Technology-Enabled Versus Pure-Technology Test
Decide whether an incumbent can survive by asking what is actually being sold
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 6
- Confidence
- 78%
Ben Gilbert's distinction, developed live with Helmer, asks whether the incumbent's value can be replaced by a technology product or merely improved by a technology-enabled one. A technology-enabled business applies software to make a fundamentally human, physical process better: Redfin uses technology throughout, but at the end of the day an agent shows you the house and the fee structure resembles a traditional brokerage. An incumbent facing that challenger can tech-enable itself just as the new entrant did, so it stands a fighting chance. A pure technology business is one where the value proposition to the customer is the software itself, distributed digitally, software all the way through, as with Netflix. There the incumbent cannot respond by adding technology; it would have to become a different company. Helmer connects this to counterpositioning on the barrier side: an incumbent built around hardware engineering, like a traditional automaker facing Tesla, finds a software-first architecture a very tough pill to swallow.
Origin
Extracted from Acquired, where Ben Gilbert proposes the distinction while probing whether software eating the world is itself a form of counterpositioning, and Helmer calls the distinction very interesting.
Core principles
- 01Incumbents can adopt technology; they cannot become a technology product
- 02If the customer is buying software itself, the incumbent's model has to be blown up
- 03If technology only improves a human-delivered service, incumbents can match it
- 04The barrier lives in what the incumbent would have to destroy to respond
- 05Software-centric engineering cultures are extremely hard to retrofit
How to run it
- 1
Write down what the customer is actually buying
Describe the incumbent's value proposition in the customer's terms. A house sale involves a person walking you through a property; a film subscription involves bits arriving on a screen.
Pro tip If a human must be present for the value to be delivered, you are probably in tech-enabled territory.
- 2
Classify the challenger
Decide whether the challenger applies technology to improve a traditional process, or whether the product itself is the technology, distributed digitally end to end.
Watch out Heavy technology investment does not make a business a pure technology product; check whether the delivery is still human.
- 3
Ask whether the incumbent can tech-enable
For technology-enabled challengers, assume the incumbent can adopt the same tools. It will be slower and clumsier, and it is possible to compete on that vector, so the challenger has no structural barrier.
Pro tip Look at whether the fee structure and unit economics of the challenger differ materially from the incumbent's; often they do not.
- 4
Model what the incumbent must destroy to respond
For pure-technology challengers, calculate what the incumbent would have to dismantle: a store network, a dealer channel, an engineering organisation. That destruction is the counterpositioning barrier.
Pro tip Compare a software-first vehicle architecture against a legacy engineering model built around mechanical subsystems.
- 5
Check the engineering culture, not just the product
A company built from the ground up as software-centric organises its people, tools and release cycles differently. Retrofitting that onto an incumbent is harder than buying the technology.
Watch out Assuming an incumbent can hire its way to a software culture is the most common error in this analysis.
- 6
Pair the verdict with a power test
Concluding that an incumbent cannot respond tells you about one competitor. Run the full benefit-and-barrier test against potential and functional competitors before calling the challenger durable.
In the wild
Gilbert uses Redfin as the technology-enabled case. There are many ways to apply technology to make the home-buying process better, and Redfin applies them. But at the end of the day it is a traditional brokerage: a person shows you the house, and the fees on the transaction are broadly similar. An incumbent brokerage can adopt the same tooling, so the incumbent has a fighting chance.
→ Technology improves the process without replacing the value proposition, so incumbents can compete on that vector.
Netflix is a digital service distributed digitally, software all the way through. There is no human delivering the value at the point of consumption. An incumbent whose business is retail stores or physical distribution cannot respond by adding technology to what it does; it would have to eliminate the model it has. Gilbert's read is that this is when unavoidable fate starts to happen for the incumbent.
→ When the product is the technology, the incumbent's response requires destroying its own model.
Helmer raises current auto companies against Tesla. Tesla thought about software and built the vehicle up from that level. Looking at the engineering models inside a company like BMW, moving to a software-first architecture is a very tough pill to swallow, because the organisation, suppliers and development process were all designed around a different premise. The barrier is not the technology; it is what adopting it costs the incumbent.
→ The software-first architecture functions as a counterpositioning barrier on the incumbent's own engineering model.
Common mistakes
Assuming software always wins
Software eating the world describes a direction, not an outcome for any particular incumbent. Against technology-enabled challengers, incumbents frequently adopt the same tools and hold their position.
Counting engineering spend instead of value delivery
A company can invest enormously in technology and still deliver its value through people and physical assets. The test is what the customer buys, not what the challenger spends.
Treating the verdict as a full power analysis
Beating one incumbent is a counterpositioning result and therefore only a partial source of power. The next entrant may hold no legacy at all and copy the challenger freely.
Is it for you?
Best for
Evaluating a software challenger against an established incumbent in a traditional industry, from either the founder or investor side.
Not ideal for
Markets where the incumbent's advantage is regulatory or contractual rather than operational, since the test says nothing about legal barriers.
From the transcript
“a distinction that I draw is if the value of the incumbent can actually be replaced by a technology product rather than a technology enabled…”
“my answer would be yes against technology enabled businesses because they can tech enable just as easy as these new entrants can start tech enabled”
“But when it's a pure technology product that's being sold, that is the actual value proposition to the consumer is this unique piece of technology.”
From the episode
7 Powers with Hamilton Helmer