Mobile and the Innovator’s Dilemma

The-Innovators-DilemmaAmong countless technology management books out there, there is one that truly stands out in my opinion. Clay Christensen’s “The Innovators Dilemma” has attracted the attentions of some of the world’s most influential technology leaders including Steve Jobs and Intel’s former CEO Andy Grove. The theory behind the book is a really powerful one that brings to light some of the reasons why an industry can get disrupted. Today, the mobile web seems to be a technology enabling innovations that could disrupt many industries. Therefore, I thought it might make sense to re-examine this theory and corroborate whether or not the mobile web qualifies as a disruptive innovation enabling technology.

Christensen’s book describes a strange paradoxical phenomenon observed in the evolution of many industries:

Industry leading companies eventually decline and die by doing everything right.

How can companies that do everything right decline and die? How can it be possible that companies with countless resources, benefits of the incumbency and very smart people in charge, allow small new players to enter the industry and eventually replace them? After studying several industries, Christensen discovered the dynamics of what he defines as “disruptive innovations”. A disruptive innovation according to Christensen is not a breakthrough technological innovation that makes things better. Instead, a disruptive innovation takes advantage of a new technology and transforms a product that was formerly complex, expensive or inaccessible into one that is simpler, more affordable and accessible to a new segment of customers.

Leading companies generally focus on innovations that make their products better (more powerful and with more features). As the logic of a customer-centric organization would suggest, these companies focus on providing ever-improving products and services to their customers. On the other hand, “disruptive innovators” take advantage of emerging technologies and deliver a new products serving the same needs but with less quality, for a lower price and in a simpler way. Of course, incumbents don’t pay attention to these new technologies at first: their customers wouldn’t want lower quality of products! And why invest in a market-segment that seems smaller and less profitable than the current one? It doesn’t make sense. However, this does make sense for small, emerging organizations that don’t have customers that would complain about lower quality and don’t have internal financial benchmarks to compare profitability.

As it turns out, the lower-cost/lower-quality products developed under the new technology get better and better with time. Then they start going ‘up-market’, reaching a bigger population of customer segments. The customers of the incumbents start learning about these new good-enough and more affordable products and switch. By the time incumbents notice this, it’s generally too late and they don’t have the new technology as a core competency to play under the new rules. Even if they do recognize it in time and put a team together to try to catch up with the new technology, the team generally finds too many internal roadblocks provided by the old paradigms (marketing, production, finance, etc). Consequently incumbents are replaced and die. Not because they were stupid, but paradoxically because they did everything “right”: they invested in innovation, they improved their products and services, they cared about their customers and they paid attention to the financials of the business.

Christensen suggests that the only two ways to avoid disruptions are acquiring the emerging players or setting up separate startup-like business units to work on the new technologies.

Mobile as an enabler of disruptive innovation

I find this theory fascinating and the dozens of real world examples Christensen studied demonstrate its validity. Now, is the mobile web actually a disruptive innovation-enabling technology? I believe it is, for the following reasons:

  • Mobile products are forcibly simpler, with less features and one could say “less quality” than desktop products, given the smaller screen and the mobile use-case
  • Mobile products are initially adopted by a lower-income market segments like teenagers or young user
  • Mobile unit purchases are (still) lower than web unit purchases
  • Mobile allows access to lower prices through geo-relevancy, real-time last-minute deals
  • Mobile devices are growing exponentially, thus giving access to products to an ever-growing new part of the population
  • Mobile requires a new and different set of skills: UX/UI design, product development, distribution, etc.

Therefore I believe that the mobile web does represent a technology capable of enabling disruptive innovations with the potential of creating new companies that challenge and replace incumbents in various industries. We are still too early to confirm it, and the examples are just developing. The ‘expensive’ acquisitions of Instagram by Facebook and OMGPOP by Zynga might be expressions of the phenomenon. Yahoo, Google and other big web companies have been eagerly acquiring mobile startups as well. We have yet to see a mobile company replace a web incumbent but the high growth of companies like Path, Snapchat, Uber, HotelTonight, Shopkik, Square, Waze, Foursquare are promising. Only time will tell. Meanwhile entrepreneurs are having a go at developing disruptive mobile products for many big complacent industries. We at WeHostels are already well on our way. :)

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