“the incumbent's dilemma: which disruptions...
TRANSCRIPT
“The Incumbent's Dilemma: Which Disruptions Matter?”
In collaboration withChintain Vaishnav
MIT Communications Futures ProgramOctober 2010
http://cfp.mit.edu 1
Charles Fine Charles Fine (([email protected]@mit.edu))
Chrysler LGO Professor ofManagement and Engineering Systems,
MIT Sloan School andEngineering Systems Division
Excerpts from
Telecom Incumbent’s Lament:“Almost every day, someone comes into my office
and tells me that some new innovation in the marketis going to disrupt our business model and destroy
us unless we react immediately and forcefully.”
“We know that most of these putative disruptors willharmlessly self-destruct. However, we also believethat any given day could bring the arrival of a truly
threatening force that we must counter at all costs orrisk annihilation.”
“How do we tell the difference?Can you give us a model or framework to help?”
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“Disruptive Technology” announcementsby The New York Times, 1999-2008
1999
2000
OrganicLEDNanoScienceinChipManufacturingOpenSourceSo;wareOnlineBookStoresInternetAdverEsingDigitalPhotographyGigabitEthernet
2001 OnlineJournalsOnlineInvestmentFirms
2002 WiFiMeshNetworks
2003 WiFiMeshNetworks
SegwayScooter
2004 P2PServiceProviders
AlternaEveEnergy
2005 P2PFileSharingOnlineShopping
2006 OnlineBookContentOnlineCommodityFuturesExchangeYouTube(PoliEcalAdverEsing)YouTube(VideoContentDistribuEon)
2007 PaintFilms
2008 AdverEsingusingSocialNetworks
Christensen’s Conditions for Disruptive Technology
Firm Price PrimaryPerformance
AncillaryPerformance
Incumbent High High LowEntrant Low Low High
Innovation Dynamics can beRADICAL (disruptive) or INCREMENTAL (sustaining)
Perf
orm
ance
Time
How to measure performance?How to know where you are on the “S”?Where in the value chain?Worse before better?
5
ALL COMPETITIVE ADVANTAGE IS TEMPORARY
Autos:Ford in 1920, GM in 1955, Toyota in 2000Computing:IBM in 1970, Wintel in 1990, Apple in 2010,World Dominion:Greece in 500 BC, Rome in 100AD, G.B. in 1800Sports: Red Sox in 2007, Celtics in 2008, Yankees in 2009
The faster the clockspeed, the shorter the reign
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Performance Pushan overwhelmingly superior technology/process(penicillin, mass production)
Customer Pullnew customers care about different measures of performance(wireless phones, personal computers)
Organizational Competenciesincumbents cannot do what the innovators can(Dell supply chain, Southwest Air)
What makes an innovation disruptive?
Disruptive Product or Technology Innovation vs.Disruptive Process Innovation
Perf
orm
ance
Time
Craft Production
Mass Production
Lean ProductionIn Products/Technologies:
Vacuum tubes to
IC’s
Mainframes to PC’s
Chemical to Digita
l Photography
Wire-line to
Wireless Telephony
AutomotiveProcess Innovators--Ford--Dell--Wal-mart--Southwest Air--Toyota--Li & Fung
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CreativeArtists
ContentMarketing
ContentDistrib.
Content & HWConsumption
ContentPublishers
ContentSales
iPod/iPhone
iTunes
iTunes
iTuneshomepage
Listening accessoriesOpen, thenlicense
ContentClosed tonon-MP3,non-Applemusic
NetworksClosed to allbut onecarrier perregion; slowlyopening
ApplicationsClosed to non-Apple apps;then explosiveApp StoreGrowth
Apple’s Disruptive Products & Value Chain Design
RetailStores
AppStores
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Li & Fung
Li & Fung as a Two-Sided Platform:A Value Chain for Make-to-Order SupplyChains
MaterialsSuppliers
FactoriesBrands Retailers
Design, Marketing, SalesSourcing, Production Orchestration,
Logistics
Model to Assess Disruptive Power(ex: Skype vs. Verizon; Tesla vs. Toyota)
1.1. Consumers care about price, primary performanceConsumers care about price, primary performance(transport or communication) and ancillary(transport or communication) and ancillaryperformance (carbon footprint, extra features) of aperformance (carbon footprint, extra features) of aproduct/service.product/service.
