Why existing companies are unable to contribute to disruption? (Pt. 1)

We all know that existing companies are less likely to introduce disruptive changes into the market and globally contribute to innovation, but, why does this happen? Let's unveil what is "disruption".

We don’t imagine a big bank, say, Banco Santander in Spain, contributing to global innovation and disruption, or even some other entities, with a more modern set-up.

Traditional businesses tend to keep their essence, which is tradition. Banks, as much as they have brought online banking, do essentially the same, lending money, and getting interests on that money, both online and offline, it’s the same business.

Clothing companies do the same as they used to do 40 years back, they sell clothes, regardless of the distribution channel they use for that purpose.

Obviously, all of them leverage the existing technologies to do their job more efficiently, giving the consumers better experiences, which is what makes them stand out from the crowd. However, this does not constitute disruption.

Whoever wants to have some more clear facts about this, can reference to:

“There is no chance iPhone will ever get a significant market share”

- Steve Ballmer, Microsoft CEO, 2007

The next one is featured by John Antioco, Blockbuster CEO:

“Netflix is a business with a very narrow niche”

- John Antioco, Blockbuster CEO, 1997-2007

We could go forever with quotes like these ones, and honestly, there is nothing bad in them, meaning that they said it because they truly thought those businesses were not going to get anywhere.

The reason for that? Their companies and their mindsets where programmed like that, it was just part of their DNA. In the next post, we will come back to the main reasons why existing companies are not likely to disrupt, but before, we should throw some light on what does DISRUPTION mean.

DISRUPTION

It refers to innovations or changes in behaviour or market equilibrium that significantly alter or transform existing industries, markets, or business models. These changes can create new markets and value networks, often displacing established market leaders and products.

For disruption to exist, there must be one prior condition in the market, which is Market Equilibrium.

There is a matrix I saw on “Fall in love with the problem, not with the solution”, a book written by Uri Levine, Waze Co-founder. You will see this below, and I will develop a little bit this part further down.

Product

It is probably the one most people think about, as most of the disruptions we can see at first glance are products, however, many times it is not only the product.

It is the case of the iPhone. The iPhone was launched as a product, however it changed many things in the market. Talking only about the product, it was something absolutely disruptive. It had nothing to do with other devices, such as Blackberry, main competitor at that time, or even some other “smartphones” such as some Nokia devices.

It introduced something that had never been seen: The average human would not need a user’s manual to use it, it was intuitive, it had cutting-edge technology in it, and it provided a very advanced internet connection (Taking into account it was 2007), but above all, it had a touch screen, a real one, you wouldn’t need a stick or a pen to touch the screen, just one finger.

Price

Most likely this means the fuel of many SaaS nowadays. Their “competitors” from the 90’s or early 2000’s used to have very complicated pricing plans, most of them priced at x3 or x4 yearly of what now cost SaaS services. Not only that, since it is online, and not on-device, updates are constant and live, meaning you don’t need to purchase a CD (The youngest most likely don’t even know what that is), the system does not take space in your computer’s memory … But, talking only about the price, makes the comparison impossible to win for 90’s competitors.

Who wouldn’t prefer something x4 cheaper, or even for free?!

Another case is Gmail. It was one of the first free email services. Before that, there used to be a paid email subscription, and that was common, no one would think “I wish there was a free email provider”, however, when Gmail appeared and polished its product, no one thought about staying with other email providers, everyone switched to Gmail.

\(For free > Paid\)

Knowledge

Many times we think of knowledge as very intricate formulas or algorithms, however, when it comes to disruption, most of the time, knowledge is way simpler than that.

There’s a very nice example of this with Uber. Uber was a pioneer in understanding that. Talking about carpooling, at the time, there was no transparency. Taxis (Uber’s main competitor) were charging the same fees always, regardless of how big the demand was or how many taxis were operating at that particular moment, or if your taxi was a very well kept Mercedes or a very old Dacia.

Uber understood that there were many opportunities lost there, so they decided to open doors and windows and give transparency, and allow all users to know how much they would be charged in advance, depending on the service they selected, depending on the time and depending on the traffic, so everyone is free to choose or not to choose the service. The rest is history.

Business Model

I am coming back to iPhone here. It is an amazing example of how, apart from a product, Apple built a dramatically different business model to what previously phone companies were doing.

Apple built an ecosystem, your contribution as a customer to Apple does not end when you show up at an Apple Store and purchase the last iPhone. Actually, it only has started. You use iMessage, you use AppStore, you use Apple TV, Apple Fitness, Apple’s email App, Apple Maps and an endless offer. Most likely, if you need a constant communication between your iPhone and your laptop, sooner or later you will get an Apple MacBook Pro or Apple MacBook Air. If you are into sports, you will most likely get an Apple Watch, and so on.

This is a business model that constantly feeds into their P&L statement, whether directly or indirectly, but long term it is a stable and growing income and profit, helping Apple be the second biggest market capitalization globally.

To sum up, we can say that disruption has, most of the times, nothing to do with technology, but with things way simpler than that, it is just challenging dogmas and trying to add a new point of view to what previously existed. It is also pushing hard, as all the people that fought for disruption were challenged multiple times by very important people out there, however, they kept their vision and worked to make disruption possible in their fields.