
What Clayton Christensen got wrong - fejr
http://stratechery.com/2013/clayton-christensen-got-wrong/
======
PaulHoule
I think the verdict is still out on the iPad and iPhone.

I bought my first tablet, a Barnes and Nobles "Nook", precisely because of the
price. Not that I'm cheap so much, but that I wanted to take it places where
it might get broken, and I wouldn't feel so bad about breaking a $150 tablet
vs. breaking a $600 tablet.

It lacks a GPS, a camera, and some other features and the touch screen isn't
as good as an iPad, but I could buy four of these for what an iPad costs.
(Like buy one for all the members of my immediate family including my mother-
in-law)

Consumers may be seduced by pretty things, but consumers are cheap too. I've
seen people underbuy PCs for years; perhaps Apple helped the tablet market get
established by preventing underbuying, but Android tablets are getting better
fast. (Had Android come into the market first, people would have concluded
tablets were junk and there never would have been excitement over them)

For that matter, Apple faces stiff competition from the high end. Microsoft's
Surface Pro points to a kind of device that is much more powerful (and
expensive and heavy) than the iPad. Windows 8 has its problems, but there will
be a Windows 8.1 and Windows 8.2... Even though the Metro ecosystem is weak, I
think there's definitely a market for something that is a hybrid between a PC
and tablet, even if it the enterprise market.

Add that up and 10 years from now, Apple could be a niche player.

------
scottdw2
Actually he has admitted he was wrong about the iPhone, thinking of it as a
high end phone instead of a low end (but very convienient) computer.

The author of the article, I think, makes a "phalous leap" from "He was wrong
about the iPhone" to "disruption doesn't apply to consumer markets".

Primarily because the iPhone is a perfect case of this. It (and it's
successor, the iPad) is disrupting the PC industry.

You have to look at the phone as a computer, not a phone. Then disruption
theory REALLY makes sense.

~~~
devx
Ironically, it was _because_ of his disruption innovation theory why I thought
immediately after I saw the iPhone that it's going to be disruptive for the
whole smartphone industry, and also why I thought Nokia and RIM will be the
_last_ companies to adapt to the new smartphone world (which is exactly what
happened).

I guess Clayton Christensen put too much focus on the "low-cost" part of the
disruptive innovation, which I suppose does happen more often than that, but
the way I see disruptive innovation is making some things "10x better" than
before, and those things need to be things that the market _wants_ ,
obviously, otherwise they're pointless.

In a way he was also right, just not about the iPhone - but about Android.
Android is also disruptive to the iPhone, and it's more about the low-cost
strategy than doing some things much better.

It's also helping noname OEM's create pretty quality devices for very low-
cost, and Android has also disrupted paid operating systems like Windows
Mobile, and even the desktop Windows, and continues to do it:

[http://static5.businessinsider.com/image/523376fe69bedd1c3ec...](http://static5.businessinsider.com/image/523376fe69bedd1c3ec8a35b-800-/chart-
of-the-day-computing-share.jpg)

So maybe Clayton is ultimately right. The iPhone "changed the game", but it
will be Android the one to reap most of the benefits from this "disruption".

------
r0h1n
Firstly, by looking at Apple and its products in isolation the author is
missing the big picture on how the company itself could be disrupted.

> the theory of low-end disruption is fundamentally flawed

Android phones started eating Apple's market share from the bottom-up aka 'low
end'. While Apple may have created the market for smartphones and tablets,
fact is both iOS and iPad are conclusively losing market share.

\- [http://venturebeat.com/2013/07/29/apples-ipad-market-
share-c...](http://venturebeat.com/2013/07/29/apples-ipad-market-share-
chopped-in-half-as-android-takes-over/)

\-
[http://www.idc.com/getdoc.jsp?containerId=prUS24257413](http://www.idc.com/getdoc.jsp?containerId=prUS24257413)

The standard response to Apple's falling market share has been "Market share
doesn't matter, only profits do."

That argument was demolished by Samsung when it overtook Apple a few months
back to become the most profitable phone maker in the world.

\- [http://www.theguardian.com/technology/2013/jul/26/samsung-
ap...](http://www.theguardian.com/technology/2013/jul/26/samsung-apple-
profitable-mobile-phone)

It's easy to overlook those trends because the _overall market_ is growing so
fast, to the extend that Apple's fall in market share is masked over by its
growth in revenue.

As I see it there are two parallel trends that are taking place - (a) Apple's
products continue to 'disrupt' an older generation of competitors like PCs and
featurephones, while (b) a newer generation of competitors led chiefly by
Android continue to steadily disrupt Apple.

