I've become interested lately in disruptive innovations. What is a disruptive innovation? Well I'm glad you asked. A disruptive innovation is a new process or technology that is viewed as inferior, but over time it comes in and dominates the whole market. This is because the new technology is accompanied by a new business model which is a better fit for what the customer's needs are. From the perspective of an established market leader, a disruptive technology looks like insanity. The established player is selling the highest quality products and using conventional business wisdom, and they see their business gradually fall apart. (Disruption is a topic of several books by Clayton Christenson. If anyone has read any of these books then please post and give your impression of them.)
Here are some key features of disruption:
1) The disruptive technology is viewed as inferior. However it also has some advantage that the established technology does not such as being cheaper or easier to use.
2) The disrupting company has new values that are different from the market leaders. These values are more in tune with the customer's needs. This is also why a small "David" company can defeat an established "Goliath". The established company can replicate the new technology, but usually do not understand the values that go with it.
3) The disrupting company targets customers that are viewed as marginal in the established market. The established leaders willingly yield these customers to the disruptor, because they are not particularly profitable to begin with. Over time though the disruptor starts to gain more and more market share.
4) Time is on the side of disruptor. This is because technology improves faster than people's ability to desire new technology. The established players have the best products, but in effect the products are "too good". Some customers want something that is just "good enough" while being cheaper or easier to use. Over time the "good enough" technology improves to the point that it is good enough for even the most demanding customers.
A couple examples:
Alexander Graham Bell tried to sell his invention, the telephone, to the telegraphing company Western Union, but they refused. The problem was at the time the telephone was only effective for relatively short distances, i.e. the telephone was inferior for communication. However the ability to hear the other person's voice was a new feature that the telegraph didn't have. It didn't take long for the range of the telephone to improve and the rest is history. An important lesson to take away from this is that Western Union was actually behaving rationally in refusing to buy the telephone. The telephone didn't meet the needs of its current customers. Instead the telephone was successful because it appealed to an entirely new type of customer.
A modern example is the Nintendo Wii. This is an interesting example because we can see what disruption looks like as it happens. The Wii is viewed as an inferior product, because it doesn't have the speed or HD graphics of a PS3 or XBox360. However it is also cheaper and most importantly its controller is a lot easier to use. Consequently it is now the market leader for home consoles. Soon both Sony and Microsoft will start selling their own wireless motion control devices and games, but if the priciple of disruption holds true these devices will not be particularly successful. This is because Nintendo's new values of appealing to marginal customers are just as important as the technology itself.
Here are some videos explaining disruption even further:
[youtube=xKDTYzVtSmU]Disruption part 1[/youtube]
[youtube=aLOdMxVQ5UI]Disruption part 2[/youtube]
[youtube=nBB5t-2VPLw]Disruption part 3[/youtube]