Especially during an economic downturn bridging the so called “valley of death” for any business is hard. very hard.
And you won’t find your self in a better circumstance working on a disruptive innovation. Every business has a start-up and growth face, but disruptive innovations (sometimes) even need to build a market.
Clayton Christensen distinguishes between “low-end disruption” which targets customers who do not need the full performance valued by customers at the high-end of the market and “new-market disruption” which targets customers who have needs that were previously unserved by existing incumbents.
Lesson 1: in times like these, it is easy and better to focus on new-market opportunities since they usually develop faster out of the recession.
Mostly, a “new-market disruption” results out of long term research or a emerging market development, mostly driven by the first mover it self. Let’s take Linux in the OS market and the famous iPhone in the mobile device market. Linux was released initially in 1991. During 18 years in the “emerging market” of OS, meanwhile the product has reached a market-share of 87,8% on worlds 500 fastest supercomputers. The iPhone has reached in Q1/2009, according to Gartner, 10,8% of the global smartphone sale.
But how have they survived the “valley of death”? How could they explore and develop a market?
In the case of Apple’s iPhone it was, like I call it, the “Microsoft” approach: “Throw money!”
Apple spent nearly as much on development of the iPhone as it did on its Leopard OS, according the company’s 10Q filed with the SEC. From the notes: “In the second quarter of 2007, the Company determined that both Mac OS X version 10.5 Leopard (“Leopard”) and iPhone achieved technological feasibility. During the second and third quarters of 2007, the Company capitalized approximately $27 million and $26 million, respectively, of costs associated with the development of Leopard and iPhone.”
This was a bold and strong move. Why? When the iPhone came out in 2007, there where several risk for apple to loose big time:
—From the iPhone section in risk factors: “This is a highly competitive industry with several large, well funded, and experienced competitors, and the Company may not be able to compete successfully. This industry has aggressive pricing practices, frequent product introductions, evolving technologies, rapid adoption of technological and product advancements by competitors, price sensitivity on the part of consumers, and a large number of competitors with substantial experience and technological and financial resources. The Company’s operating results and financial condition may be materially adversely affected should it be unable to effectively compete in this industry.” For disruptive innovations, it takes time to create a market and to get to a huge customer acceptance:
—Another risk factor: the reliance on a single carrier in the U.S.: “If AT&T Mobility cannot successfully compete with other wireless carriers in areas such as quality and coverage of wireless voice and data services, performance and timely build-out of advanced wireless networks, and pricing and terms of end user contracts, or if for any reason AT&T Mobility customers experience service interruptions, future sales of iPhone may be materially adversely impacted.”-
Overall, Apple demonstrated how big corporates can take bold initiatives for groundbreaking disruptive innovations in a (satisfied) market with dominating players.
next Posting: Lesson 2 – it takes bold people to do bold moves
So long: I’ll leave the last word to Woody Allen’s character in his film Love and Death… “I shall walk through the valley of the shadow of death. In fact, now that I think of it, I shall run through the valley of the shadow of death, ‘cos you get out of the valley quicker that way.”