29 October 2013

Disrupting Market Incumbents

One of the most fascinating business phenomena is the way that powerful market incumbents can be rapidly displaced by new market entrants.

Take the case of BlackBerry’s demise. Once a market untouchable, BlackBerry first hit the market in 1998 with a fully operational QWERTY keyboard. It was a massive success with corporates, primarily because of its secure networks and ease of use. By 2006 they’d released 15 models, the latest featuring things like chat networks, cameras and navigation. It effectively marked the birth of the smartphone. By 2007 they’d doubled their user base to 10 million and were seen as invincible.

Then Apple decided to launch the iPhone, totally revolutionary in that it used a touch screen as opposed to a keyboard. BlackBerry thought nothing of it, contending that no businessperson in their right mind would go for it. But Apple thought that things would change in terms of what people wanted to do on their phones. As such, their first model had an average antenna, a substandard camera and no native apps. Understandably, it was viewed by BlackBerry as totally substandard.

This is where we begin to see the idea of new market disruption as put forward by Clay Christensen come into play. According to Christensen, this is when a substandard product generates a new customer base and pulls some lower end users away from the incumbent. Sustained innovation then leads it to dominate that market and draw in the mainstream and upper end. This is exactly what happened. Because Apple started off with a substandard product they were able to rapidly innovate. In contrast, BlackBerry became the late movers and were left scrambling to catch up. They failed to recognise emerging market trends and nullify the threat of a new market entrant. The market disintegrated beneath them.

Amazingly, BlackBerry went from being the market dominator to near bankruptcy, while Apple acquired 205 million buyers within four years. It was the ultimate proof of Christensen’s assertion that in this type of scenario, the new entrant will always win.

Author: Seamus Tardif – Master of Management student

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