California State University-Stanislaus, Turlock, USA.
An established market leader of fers great products orservices to their current customers. Managers of the firm work hard to stay close to their mainstream customers and continue to spend their budgets on innovations that meet the demands of those markets. One strategy a new entrant or existing underdog can utilize in an effort to compete with an incumbent is to change the game plan of the business landscape by introducing a disruptive technology.
Disruptive technology is an innovation that can create new markets but of fers a set of attributes not normally valued by the mainstream customer. At first disruptive technologies are dismissed by great firms for many reasons. A disruptive technology usually caters to a small niche or emerging market. Therefore it is not financially appealing for a great firm to enter that market especially if it is risky and undefined.
Managers of great corporations are concerned with meeting profit margin expectation in order to satisfy big corporation cost structures and overhead, also known as incumbent inertia. Well managed companies know to stayclose to their mainstream customers, their bread and butter. Therefore diverting resources from their mainstream customers and onto an ambiguous and risky market would not be feasible.
Many times great firms wait and watch as the emerging market take form, customer preferences are developed, and product attributes are improved. However, once the new market is developed, it may be too late to enter, or at least too late to be the leader. The developer of the disruptive technology has already gained a foothold in the market.
Two case studies are presented to illustrate the disruptive technology theory. Onf3 is Nintendo's Wii console and the other is Apple's iPod. Nintendo introduced the Wii in 2006 competing against the likes of Microsoft and Sony. Although Nintendo was an existing player in the market of video game console, it was at that time at the bottom of the market share totem pole. By the end of next year in 2007, Nintendo's market share increased a whopping 29 percentage points in just one year from 15% to 44% taking the lead from Sony's PlayStation platform thanks to their 6th generation Wii platform.
Almost all industries have a performance trajectory in which the technology of the product is improved over time. For the video game console industry performance trajectory was measured by computing power: 32-bit systems to 64-bit systems to 128-bit systems. Each new console was expected to have higher computing power than the previous generation of fering better graphics. The Wii was inferior in its technology performance and it did not have other complementary features valued by mainstream customers such as hard disk, CD or DVD player. In return, the Wii of fered a wireless controller that could detect 3 dimensional motion and acceleration. Nintendo's disruptive technology however created a new market, those who did not consider themselves gamers. The Wii was appealing to the young and old. People in nursing homes played Wii bowling. Mothers played Wi; tennis with their children. Nintendo developed a whole new market as part of the improvement trajectory of the product, those who used games as a means to exercise. Today (2009), Wii Fit and Wii Sports (Wii exercise games) are top selling video games in the world.
The other case, disruptive technology introduced and unveiled by Apple in 2001, the iPod product. At the onset, this product was only available to that segment of the market that used Apple computers. The product was not a threat at first to the incumbents Sony and Creative as they catered to a much larger mainstream audience who would have no use for an Apple-only iPod. Shortly, Apple made significant improvements to the product such as introducing a complementary software, iTunes and integrating the iPod with Windows users. The performance trajectory of the iPod was faster than the improvements made by the mainstream providers. Soon complementary goods from third party providers started to emerge such as iPod docking stations and Bose headphones.
Apple's iPod skip protection technology created a new market segment, the casual athlete who likes to listen to music while walking or jogging. All of these new features have made it possible for the iPod to be as successful as it is today, holding 71% of market share in the MP3 player marke.
Not all disruptive technologies make it to mainstream markets. Firms who intend to play in the mainstream market need to assess current customer needs against future customer needs.
