December 12, 2005

What is Disruptive Innovation?

Somehow I managed to waste half an hour ranting about disruptive innovations on this guy's blog.

Might as well copy it here :

There's only one criteria that matters for whether something is disruptive or not :

With a disruptive innovation, the incumbent can't get into it due to the structure of the market and their existing business model. Their existing customers DON'T NEED OR WANT the innovation.

What makes MP3 disruptive to the music industry is not that it creates a new market. But that the existing industry, predicated on restricting access to only those who pay, can't figure out a way to embrace it without losing their control.

Blogger didn't disrupt the blogging world. It was simply an early entrant. Google could buy it because it wasn't a threat.

Blogs *are* disruptive. To the mainstream media, whose business model is adding value through investigative reporting, fact checking, mass audience and big advertising deals. Blogs with low quality control and infinitesimal audiences (individually) were not something mainstream media knew how to embrace. Their advertising buyers weren't interested. Newspaper buyers might be interested in reading but not paying.

Google disrupted the online advertising market by figuring out how to sell adverts that big advertising buyers didn't want to buy (little text things that didn't attract attention to themselves), and putting them on sites (like low traffic blogs) that no-one in their right mind would imagine selling adverts on.

Disruptive technologies are often examples of something worse but better. Worse on the price/performance scale that the existing customers value; but able to bring new people into the market.

But it's definitely not about *merely* creating a new market. There are dozens of other new ideas which are creating new markets, which are convenient, easy and cheap; and yet don't disrupt anyone, because the moment they appear above the radar, the incumbents move in and buy them or successfully copy them.

Personally, I don't see the iPod as disruptive. (Not all roaring successes are disruptive.) Well designed, fashionable, good features, sure. But who was the incumbent that was disrupted?

In fact, the only incumbent who could arguably be seen to be disrupted by iPod was Sony. And that was because iPod supported MP3 while Sony, conflicted by also being a music publisher, wouldn't.

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