Idea in Brief
The Problem
In more and more industries, innovative new platforms sidestep regulations that load costs onto incumbent players and restrict their ability to compete.
Why It Happens
Regulations may be excessive or obsolete, protecting consumers against low-probability risks. In such situations, the case for respecting the rules is weakened. Another factor is that the authorities may be slow to enforce regulations, leaving incumbents subject to rules that entrants avoid.
The Response
Incumbent firms have four options. They can take legal action to try to get the current laws enforced. Alternatively, they can embrace aspects of the new entrant’s model or look for ways to leverage what they do best. As a last resort, incumbents may have little choice but to bow gracefully out of business.
Many successful platform businesses—think Airbnb, Uber, and YouTube—ignore laws and regulations that appear to preclude their approach. Caught up, perhaps, by enthusiasm for their model and a belief in its utility for customers, the founders and managers of these companies seem to see many of the existing rules as unwanted holdovers from a bygone era not yet ready for their innovations. In this worldview, the laws and regulations need to be changed to reflect new tech-enabled realities. Perhaps the rule breakers also remember the maxim credited to Grace Murray Hopper, a pioneering naval officer and computer programmer: It’s easier to ask for forgiveness than to get permission.