America at work
These New Tech Startups Are Rejuvenating Old Industries
Takara Small | August 1, 2016

It takes a lot of guts to start a company. But to start a company that directly takes on a huge, entrenched business—that requires something else. Some might call it delusion; others would say it’s extreme confidence. Either way, we rely on these entrepreneurs to upend the status quo and inject some innovation and competition into sectors otherwise dominated by a few players.

Here are seven such companies that transformed industries by forging a path all their own. Some of them have even gone on to become behemoths in their own right, which begs the question: How long until an upstart company targets them?

Netflix vs. Blockbuster

The Netflix Inc. app is demonstrated for a photograph on an Apple Inc. iPad mini tablet computer in Tiskilwa, Illinois, U.S., on Tuesday, July 12, 2016. Netflix is scheduled to report quarterly earnings on July 18. Photographer: Daniel Acker/Bloomberg

What better way to kick off this list than with Netflix, which launched in 1997, at the height of Blockbuster’s reign? When the company began offering its subscription plan in 1999, its detractors said that co-founder Reed Hastings—who Quartz notes started Netflix partly out of frustration after paying a $40 late fee to Blockbuster—was a madman. Critics argued that a Silicon Valley startup could never compete against Blockbuster, for which Viacom paid $8.4 billion in 1994, according to Bloomberg.

Hastings, of course, was far ahead of the curve. Though Netflix suffered its share of ups and downs during its early years, the company went public in 2002 and has amassed a massive customer base in the years since, with more than 50 million global members and a market cap of nearly $50 billion. Blockbuster, on the other hand, didn’t fare as well: The company filed for bankruptcy protection in 2010 and closed its remaining stores in 2013.

TransferWise vs. Western Union

Sales Associate Johnny DeLaCruz counts money at a Western Union location in New York on February 3, 2004. First Data Corp., parent of the world's largest money-transfer service, said fourth-quarter profit rose 14 percent as its Western Union unit's transaction business gained in Mexico. The company forecast 2004 profit that may lag analyst estimates, sending its shares lower. Photographer: Daniel Acker/ Bloomberg News. Photographer: Daniel Acker/ Bloomberg News.

International money transfers have long been expensive and difficult to execute, with established players like Western Union and other large financial institutions charging hefty fees. Founded by Kristo Käärmann and Taavet Hinrikus—Skype’s first employee—TransferWise was created out of frustration with that process.

As we reported this year: “Though he worked for Skype in Estonia, Hinrikus lived in London; Käärmann, on the other hand, worked in London but had a mortgage in Estonia. That meant that both men were routinely getting paid in one currency—euros for Hinrikus; pounds for Käärmann—that they would then have to transfer abroad.

Tired of paying exorbitant international transfer fees, Käärmann and Hinrikus thought their way out of the problem: Since each was paid in the currency that the other needed, they developed a way to simply bypass the standard system and deposit money directly into the other’s bank account.”

TransferWise U.S. general manager Joe Cross explained that the platform essentially works the same way: “That mechanic is essentially how TransferWise works: If you want to send money from the U.S. to London, for instance, the platform looks for people who are doing the opposite, and it matches you up with them. The platform will essentially say, ‘OK, let’s leave your dollars in the TransferWise account in the U.S., and when we have a European customer who wants to send money to the U.S., we’ll just redistribute those dollars to that person’s recipient in the U.S.’ ”

The strategy has worked: More than $5 billion has moved through TransferWise, which now boasts customers in more than 50 countries.

Jet vs. Amazon and Costco

A worker watches as boxed merchandise moves along a conveyor belt to a waiting truck for delivery at the Amazon.com Phoenix Fulfillment Center in Goodyear, Arizona, U.S., on Monday, Nov. 16, 2009. Seattle-based Amazon.com, which started as a book seller, has expanded to products such as food and motor parts as it tries to become a general merchandiser. Photographer: Joshua Lott/Bloomberg

 

Amazon and Costco are two of the biggest names in retail, but Jet isn’t afraid of them. Armed with $225 million in financing before it even launched this past summer, the tech startup is directly taking on major players like Amazon, as it bets that its unique business model will help it compete in the crowded e-retailer market.

