"The Next Big Thing: How Disruptive Technologies Sneak By Incumbents"

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Aug 07, 2023

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"The Next Big Thing: How Disruptive Technologies Sneak By Incumbents"

In the ever-evolving landscape of technology and innovation, the next big thing often starts out being dismissed as a mere toy. This concept is at the core of Clay Christensen's theory of disruptive technology. Disruptive technologies, when first launched, tend to undershoot user needs, leading them to be seen as insignificant or unimportant. However, to distinguish between toys that are merely toys and toys that have the potential to disrupt entire industries, it is crucial to examine products as processes, specifically focusing on process speed and external forces.

Process speed plays a significant role in determining the potential of a disruptive technology. Is the product getting better or worse with time? This is a key question to consider. While the initial version of a disruptive technology may not fully meet user needs, the ability to improve and enhance the product over time is what sets it apart. Microchips getting cheaper, bandwidth becoming ubiquitous, and mobile devices getting smarter are just a few examples of external forces that can propel a disruptive technology up the utility curve.

Take Wikipedia, for instance. It is not just a static product but a dynamic process. Every day, it is edited by individuals with different intentions, including spammers, vandals, and wackos. Yet, every day, the dedicated contributors make it better at a faster rate. The process speed of Wikipedia, with the good guys consistently outpacing the bad, ensures that the platform steadily improves to meet and surpass user needs for encyclopedic information. This is a prime example of a disruptive technology that started out as a toy but eventually became an indispensable resource.

Startups that focus on sustaining technologies, on the other hand, are unlikely to be the ones that dominate the top lists in 2020. Sustaining technologies are those that seek to improve upon existing products and services within an established industry. While these innovations may bring incremental improvements, they are not likely to disrupt the market. It is the disruptive technologies, the ones that sneak by because people dismiss them as toys, that have the potential to reshape entire industries.

Switching Costs: 6 Ways To Lock Customers Into Your Ecosystem

In addition to understanding the nature of disruptive technologies, businesses must also consider how to attract and retain customers within their ecosystem. A great product alone is not enough to bring customers flocking to your door. Designing a superior business model is key, and one aspect to consider is switching costs.

Switching costs refer to the barriers that prevent customers from easily switching to a competitor's product or service. By implementing strategies to lock customers into their ecosystem, companies can create a sense of loyalty and make it difficult for customers to leave. Here are six ways to achieve this:

  • 1. 'Base Product & Consumable Trap': Companies like Nespresso, Gillette, HP, and Kodak employ this trap by luring customers into their ecosystem with a base product and then profiting from the sale of consumables. Customers are forced to continually purchase these consumables, creating a recurring revenue stream for the company.
  • 2. 'Data Trap': Apple, Google Android, and Spotify utilize the data trap by encouraging customers to create or purchase content and apps that are exclusively hosted on their platform. For example, Spotify offers a vast catalog of songs that can be downloaded from major smartphone marketplaces. However, if a customer switches to another music app, they risk losing their playlists, thus creating a barrier to switching.
  • 3. 'Learning Curve Trap': Companies like Adobe, Salesforce, and Box can deter customers from switching by making it challenging to learn and adapt to a new product. Once customers invest time and effort into learning how to use a specific product, they are less likely to switch to a competitor.
  • 4. 'Industry Standards Trap': Microsoft and Adobe have established industry standards that make it difficult for customers to switch to alternative products. For example, Microsoft's dominance in the operating system market has made it challenging for competitors to gain a foothold.
  • 5. 'Servitization Trap': Rolls Royce and Hilti employ the servitization trap by offering not just a product but an entire experience to their customers. Competing against this experience becomes more challenging as customers become accustomed to the added value provided by these companies.
  • 6. 'Exit Trap': Companies like Verizon and AT&T enforce contracts that require customers to use their products or services for a specified period. This creates a barrier to switching, as customers are locked into a contract and face penalties for early termination.

By understanding and implementing these strategies, businesses can increase customer loyalty and reduce the likelihood of customers switching to competitors. However, it is important to note that while these strategies may be effective in the short term, they should not be relied upon solely. Continuously innovating and delivering value to customers is essential to long-term success.

In conclusion, the next big thing in technology often starts out looking like a toy but has the potential to disrupt entire industries. By understanding the nature of disruptive technologies and focusing on process speed and external forces, businesses can identify opportunities for innovation and growth. Additionally, by implementing strategies to lock customers into their ecosystem and reduce switching costs, companies can create a sense of loyalty and make it difficult for customers to switch to competitors. Ultimately, staying ahead of the curve and continuously delivering value to customers is crucial for long-term success in a rapidly evolving technological landscape.

Actionable advice:

  • 1. Embrace disruptive technologies: Don't dismiss new technologies simply because they seem like toys. Instead, analyze their potential for growth and consider how they can ride the changes in the industry to meet and surpass user needs.
  • 2. Focus on improving process speed: Continuously strive to make your product or service better at a faster rate. By outpacing the competition, you can ensure that your offering remains ahead of user needs and maintains a competitive edge.
  • 3. Innovate beyond switching costs: While locking customers into your ecosystem can be effective in the short term, it is crucial to continue innovating and delivering value to customers. Building strong customer relationships and consistently meeting their evolving needs is key to long-term success.

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