Disrupting the market

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Disrupting the market

 (Source: chrisriddell.com

Blockbuster and Yahoo — these were the giants once market leaders, but yet got displaced in their own markets. Such has been the case with the stories of successes and downfalls of many big companies. The companies were making the right moves, and still, they were outperformed, not by their direct competitors, but by an innovation that swept them away gradually.

The cause for something of that grand scale is known as ‘disruptive innovation’, and it is a concept that has become popular in the startup world. (It should be noted here, however, that the end result of displacement is not disruptive innovation.)

(Source: upload.wikimedia.org)

A great example that encapsulates what disruptive innovation is all about would be the story of Spotify. In 2005, Spotify launched its beta version for online streaming service and playlist. It came at a time when CDs and iTunes, which charged $2 per mp3 track, were the favoured choices; in this milieu, Spotify was providing music streaming service for free. Spotify did not have a huge library then, so it was not competing directly with CDs or with Apple. But there were people who were in because they wanted new music from different artists. Spotify created a completely different market at the bottom. Spotify progressively moved up the market, increasing its library and developing an innovative way to pay out the artists. Now, it has more than 30 million songs, over 100 million unique users and over $2.2 billion in revenue. People who were buying CDs and paying for iTune songs started switching to Spotify because for only $10 dollar per month of premium service, they got access to a huge library and were even able to listen to songs on a high-quality format; furthermore, the company’s free service offered playlists for people seeking new music.

Spotify was able to distort the normal way of doing things—they were engaging in disruptive innovation. There are other several examples. For instance,Netflix changed how people earlier used to depend on Blockbuster to rent DVDs by providing a better alternative with its online streaming service; Apple’s iPhone changed the way people used PCs for web services; closer to home, eSewa changed how people paid their utility bills: instead of standing in a queue to pay their bills, eSewa customers can now take care of bills online. But does this mean that every innovative change in the business sector should be deemed ‘disruptive innovation’?

 

(Source: upload.wikimedia.org)

Not really. According to business professor Clayton Christensen, who coined the term in 1995, disruptive innovation is “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up the market, eventually displacing established competitors.” What disruptive innovation does is make products or services that are only available to few people at the high end of the market accessible to a much larger population at the low end of the market. When the big companies, also known as incumbents, develop their product to target a profitable market, it leaves room for these innovations to get a foothold in the bottom of the market. The entrants move up the market to the point that mainstream consumers of the incumbents start adopting their entrants’ products. When that happens, disruption has occurred.

Disruptive innovation is markedly different from sustainable innovation. Whether an entrepreneur innovates in a sustainable or disruptive manner depends on the strategy adopted. The typical innovation that focuses on only improving current technology and extracting more value from the current market is sustainable innovation. How Google comes up with faster and more efficient User Interface with each Android version would be sustainable innovation. On the other hand, how Google came up with Google Cardboard would be considered disruptive. The company could have focused on the higher end of the market and worked on providing a bonus feature to their smartphone consumers, but instead they came up with a cheaper solution to how people could consume virtual reality content.

Disruptive innovation is markedly different from sustainable innovation. Whether an entrepreneur innovates in a sustainable or disruptive manner depends on the strategy adopted.

The same framework applies to startups. While innovating a startup idea, entrepreneurs need to understand the scope of their innovation. Is it really a sustainable innovation or a disruptive one? Because everything that follows will depend on knowing this.

Startups must look out for two types of market. First, they need to see if they are targeting low-end markets, where bigger companies have overlooked some areas, and which should allow the disrupter to attract a mass of people. Or they must see if the startup idea is creating a market that never previously existed. They must, however, test to see if there is a market for the product or not, and then turn non-consumers into consumers. Otherwise, startups run the danger of misunderstanding the application of the theory itself.

Only a disruptive thinker can truly understand the practical implications of disruption. “True disruption lies in the combination of envisioning something that you believe will positively impact the world, but also understanding when the technology will evolve to be delivered at scale,” says Mike Grandinetti, an expert on disruptive innovation. Entrepreneurs need to internalise that disruptive innovations are not going to create major breakthroughs right away. For that to happen takes time, and not all disruptive innovations are going to be successful. Most disruptive thinkers, according to Grandinetti, believe that the current process or business model is less than optimal, and they care deeply about delivering a superior experience to users.

“True disruption lies in the combination of envisioning something that you believe will positively impact the world, but also understanding when the technology will evolve to be delivered at scale,” says Mike Grandinetti, an expert on disruptive innovation.

Today, the Nepali startup ecosystem has also started witnessing some startups with ‘disruptive’ ideas. Lishn.com is providing free online streaming service for Nepali music, and HoneyGuide Apps is changing the way people tour Nepal. The challenge for these ventures and other similar ones that will be created soon has to do with whether they can improve their products and travel up the market.

* First published in M&SVMAG 

 

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Guest Saturday, 20 October 2018