The Cloud: What Clayton Christensen Can Teach Us

The Cloud: What Clayton Christensen Can Teach Us

Why do most new technologies seem to come from startups and not from established companies that are also familiar with the technology?

Clayton Christensen's book, The Innovator's Dilemma, is a touchstone here in Silicon Valley. His book examines the process of innovation as it attempts to answer the question "why do most new technologies seem to come from startups and not from established companies that are also familiar with the technology?" He cites many markets as examples, including tube table radios (displaced by transistor radios), cable-driven steam diggers (displaced by hydraulic diggers), and disk drives (where successive waves of technology were represented in shrinking form factors) that brought new companies to the fore at each new wave. In each of these markets, according to Christensen, innovation shook up the established way of doing things and propelled new market entrants past companies that had dominated the previous technology.

So ubiquitous is Clayton's book in the Valley, that its title is regularly used as a kind of talisman to explain the promise of a new product, or why a former technology powerhouse (e.g., SGI) has fallen on hard times. Like the phrase "How about this weather?" "the innovator's dilemma" can be trotted out on almost any occasion and found suitable for purpose.

In fact, Christensen's theory is far more powerful and much more subtle than might be expected, given its typical application in everyday conversation. He posits that there are actually two kinds of innovation: sustaining and disruptive. Sustaining innovation is when an existing technology is improved; it's very hard for a new market entrant to be successful by delivering an improved version of an existing product. So, for example, if someone invented a more sensitive tuner for a tube table radio, it would be hard for a new company to make much headway in the market; existing players could improve their current products with the technology, and prevent the market entrant from gaining a foothold.

However, Christensen states, products can end up being improved past the point of usefulness to their existing market. A 2000 watt tube table radio is too good; no one has the ability to use 2000 full watts to amplify music. Christensen labels this as an "overserved" market. This opens up the possibility for a new kind of innovation to come forth. Typically inadequate compared to the state-of-the-art existing products, the new innovation delivers functionality at a far lower price point or in a way that the former product champions can't.

Another way an innovation succeeds in the marketplace is by not competing with the existing solution; that is, the innovation serves a new market for which the previous market leader is unworkable. So, for example, transistor radios couldn't hold a candle to tube table radios; they put out far less power with much higher distortion rates. This was true despite the best efforts of the dominant tube radio manufacturers to fashion a workable transistor table radio. Consequently, transistor radios achieved a market foothold by selling to teenagers who wanted to listen to rock and roll with their friends. They didn't mind the fact that the sound was terrible. They were listening to their music in their environment. Transistor radios sold by the carload to teenagers, a market that would never have bought a tube radio. This kind of innovation-one which upends the existing order within a market-Christensen calls disruptive innovation.

Ultimately, what happens, according to Christensen, is that the new technology improves over time until it is functionally equivalent to the existing product, but is still available at a lower price point. Then the market shifts dramatically, and the existing dominant players are forced out of the market almost overnight. And-and this is vitally important to understand Christensen's theory-the established players, even though they recognize the potential and, indeed, the importance of the new technology, fail to bring competitive products using it to market.

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Tags Cloudinnovationcloud computingThe Innovator's DilemmaClayton Christensen

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