A Disruptive Innovation is an innovation that transforms an existing market or industry by introducing simplicity, convenience, accessibility, and affordability where complication and high-cost have become the status quo.

 

Typically, a disruptive offering gives up some attributes that appeal to a core market to gain advantages in a low-end market. The offering takes hold in this low-end market, continuously moves upmarket through improvements in quality, and eventually disrupts established incumbents. The incumbents either retreat upmarket to higher-margin/lower-volume products or die out altogether.

Disruptive Innovation Chart

Uzi Shmilovici, CEO and founder of Future Simple, does a fantastic job of explaining this process in more detail:

“The new entrant attacks only a small part of the incumbents’ business, usually the one in which the margins are very low. At this point, the incumbent decides not to compete in this business anymore because they don’t want to invest in defending their least profitable business and/or are afraid of cannibalizing their main business. As a result, the new entrant is then able to capture a significant market share in that specific segment.

 

What happens next is funny. After it captures the low end of the market, the entrant moves upstream to the next part of the business. Again, the incumbent is reluctant to compete in that segment which is now its newest least profitable segment. The entrant then captures a significant market share in this second segment.”

Contrary to popular belief, introducing a lower-quality product to an industry can yield significant returns if you target customers who cannot afford the current offerings in the industry. As stated by Christensen, “Products that aren’t the best, but are affordable and usable disrupt markets.”

 

Examples of Disruption Innovation

  • Uber – Disrupted the taxi industry by providing mobile applications to its customers and drivers to coordinate dispatches and cashless payments, allowing its drivers to use their own cars and provide their services at lower prices.
  • Coursera – Disrupted the education industry by streaming videos of courses from prestigious universities at no cost.
  • Wikipedia – Disrupted the encyclopedia industry by providing a free encyclopedia which anyone can edit.
  • Skype – Disrupted the telecommunication industry by providing text and voice for low or no cost.
  • Netflix – Disrupted the entertainment/retail industry by offering monthly plans for movie rentals, providing a streaming service, and doing away with late fees.
  • AirBnB – Disrupted the hotel industry by creating a marketplace that connects peoples’ spare bedroom and apartment spaces with renters looking for temporary accommodations.
  • iStockPhoto.com – Disrupted the stock photography industry by making purchases affordable and crowdsourcing photographs from people around the world.
  • MaxCDN.com – Disrupted the file syndication industry by offering services that were affordable to a larger low-end market rather than just the biggest web properties.
  • PlentyOfFish – Disrupted the online dating industry by making it free for everyone and keeping their costs low.
  • 99designs.com – Disrupted the graphic design industry by offering small-business owners cheaper graphic-design services and dozens or hundreds of custom-made designs for them to choose from for each project.

AirBnB - Disruptive Innovation

 

And just for the record:

  • Tablets are already disrupting laptops.
  • Web-based video is already disrupting Cable TV services.
  • Cloud-based applications are already disrupting traditional desktop applications.
  • Cloud-based storage is already disrupting local storage.

 

Various Approaches for Disrupting Markets

A business is often disruptive to existing companies in an industry when it offers value to the market in novel and imaginative waysthus attracting customers that were previously hesitant of buying products in the industry.

 

Approaches include:

  1. Low-end disruption – Target customers who do not need the full performance valued by customers at the high-end of the market.
  2. New market disruption – Target customers who have needs that were previously unserved by existing incumbents. From there, you can expand your scope when opportunities arise.
  3. Create new sources of supply – Look for sources of supply that were previously unused or difficult to sell and use that supply to connect buyers and sellers.
  4. Solve a particular problem first, then expand your scope – Take root initially in simple applications near the bottom price tier of a market and then relentlessly expand your scope, eventually displacing established competitors.
  5. Put technologies to new and novel uses – According to Christensen, market disruption has been found to be a function usually not of technology itself but rather of its changing application. Introduce a new use for a technology in an industry or introduce a technology to an industry where it previously was not being used.
  6. Combine established offerings and technologies with new technologies – If a new technology isn’t generally accepted yet, it may gain greater traction when combined with established offerings and technologies.
  7. Borrow business models from other industries – Borrow business models from other industries to use in the sector you are targeting.

 

Likely Market Disruptions to Occur in the Future

Here are possible market disruptions which could occur in the near future:

  • Augmented reality could disrupt mobile phones, car navigation systems, and video game platforms.
  • Electric cars, biofuels, and solar power are on the verge of disrupting the oil industry.
  • Social question-centric information gathering (Quora, for example) could disrupt certain aspects of traditional search engines.

 

Sources:

  • Christensen, C.M. and Raynor, M.E. (2013) The innovator’s solution: Creating and sustaining successful growth. Available at: https://www.amazon.com/Innovators-Solution-Creating-Sustaining-Successful/dp/1422196577/ (Accessed: 4 January 2017).
  • Disruptive innovation (2017) in Wikipedia. Available at: https://en.wikipedia.org/wiki/Disruptive_innovation (Accessed: 4 January 2017).
  • Paraz, M. (no date) What are some $10B+ markets ripe for disruption?. Available at: https://www.quora.com/What-are-some-10B+-markets-ripe-for-disruption (Accessed: 4 January 2017).
  • Christensen, C.M., Dillon, K., Hall, T. and Duncan, D.S. (2016) Competing against luck: The story of innovation and customer choice. Available at: https://www.amazon.com/Competing-Against-Luck-Innovation-Customer/dp/0062435612/ (Accessed: 4 January 2017).
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