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PHOTO: Wyron A

Millennials are notorious for turning every established structure on its head — they work differently, they play differently, they consume differently.

While every industry is scrambling to realign its approach accordingly, many are missing one crucial insight: Millennials are looking for convenience, and rigid product and service verticals are failing to provide them with that.

Traditionally, companies bundle similar products and capabilities within well-established industry verticals. Whether it is a bank, an insurer, a healthcare provider, a retailer, a telecommunications provider or a media company, you will find similar operating structures targeting individual consumers, small enterprises and large enterprises. This grouping or variation, while convenient for the service provider, adds little to no value to the individual, small enterprise or large corporation.

Nimbler, experience-oriented service providers are changing this business model, which has dominated the past 100 years of economic expansion. These new competitors, instead of building within one industry, are selecting and stringing together a series of products from a range of adjacent industries that enable them to own and monetize all facets of a consumer’s life.

The disruption is already happening in Asia, where Alibaba and Tencent are leading the charge. Instead of creating offerings and expecting consumers to seek them out when needed, these companies “meet millennials where they live” by providing services that effortlessly fit into their lives regardless of industry or type of product. That approach allows these Chinese titans to monetize every possible interaction, fueling their success in markets as varied as banking, gaming, social media, search and retail.

Given the success of both companies, along with several others from that part of the world, it’s likely that large U.S. companies will soon embrace their “millennial lifestyle enablement” approach. The shift toward horizontal, cross-industry, experience-oriented service is secular and could become the dominant business model globally.

Let’s explore how Alibaba and Tencent have shaped their approaches, and what U.S. organizations need to consider if they want to secure continued business success.

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Getting Into the 'Service' Industry

We are used to specialist businesses that have grouped similar capabilities together to achieve economies of scale. We have banks to meet our banking needs, insurance companies to meet our insurance needs, retailers to meet our shopping needs, and so on. While these companies occasionally stray into one another’s markets, for the most part they all tend to stick to their core verticals. A bank, for example, might look at providing its customers with a world-class banking experience in payments or lending. This banking-centric view has led to historic success for many financial institutions. It is also at the heart of why banks now are at risk of being disrupted. New ventures see payments or lending as means of carrying out commerce transactions. They don’t focus on providing the best payments product, but rather on being the most convenient service or offering the features most valued by millennials. It also means they may be providing a payments product alongside, say, a chat service, a search engine or an ecommerce site.

Alibaba and Tencent are at the forefront of upending the traditional way of thinking about business. They have taught customers to focus not on who’s providing the service, but rather on how and when the service is being offered. Why not let a messaging platform provide you with a payment tool if it’s easy and accessible? By reframing the discussion, they’ve taken away the specialist business advantage.

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Speed Matters in Reaching Millennials

Another aspect of the success of Alibaba and Tencent is the speed at which they enter new markets. Whereas it took Samsung decades to develop its portfolio, Alibaba has moved into a variety of industries in a matter of years. It can do this because barriers to entry have lowered dramatically. The following are three enablers that are driving disruption by eliminating traditional barriers to entry:

  1. Financial technology vendors, insurance technology vendors and others are using disruptive digital technology to create services attractive to millennials.
  2. Access to cheap capital enables incumbents to buy the technology they need to provide a service.
  3. Extreme digital automation drastically reduces the labor required to move into adjacent businesses.

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Entering Adjacent Industries Based on Customers’ Lifestyles

Alibaba and Tencent are not focused on how industries synergize with each other. Instead, they focus on helping fulfill their customers’ needs. In addition, rather than launch new businesses as stand-alone entities, they combine them in a simple, intuitive, integrated model that embeds the company in the customer’s day-to-day activities.

Understanding and Facilitating Customers’ Daily Lives

These companies initially built strong customer bases through digital businesses like social media, search, chat, content and ecommerce that are at the core of defining a person’s digital persona. Based on the insight mined from these digital personas, these companies are now systematically monetizing a wide range of activities that would have traditionally been outside their specific industry verticals. They have realized that their core competency is not the ability to deliver a specific product, but rather the ability to rapidly identify and launch businesses that fit seamlessly into their customers’ lifestyles. This creates a network effect as more people initially join for one service and then start using adjacent services while bringing their friends on to the platform.

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Having Global Ambitions

While Alibaba and Tencent may be leading the horizontal business model revolution, they are not alone. Other Asian companies, including Reliance and PayTM in India, are adopting similar models. These companies have fully embraced the new competency model and are beginning to build out large customer bases with the intent of providing multiple adjacent services. Alibaba and its affiliates are rapidly expanding throughout Asia and are beginning to enter the U.S. market. For example, Alibaba has already acquired or invested in multiple U.S. entities, including Jet.com, Lyft and SnapChat, and is replicating their playbook across four core components of the digital persona.

In the U.S., Facebook, Google, Amazon and PayPal are moving at a much slower pace, and yet they have the ability to move rapidly. These companies are well positioned to remain on top in the new industry landscape if they replicate what Alibaba and Tencent have done by leveraging the core components of the digital persona. It will be exciting to see which companies come out on top.