2.2. Incumbent has integral value chain, good at productIncumbent has integral value chain, good at productquality and primary performance. quality and primary performance. Rich in complementary assets.Rich in complementary assets.
3.3. Entrant has modular value chain, good at innovativeEntrant has modular value chain, good at innovativeservices/features and ancillary performance. services/features and ancillary performance. Quick atQuick atadding features.adding features.
4.4. Each firmEach firm’’s product/service has some degree ofs product/service has some degree ofpositive network externalities (e.g., the larger the userpositive network externalities (e.g., the larger the userbase for Skype or electric vehicles, the more attractivebase for Skype or electric vehicles, the more attractiveto new users).to new users).
5.5. Each firmEach firm’’s product/service has some degree ofs product/service has some degree ofswitching costs.switching costs.
11Integrated Value Chain: Good at Quality
Modular Value Chain: Good at Innovation, Speed
Customers(care about
quality, innovation)
.Incumbent
Entrant
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Technology and Industry Disruptions
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
QuadrantNotRelevant •StrongIncumbentNetworkEffect
•ConsumersvaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
Electricvehicles
Digitalmusic
Linuxvs.Windows
•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
•ConsumersvaluequalityandcompaEbilityoverinnovaEonandlowprice
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
?
DISRUPTION IN COMPUTING:THE COMPUTER IS PERSONAL
PERSONAL COMPUTERS DISRUPT MAINFRAMES & MINICOMPUTERS
DISRUPTION IN COMPUTING:THE COMPUTER IS PERSONAL
PERSONAL COMPUTERS DISRUPT MAINFRAMES & MINICOMPUTERS
•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
•ConsumersvaluequalityandcompaEbilityoverinnovaEonandlowprice
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
IBMPC’sbeatbackApple&Tandy.
DISRUPTION IN COMPUTER DISTRIBUTION:CAN PERSONALIZED DESIGN & DELIVERY
OF PC’S DISRUPT TRADITIONALCHANNELS?
•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
•ConsumersvaluequalityandcompaEbilityoverinnovaEonandlowprice
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
DISRUPTION IN COMPUTERDISTRIBUTION: THE DESIGN &
DELIVERY IS PERSONAL
•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
•ConsumersvaluequalityandcompaEbilityoverinnovaEonandlowprice
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
DellofferscloneswithlowerpricesandpersonalizaEon.IBMRetailchannelsaremillstone;nolongercomplementary.
Disruption in News Delivery: News from GoogleNews & Blogs; Ads by Google
Video clips on YouTube; Ads by Google Classified ads on Craigslist.
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•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect•ConsumervaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
?
Disruption in News Delivery: News from GoogleNews & Blogs; Ads by Google
Video clips on YouTube; Ads by Google Classified ads on Craigslist.
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•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect•ConsumervaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEonConsumerslikefree
news;GoogledisintermediatescontentproducersfromadverEsers.
19
Disruption in Software & Content Distribution?"There's An App For That"
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•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect•ConsumervaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
?
20
Disruption in Software & Content Distribution?"There's An App For That"
•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect•ConsumervaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
AppinnovaEonisFast&Flexible;NewPladorms(e.g.,iPhone+iTunes)formnewComplementaryAssets.
Disruption in Social Networking;Facebook TV:
Friends don’t let friends watch alone.Social network threatens content aggregators
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•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect•ConsumervaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
?
Disruption in Social Networking;Facebook TV:
Friends don’t let friends watch alone.Social network threatens content aggregators
22
•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect•ConsumervaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
SEllupforgrabs?Price&EntrantNetworkvs.Quality&ControlofcomplementaryAssets(content)
Disruption in Storage & Time Shifting;what I want; when I want; where I want.
Tivo threatens traditional content aggregators?
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?•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect•ConsumervaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
Disruption in Storage & Time Shifting;what I want; when I want; where I want.
Tivo threatens traditional content aggregators?
