It sounds trite to say disruption is happening everywhere. But it is. Much, much faster than many people realise. Want proof? Here is one of my favourite statistics I’ve read lately.
The time it took for the telephone to reach 100 million users – 75 years. The time it took the World Wide Web to reach that number – seven years. The time it took Facebook to reach that number – four years. The time it took Instagram to reach that number – Two years. The time it took Pokemon Go to reach that number – One month. So what does this mean?
Disruption is going to happen whether you like it or not. It is going to happen to you, your company, your business, and eventually your government and social institutions. And it has been happening for thousands of years. It has always happened. It is just starting to happen much, much faster.
A while ago I read an interesting comment. Someone said: “There are three kinds of companies: those who get obsoleted, those who obsolete the first kind of companies, and those who obsolete themselves”. Let’s break that down.
The first kind are the Kodaks of the world. Companies that develop a profitable business and then try to defend it from disruption and disintermediators.
This is obviously a fool’s strategy. Look at what happened to Kodak. They actually invented the digital camera, but chose to sit on it because they didn’t want to watch their existing profitable film camera business get destroyed. Even if they owned the digital business that did it and took all the profits.
Xerox did a similar move at its legendary PARC (Palo Alto Research Center) where it invented the modern mouse-based GUI (Graphical User Interface) that we know and recognize today, and watch Apple steal it for its Macintosh computer.
This is pathologically stupid behaviour. It can be explained by a number of well-known heuristics and biases:
Interestingly, Microsoft has at times displayed this behaviour. This is one of the reasons for their long and sad decline, that is only just beginning to turn around. Microsoft in the 1990s developed a very profitable business (well, two actually: a home desktop operating system, and enterprise server and productivity software). They then spent most of the noughties frantically trying to defend those businesses while the world changed around them.
Desktops became replaced by smartphones and tablets as the primary consumer computing device, and traditional enterprise software became disrupted by various technologies, including but not limited to cloud-based software-as-a-service. Microsoft could have jumped into those new markets, put tried ineffectively to ignore or extinguish them.
It’s probably too late for Microsoft to enter the huge but viciously red ocean that is the smartphone market. But they are fighting hard and well for the smaller but still lucrative tablet market, and they are doing extremely well in the cloud computing market (they are even catching up to Amazon and its mighty AWS platform). So what are your other choices?
Another possibility is you can be a Spotify or Uber: you can spot other old and slow profitable businesses, and go after them. Disrupt them. Steal their lunch.
This is what Spotify is doing to the music industry. This is what Uber is doing to the taxi industry. It’s what Air B’nB is doing to the hotel industry. You see a big fat old cow and you go break its legs and gorge on its body. Seems fun and profitable, right? Well, it is and it isn’t.
This is the most common form of disruption, and a very visible one. It’s the one that gets discussed the most.
It tends to scale up fast for a period of time. It gets a lot of money (poured into it, not coming out of it), it gets a lot of attention and love, and people talk about “Unicorns” and “valuation” a lot. Then sometimes it finally turns a profit and keeps going as a successful sustainable business… but often it doesn’t.
Want to know a freaky fact? Spotify doesn’t make money. It has NEVER produced a profit. Spotify is a big beautiful money pit, and it is dragging other people into the pit.
Every year it loses more money than it did last year. It is taking down record companies, distributors and stores, while shafting artists and losing money for its investors.
It’s a great deal for consumers, of course: they get access to most of the music in the world for a few dollars a month. But this is clearly not a sustainable model.
I’m not saying every startup has to produce a profit right out of the gates; that’s often impossible. But they need a plan to turn the business around eventually, and Spotify doesn’t seem to have that.
Uber is a different case: it is losing money, but it is growing a vast ecosystem and makes more money for each participant that joins the ecosystem.
They are diversifying their ecosystem as well: Uber Taxis and then Uber Black and now Uber Eats and soon we will probably see Uber Courier. I expect profitability for Uber in the near future. And unlike Spotify, participants in the Uber ecosystem make some decent money.
So some disruptors are onto a good thing and have an (eventually) sustainable business model, others don’t. But there’s another type of company with another type of strategy. It’s much more difficult to execute, but much more powerful. Disrupt yourself.
Apple and Amazon are tech titans. They have market capitalizations bigger than most countries in the world. And they are always disrupting themselves.
