed the time it takes from basically bringing the drone down to your doorstep, that it will just hover and drop the package. I haven't seen this in person. I would love this. You know, if it's something heavier, that might be a little scary—"I don't know if this is going to make it in one piece to my doorstep, but..." It's just interesting to challenge the different ways that we can further enhance what we thought was already so enhanced already.

Heintjes: Yes, that is incredible. I've actually never heard of that—that's "brave new world," for sure.

Foley: Yes, and I would love to add, too, to your point about is it all bad news? And the answer to that is "no." If you do search hard enough online, you can find that there are a number of companies that are still growing and are actually opening stores. So just to give you a quick example—these are just some growth projections in terms of locations for a couple of companies—Target, as I mentioned. They opened 32 new stores last year, and they plan on opening 35 this year, with also plans to remodel over 300 different locations across the country. Ulta, which is a beauty store—they plan to open 100 new stores this year. Dollar General is hoping to open 900 new stores. At Home, which is a home decor chain, is looking to expand. And Warby Parker, which actually is an eyeglass retailer, they're hoping to add 40 stores this year to actually round out their total footprint of 100. So it's not all bad. There are companies that either the demand is there for them, or they have put the things in place in terms of technology and experience that are making them still very profitable and able to further expand.

Heintjes: Well, thank you for that balanced perspective. Speaking of real estate, another disruption in real estate that seems to be growing but we really don't hear so much about it, is what they call "coworking space." Is this disrupting a traditional business model, or is it not a disruptor in the sense that you would define it? Have you seen any impact on the cost of office space from the coworking trend?

Foley: This is a really cool disruptor. This is probably one of my favorites because it stems from shifts in preferences that are driven by society, rather than something new being presented and people trying to take a hold of it that way—so it's kind of the reverse is what's happening. So I would not say that it is disrupting the traditional business model, but from the perspective of, again, that "the space is changing, so we're going to change the way that we work"—the opposite is true.

Millennials are kind of known for their different approach in how we look at careers, it's not necessarily, "Let's go to a company, and I plan to stay here for 20 years and work my way up." A really interesting statistic: 47 percent of millennials are actually freelance workers, and that is expected to grow to be the majority of the U.S. workforce by around 2025. And so the reason for bringing that up is that the work location is much more flexible than it used to be. It's not necessarily, "I need to go into the same office every day and sit in my cube and do my work."

Especially if you're a freelance worker, you might not necessarily always have something to do, and so to have the flexibility to go in, let's say a WeWork or another coworking company, and just say, "Hey, I want to sit at this desk for this week while I knock out a project and then get paid for it, and then I'll stay at home until I get my next job"—the way that we are looking at how we work is changing, and so I think that that's a really interesting part about why our space is changing. Because the demand is there, and so developers are now starting to say, "Okay, well, people don't want the same amount of square footage, even in the typical lease, than they used to," because there's more telecommuting happening, and less people are actually coming into the office. So if, for example, on any given day I only have 50 percent of my staff here, maybe not everybody needs their own designated cube and we can save half the money by having half the space. So it's kind of overall changing trends, from the telecommuting standpoint as well as what we actually want out of our jobs as well, and then the space that we need to do them.

Heintjes: Right. Well, speaking of commuting, let's talk about self-driving cars. Is that a disruption in the sense that we're discussing? I guess self-driving trucks would be, if you're a truck driver, but what about the impacts of mobility on the average customer?

Foley: So this would definitely still be a disruption in the way that we're seeing it, because as I mentioned at the beginning: a lot of the goal of disruption and disruptors being created in the first place is to enhance something that's already there. There are numerous producers of self-driving cars that actually discuss that the new features and technology that are being implemented are not necessarily to have a completely driverless road. It's more to enhance the safety and the experience of the driver while they're actually in the car. So to know, "Okay, if for some reason I've had a long day, and maybe I'm staring off into space, my car will recognize if I maybe get too close to the car in front of me." More and more cars—even ones that you wouldn't think of as self-driving or autonomous in any way—are still having these safety features implemented into the framework of the car, so that you still are getting a better experience overall.

And self-driving trucks: I'm going to venture to say that this is slightly different, because if you look at it from the perspective of being on the highway, there are actually some companies that will caravan a bunch of their trucks together and actually have the ability to talk to each other. What you can do with that, though, is you're removing all human interaction on the specific highway. So one of the issues or the roadblocks that we see right now with having any type of driverless car on the road right now, is that there are a bunch of cars that do have drivers in them, and so there are a lot of unknown variables then that the car is going to try to take into account if it's driving itself but might not necessarily be able to. And so we really won't truly see efficiency for many, many years, if we ever get to a fully autonomous way of getting around on the roads.

Heintjes: Well, Lauren, we often see estimates of the economic impact of an innovation, but it seems to me that it would be really hard—maybe even impossible—to quantify the economic impact of disruptors. They're so dispersed throughout different sectors, which they're affecting in different ways. What's your take on how we should view the economic impact of disruptors?