24
•WeakIncumbentNetworkEffect•StrongEntrantNetworkEffect•ConsumerhighlypricesensiEveandwillingtoriskadopEnginnovaEveservicewithlowqualityandcompaEbility
•StrongNetworkEffect•ConsumervaluequalityandcompaEbilityoverinnovaEonandlowprice
•Incumbentscanaffectswitchingbehavior•Incumbentsinnovatewhilemaintainingquality•Incumbentscontrolcomplementaryassets•EntrantsstruggletoofferqualityduetolackoffuncEonalcontrolormarketpower
TechnologyDisrupEon
NoTechnologyDisrupEon
IndustryDisrupEon
NoIndustryDisrupEon
CableCompanycanofferDVR;Contentcontrolalsokeyasacomplementaryasset.
a. Disruption in Computing; devices are personalb. Disruption in Networks; connectivity is ubiquitousc. Disruption in Value Chain Clockspeeds; value capture is fleetingd. Disruption in Content Control: catch me if you cane. Disruption in Intelligence; whose pipes you calling “dumb?”f. Disruption in Regulatory need; herding cats is tougher than
caging an elephantg. Disruption in Consumer & IP Protection: one phish, two phish;
spam phish, screw phishh. Disruption in Eyeball Monetization; glue ads to search resultsi. Disruption in Consumer Experience; seduce with “velvet
handcuffs” (ref G. Hamel, WSJ)j. Disruption in Software Distribution; "There's An App For That"k. Disruption in Social Networking; friends don’t let friends watch
alonel. Disruption in Storage & Time Shifting; what I want; when I want;
where I wantm. Disruption in Content Production: webcams & flips r’ usn. Disruption in Control: it’s my tube now. 25
The Future of TV and Video Value Chains;Collisions of Multiple Disruptions
Part I: In the Beginning there was Darkness . . . , then Black & White . . . , thenVertical Integration, then Technicolor, then CNN, then YouTube on iPhone
1.The Wizard of DOS (or The Gates of Hell?)a. How the PC & Gates won the (three-sided) standards warb. When open trumps closed – and when notc. The PC as a platform for computing, communications, innovation, . . . and
television
2.CyberSpace: The Final Frontiera. Packets & Routers vs. Circuits & Switchesb. Convergence and The Internet Hourglassc. Cable Push vs. Viewer Pulld. The Broadband Incentive problem
3.Journey to the Center of the Neta. Core-Edge Dynamicsb. Value Chain Dynamicsc. Business Model Collisions
Television Reloaded: The Story of Story Telling
Fine, Klym, Clark, Lippman
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Part II: “For the locusts covered the face of the whole Earth; and theydid eat every herb of the land and all the fruit of the trees”
4.The Tortoise and the Internet Startup –a. Disruption dynamics; Innovation Dynamicsb. Legacy Telecom and Old Mediac. Attack of the Killers oIPsd. are no match for the myriad of new entrants enabled by the Web; case studies
of interesting startups and failing oldsters; Innovation dynamics
5.Green Eggs and Spam –a. The “bad guys” and the Dark Side of the Internet & Openness
(one phish, two phish; bait phish, screw phish) b. The role of governments, laws, courts
6.Ali-Baba and the 40 million downloaders –a. the story of digital music – from napster to appleb. The stories of books and newspapers;c. perspectives of content owners vs pipe owners vs users
7.David becomes Googliath –a. rise of Google and impacts on the media/communications landscape;b. role of advertising as payor;c. Youtube and user-generated content;d. Maps, location, and Privacy 27
Part III: “I will deliver them to the land flowing with milk and honey”
8.King Kong vs Jobszilla –a. Competition delivers value to consumers;b. The iPhone/iPad story & leveraging of the Apple platform;c. The user experience and Apple’s “velvet handcuffs”;d. revisiting openness vs closedness
9.Planet of the Apps –a. App stores and the app culture
10.The Mickey Mouse Cluba. FaceBook and Social Networkingb. Facebook TVc. Friends as Aggregators
11.Thanks for the Memories –a. I want a copy of everything vs. streaming from the clouds;b. TiVo, in the value chainc. Future thoughts
11.TV is a Many-Splendored Thinga. Future thoughts 28
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All Conclusions are Temporary
Clockspeeds are increasing almost everywhereValue Chains are changing rapidly
Assessment of value chain dynamics
Build Strategiesand Roadmaps