In the past, legacy systems, industry norms, or firms with market power dictated the level of transparency that was present in a market, leading to the existence of stable trans-parency regimes (Granados et al. 2010). In the last few decades, the Internet and mobile technologies have disrupted these regimes, making some players better off and others worse off. For example, online travel agencies brought higher transparency of product offerings to travelers, which led to the disintermediation of traditional travel agencies.
The cloud storms as a disruptive force
The cloud in its various forms (SaaS, IaaS and PaaS) trumps all market sectors by a wide margin in this two-part question. Slightly more than half (56 percent) predict that these cloud services will lead consumer technology change and shake up business the most (55 percent). Moreover, software as a service dwarfed the two other cloud-computing categories (infrastructure and platforms), with 30 percent singling out SaaS on the consumer side and 21 percent for business.
Technological progress is not the only force that drives transformative growth in economies; for example, US growth during the 1970s was driven by the entry of millions of women and baby boomers into the labor force. However, technological advances have been an especially valuable source of growth because they tend to be “non-rival” in nature, meaning they can be used over and over, benefiting different users and driving increasing returns. And unlike other sources of growth, such as increases in the labor force, the effects of technology do not go away.
Disruptive business models introduce threats to existing ways, but also opportunities for new sources of competitive advantage (Markides, 2006). Christensen’s landmark disruptive theory explains how fringe ideas come to redefine entire markets, not only explains why new businesses emerge and maturecompanies fall. It actually helps to predict the future success of new ventures more accurately. Raynor (2011) argues that Disruption theory is the only theory which has been statistically proven to be an effective predictive tool.
The reason equity capital has a higher cost than other sources of funding in our model is due to asymmetric information and information dilution costs as in Myers and Majluf (1984). That is, when a bank decides to raise additional equity through a seasoned offer, the market tends to undervalue the issue for the better banks. But because it is the better banks that drive the decision whether to raise equity, the overall effect on all banks’ equity issues (whether good or bad) is to reduce the amount of equity raised relative to the full information optimum. Thus, because of information asymmetries about the true value of bank assets, there is an endogenous cost of equity and, by extension, an endogenous cost of bank lending.