Foley: I absolutely agree that the impacts—not only economic, but otherwise—are very hard to quantify, because sometimes the lines become so blurred. For example, we have an app that lets you get a ride, maybe much more quickly that is going to help you get from point A to point B, but that's not the only thing that might be affected. So now it's going to affect your driving patterns: "Okay, well, now I'm not on the road. If this is a way I choose to always get around, maybe I don't need a car anymore," so it could impact you financially, environmentally, if you choose to not have a car versus I choose to always do ridesharing when I get around.

And there's traffic impacts as well: do I have somebody come pick me up and take me to where I'm going, or do I just get in the car, and now I'm another car on the road? It also might affect your personal habits. For example, maybe you start to go out more because you can sit and play a game on your phone in the car, or read a book while you're going to meet your friends for dinner instead of having to fight traffic. So just because Uber helps me get down to the Fox [Theatre] and I don't have to go pay for parking to see a show, there's a lot more of a ripple effect that's there.

I think trying to analyze a couple steps ahead, or as best we can to look at future effects or consequences, should definitely play a role. For example, with the car, with the invention of the automobile, people probably thought, "Oh, this is great—there won't be any more horse waste on the ground, or it won't smell so bad because they get so hot in the summertime"—whatever it be. We now have a car: "Oh, I now have air conditioning, or I can put the windows down at least and be moving faster"—but now you have the impacts of traffic, you have the impacts on the environment, there's still noise pollution, so there's a lot more things that just because we have one benefit in one direction absolutely doesn't mean that we don't have it in another.

And there's also then, in this age of technology and data, I think the ability to look at data that is collected—I'll use apps again for an example—to study where we're seeing trends change. So if you take Uber, for example, they have tons of data that they're able to collect on who's driving, what are they paying, where are they going. If you take that and analyze it, you say, "Okay, well, Lauren started using Uber in 2015, and she was only using it twice a year, and now we're seeing it's a lot more popular, I now see her going out twice a month and using Uber" and kind of tracking trends that way as well, because you can start to put pieces together. You won't be able to connect every dot of, "Okay, well, now she's going out to eat more," or "maybe she's just going to visit a friend who lives in the city."

A lot of that, though, you can start to use all the data that is being collected and understand a little bit more about the effects—to the best of our ability. Like I said, it's such a ripple effect. There are so many blurred lines that become where...

Heintjes: Not easily quantified.

Foley: Absolutely.

Heintjes: Well, Lauren, I'm going to take a minute now and put you on the spot, and ask you to take out your crystal ball: what would you predict for the next industry or sector to be disrupted? I won't hold you to this, so don't sweat it, but I'd be interested in your thoughts.

Foley: Absolutely, definitely a fantastic question. The speed and advancement of technology change today is absolutely incredible, and in sectors and industries that you wouldn't necessarily think technology has a place, we're seeing it start to evolve. To give you two quick examples that I just personally found pretty interesting: we have smart water bottles now that can actually help you track how much water you're taking in throughout the day, to help you know what your hydration levels are, so every time you fill it up, it kind of counts how much basically you drink out of it, and when you fill it back up—and there's, of course, an app for it that you can look at it, and look at it over time on your phone.

Another one: the fashion industry. You would think, okay, maybe how we design clothes online, or look at them and come up with designs—okay, maybe I can see that. But two interesting things: one is that they're actually coming out with wearable technology. So don't think of like an Apple watch or a Fitbit or something, but actually something inside of your clothing that has technology to some extent. It's a similar concept of the watches and Fitbits and health trackers, but it's just really interesting that we're starting to now just make that into the clothing.

Another interesting thing related to fashion is they're actually using technology and science to actually create new materials to make clothes out of that are either more environmentally friendly or cruelty-free to animals. So it's really interesting. Things that are still very durable, and hopefully long-lasting—but there are a lot of different ways that technology is intertwined in our life.

So on a more serious note, I think it is a matter of looking at consequences to the best of our ability, to knowing if I make this advancement maybe I can look two steps ahead and solve an additional problem as a result of the new disruption. So in terms of one next industry: every industry is being so disrupted right now, and I also know that that is the safe answer out and I am okay with that [laughter]—because really all you have to do, if you search "technology" and, honestly, any industry on Google, you will find some type of article of some company has come out with some new something. And so much is happening so quickly, that there's always more to learn and be on top of.

Heintjes: I wondered how you were going to avoid getting pinned down to one industry [laughter], so well played—well played.

Foley: Thank you.

Heintjes: Well, Lauren, this has been a great conversation, and I really do appreciate your sharing your research with us. And I suspect this is a topic that will only gain momentum and become more current, so I hope you'll be open to returning to the podcast at some point.

Foley: Of course, yes.

Heintjes: On our website at, we'll have a link where you can email Lauren with any questions you might have about this topic and get a conversation going. And again, I'm Tom Heintjes from the Atlanta Fed's Economy Matters magazine, and I hope you'll join us next month when we sit down with Atlanta Fed economist Julie Hotchkiss, to discuss her recent research into the concept of social capital and the role it plays in our choices about where to live. It's going to be an interesting conversation, and I hope you're here for it. Thanks for spending some time with us today, and come back next month.