Ever since Jobs returned, Apple has been constantly destroying its own products. That might sound stupid or insane, but it’s not.
The first thing Jobs did when he returned was to immediately scrap almost all of Apple’s product lines. Most of them weren’t very good and weren’t selling well and almost all of them didn’t fit into Jobs’ strategy, which was portable devices.
So he focused the company and removed everything that wasn’t necessary or wasn’t working. And he produced the iPod, which was hugely successful and disruptive.
If Jobs was stupid like Steve Bullmer, he would have tried to remove any threats to the iPod cash cow, both internal and external. But he wasn’t.
He eventually released a product a hundred times more successful and disruptive, that obliterated the iPod and removed any reason anyone would have to buy one: the iPhone. Why spend $300 to get an iPod when you can spend $500 and get an iPhone that does everything an iPod can do and a hundred things more?
Of course, you wouldn’t: everyone wanted an iPhone instead so everyone went out and bought one. And buying an iPhone didn’t just change the device in your pocket, it further cemented you into the Apple ecosystem. Not just via controlling your music and media collection (which they had already done via the iPod) but now your software collection (via the Appstore).
Amazon pulled a similar move with the Kindle. This is a product that supersedes and invalidates most of their main product offering, which is selling books online. Why would you produce an e-book reader which makes people no longer have a need to buy books?
Because like Apple, Amazon are smart and understand the power of self-disruption. They understood that they already possessed a huge ecosystem of customers, publishers and authors.
If they can make as good (if not better) margins on selling e-books than physical books, then it made perfect sense to replace that offering. Again they moved ahead of their competitors, put out a superior product, and dominated the market (e-book readers).
Do you think Apple put out the iPod and waited and thought about it and then decided to replace it with the iPhone? Do you think Amazon delayed putting out the Kindle to extract the maximum possible value from the physical book business?
Not a chance. Apple would have been working on the iPhone the second the iPod went out the door, if not earlier.
Amazon would have been frantically designing and prototyping the Kindle as early as possible. They disrupted themselves, intentionally. And it didn’t hurt their business, it skyrocketed it.
Because they were ahead of their competitors and exploited their own ecosystem to transform their value proposition. To understand how this works, you need to understand exponential growth and sigmoid Kano curves.
The Kano model is a theory about products or services and why customers like or hate them. It was invented in the 1980s by a Japanese guy called Noriaki Kano. It can be summarised pretty easily by this nice graph on Wikipedia:
Basically, the features of a product come under one of three types. First are your “must-haves” or basic needs, which everything has to have. If you don’t have it (security on a banking website, photo uploading on a social networking app) then everyone hates your product. But adding more and more of it doesn’t impress people as much.
Then you have your one-dimensional features or “performance needs”, which is where most effort goes and most companies compete.
Then you have the delighters: these are unique or unexpected features that people don’t miss if they’re not there, but they blow people away when the see them. These are features that invoke the expression “I didn’t even know I needed that, but now I know about it, I want it!”.
Successful and disruptive companies focus on the delighters. These are what really win wars and set companies and products apart. But the problem is, the curves shift. Delighters become basic needs.
Apple releases a smartphone with an app store and a great camera. But within a year, all smartphones have an app store and a great camera. Those aren’t amazing, they are basic features. You get an S-curve or sigmoid curve: the Delighter curve goes to the right and up, then starts flattening out, making an S.
So how do you beat the S-curve and achieve exponential growth? Exponential Product Management, part of the XSCALE library of practice patterns, has an answer. You stack the S-curve, by disrupting yourself. You don’t do a Microsoft and sit around milking your cow while customers get bored and move on. Instead, you be an Apple and consistently release products that blow away your own products before your competitors can.
The way to achieve exponential growth and market dominance is to leapfrog yourself. Apple and Amazon don’t wait for their competitors to respond to them, and then respond to whatever the competitors put out. That is way too slow. It would take them a year or two to respond to the products, and then you have a year or two to respond back.
Apple probably started working on the iPhone before the iPod was even released. I bet that the Kindle was a twinkle in Jeff Bezos’ eye in the last century. The only way you can stack the Kano S-curve and delight customers before your offering becomes stale is to obsolete it before the market, customers or competitors do.