Much has changed since the late 1990s: companies have stopped targeting –exclusively- high-income consumers and have decided to take a path less travelled namely middle-income consumers.
One of the most common business models in the world is the trickle-down effect, which means that a product can only be purchased by one per cent of the population first. However, over time, the price falls until the general public can finally afford to buy the item. This is Apple’s case, which “might not have survived to build the iPhone,” according to The New York Times’ Farhad Manjoo. Therefore, it can be stated that Apple’s business model is the exception, not the rule.
The reason why Chinese companies such as Alibaba, Baidu and Tencent are successful is because they chose to focus on the mass market, which translates into hundreds of millions of middle-class consumers who may buy the product or service a start-up is selling.
Today’s start-ups can reach billions of middle-income consumers via a smartphone and a low-cost data plan to get online. Start-ups, no matter the category they fall under, should study the business model of Xiaomi, a Chinese electronics company which aims to convince the world’s population that quality is not Apple’s trademark and that its smartphones are both high-quality and affordable. Xiaomi’s mass-market appeal helped it become one of the most valuable companies in the world, but the fact that this type of business survives market downturns better than companies which target high-income consumers makes it stronger and more reliable.
The advantage of living in the present is that some sectors have already matured. Consumer hardware, the category Xiaomi falls under has just started to gain more attention, but e-commerce and on-demand services are also hot right now. Start-ups in China, India, the United States and Europe are succeeding with mass market first, because they sell items to millions of people, not to the one per cent.
Tech Crunch warned that most mobile apps for on-demand services aim to impress tech-savvy early adopters, but this does not mean they cannot succeed with the mass market. Uber, for example, started with a top-down approach, but there are start-ups which started with the mass market first such as Southeast Asia’s Grab Taxi and China’s Didi Dache, which recruited existing taxi drivers for low-cost rides and decided to expand into luxury services only after they perfected their business model and had a stable category of clients –middle-class people.
For every successful tech giant, there is a sibling that wants to solve the problem of the masses and help them access services and products that were previously available only to rich people. Shuddle, for example, dubbed Uber for kids, was created by Nick Allen, founder of the ride-sharing service Sidecar and aims to solve a problem of modern parenting: someone else –almost all of its 250 drivers are female- is driving busy parents’ children to and from school for about US$5 per day.
Going mainstream is not always easy and one cannot guarantee services such as Shuddle can become successful businesses, but focusing only on the wealthy will turn into a stigma which can affect the start-up in the long run.
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