Technology doesn’t disrupt; business models do
Economist Joseph Schumpeter[ popularized the term “creative disruption” and Harvard professor Clayton Christensen famously wrote about disruptive innovation in his book “Innovators Dilemma”. Both these theories are a must read for anyone who wants to understand “disruption” and how it unfolds in our markets.
Andy Rachleff in his famous class at Stanford “Aligning Start-ups with their market” teaches that a common misconception is that technology disrupts markets or companies, but it is not technology, but business models that disrupt markets and companies. Technology is merely an enabler of this new business, a new method to create and capture value.
So when a new technology emerges, entrepreneurs should focus on how they can use this technology to create a new business model or new ways of creating/capturing value. A new technology being better than an old one is not a sufficient condition for disrupting markets.
For example, new technology in the form of i-phones created GPS enabled devices in every persons pocket. Once combined with a new business model of a company like Uber in which anyone could drive, it created a massive and irreversible disruption to the taxi industry worldwide. Similarly, web-based market places existed for a while but Airbnb allowed anyone to list their homes as potential rooms to tourists, thus disrupting the hotel industry. Hotels could not copy this business model, because their business model was about acquiring properties and renting them out for short term stay. Technology didn’t matter because most hotels or hotel bookings website, provided a healthy marketplace for hotel rooms - it was the business model of allowing anyone to offer their spare room, thus creating a massive inventory of rooms, that disrupted hotels. Google’s technology must have been search, but by allowing anyone to create simple text ads to advertise disrupted the traditional banner-based business models of companies like Yahoo.
Salesforce is an excellent example of this. Salesforce’s disruption wasn’t a cloud based CRM, but a business model that allowed you to pay small monthly fees to get an enterprise grade CRM and not having to buy annual CDs and upgrades of traditional CRMs. Their business model, SaaS, was so powerful that hundreds of companies used this business model to disrupt traditional business.
So when applying technology to disrupt traditional businesses, it is worth asking does your technology allow you to create a different business model? And is this business model, disruptive i.e. something incumbents cannot easily copy without destroying their existing business?