Jet’s goal is to offer the cheapest prices on the web for the types of products consumers routinely buy—detergent, seltzer water, etc.—using innovative price-minimizing software its engineers have developed. It relies on economies of scale to offer these kinds of steep discounts, with consumers placing large bulk orders.

The brainchild of Marc Lore, who sold his startup Quidsi to Amazon in 2010 for $540 million, Jet had originally planned to charge customers a yearly membership fee of $50. The company recently announced it had scrapped those plans on the strength of initial orders, which far surpassed estimates, according to Reuters.

Still in its infancy, Jet has a long, long  way to go before it catches up to Amazon or Costco. But if early reports are any indication, the company could prove to be a viable alternative to those giants.

Tesla vs. Traditional Automakers

Tour Of Tesla Motors Inc.'s Gigafactory With Remarks By Chief Executive Officer Elon Musk And Co-Founder Jeffrey Straubel

When Elon Musk announced in 2003 that he and four friends had founded an electric car company, the response was muted to say the least. Automakers like General Motors, Toyota, and Ford were manufacturing gas guzzlers at the time, and the conventional wisdom was that consumers would never have an appetite for electric vehicles.

As is often the case, the conventional wisdom of the time proved shortsighted.

Fast forward 13 years and that company, Tesla, is on a winning streak, one fueled by its ongoing rollout of award-winning electric vehicle models and Musk’s singular vision to bring these innovative cars to the masses.

To make that dream a reality, Tesla has hired more than 4,000 people, and it is building new factories and assembly plants. Its value has jumped accordingly, with its market cap currently hovering around $34 billion.

Airbnb vs. Hotel Conglomerates like Starwood and Marriott

Sharing Economy, Airbnb

Along with Uber, Airbnb is arguably one of the two most successful startups to emerge over the past decade. The company has undeniably changed the way people travel, upending an industry formerly ruled by massive conglomerates like Starwood and Marriott by making it easy for people to rent out rooms or their entire homes to travelers.

Since its 2008 founding, the San Francisco startup has used its simple formula to grow at a blistering pace: Airbnb now has more than 1.5 million listings in 34,000 cities and 190 countries, with more than 40 million people having booked a trip through the platform.

Following a $1.5 billion funding round last year, Airbnb is now worth $25.5 billion, according to the Wall Street Journal. That figure catapulted Airbnb atop the list of the world’s largest hospitality brands by value, placing it ahead of Marriott and Starwood, whose market caps are $20 billion and $12 billion, respectively.

Under Armour vs. Nike

A shopper carries an Under Armour Inc. bag in Chicago, Illinois, U.S., on Saturday, July 23, 2016. Under Armour is scheduled to release earnings figures on July 26. Photographer: Christopher Dilts/Bloomberg

Though it’s undeniably a giant in its own right, Under Armour entered a crowded sporting and apparel market when founder Kevin Plank launched the company in 1996.

Under Armour has had to fight for every sliver of market share it has amassed in the decades since, strategically signing sponsorship deals and landing lucrative contracts in its march toward dominance. Though its $22 billion valuation is only one-fifth of Nike’s, Under Armour has expanded at a torrid clip this decade, with sales tripling between 2010 and 2014, from $1 billion to $3 billion.

Betterment vs. Morgan Stanley, BNY Mellon, and Other Wealth Management Firms

Views Of Morgan Stanley Headquarters Ahead Of Earnings Figures

Giant financial institutions had long controlled the investment management sector until Betterment emerged in 2010. Founded by Jon Stein, the startup has re-imagined the way people manage and save for retirement, doing away with the steep fees and service charges that its older competitors charge.

Stein explained Betterment’s approach to Free Enterprise last year:

“We operate on ETFs, and we hold ETFs just for you. We can replicate any sort of fund, and we personalize the funds that we choose based on your goals, so it’s made perfectly for you. If you want to make a change, we don’t have to sell the whole thing—we can just sell a little bit at the margin, and we do that in a very tax-efficient way. The result for you is that personalization actually makes you more money and gets you to your goals faster than if you were to use one of the old school mutual fund options.”

In just five years, Betterment has attracted more than 100,000 customers and now manages more than $2.5 billion in assets, according to The Street.