~~~
aakashbarot
Well you see these guys (Media and research agencies) Play with Statistics you
convince you. You can give me any data and tell me in what favor I need to
give my inferences and I will get it out of the same data.

So I wont suggest to go with this conclusive analysis, rather look at the raw
data and make your own sense.

Something about Marketing: You see one really cant compare A company with B
company if their market and their strategies are different. Yes, they do
intersect at some point and we need to see who wins at the intersection.

Example: Apple is into: Computer + phone + mobile OS + Computer OS etc.

Apple V/s Android: When you compare Android with Apple: Compare iOS: And you
will see that iOS is targeted to only a specific segment of society. Wherein
Android is like a mass product. The reason Android is having higher market
share is because in the third world country it is available as cheap as: 70$
V/s Apple (Iphone C) at 550$ (Both not on contract).

(Note: Android wont disrupt apple. These industry maturing will. With players
having expertise in different domain come together to create final product.
(Reference: Product interface) )

Apple V/s Samsung: Same story as above: Samsung is spurred across the segment
(mass product) and hence claims to be having higher market share. Which is
right. It might be more profitable.

Its like: Class / Higher Profits V/s Mass / Scale = Apple V/s Samsung (Note:
Look at it from a business perspective not user, and we see Samsung is a
better model given current stage of market)

But here is an important learning: "Elephants Cant Dance" You see Apple is now
a BIG established Brand. They have Brand equity (Reason they can charge higher
prices). Their Market segment is fix and they cant afford t dance / change
now, to say Mass / Scale. It will hurt current market (Existing customer)
sentiment. Though iPhone 5C was an attempt to try and gravitate towards Lower
end market.

Back to Clayton theory:

1\. He talks about theory as Lenses. Which doesn't necessarily indicate that
what you see through that lenses is right or wrong. You are free to choose
some other lenses as you deem fit.

Looking through the lens of disruptive innovation: I will side him. Even
though Customers dont really see these trends they do affect businesses and
eventually customers are convinced to align with the change in market.

~~~
r0h1n
> Well you see these guys (Media and research agencies) Play with Statistics
> you convince you.

Fair disclosure: I am one of "these guys" (a journalist).

------
jholman
Christensen's theory, as I understand it, also does not explain Gucci and
Prada. Apple products may or may not have an "objective" advantage relative to
the competition (I believe they do not, but I am aware this is widely
disputed), but either way I believe that fashion and signalling is the single
largest factor in Apple's sales success.

This is not, by the way, a disagreement with the article; I just think the
article under-emphasizes this aspect.

------
Touche
Low-end disruption hasn't set in because of the carrier model. It doesn't
matter than the iPhone costs twice as much as a Nexus 4 because most people
will only pay $200 anyways. This works in Apple's favor. It's also why the
iPhone 5C is going to be so big for them; they can sell last year's phone as
though it were new and barely drop the price. The margins on that phone are
going to be gigantic. It's a direct response to their stock troubles, by the
way.

I wonder at what point does the carrier model break. If a high end phone only
costs $300 - $350, when that becomes the norm I mean, do people still agree to
2 year contracts in order to trim that down a hundred dollars?

~~~
asveikau
The carrier model doesn't exist equally in all places.

~~~
Touche
But the effect of it existing in the U.S. keeps smartphone prices artificially
high every where. It benefits Samsung just as much as it benefits Apple.

~~~
hollerith
Can you explain how it keeps smartphone prices artificially high everywhere?

~~~
Touche
It keeps the high-end phone prices artificially high. Manufacturers cannot
sell the same phone to consumers for less than they sell to carriers. This is
why high-end phones are less popular in areas where paying full price for a
phone is the norm.

~~~
hollerith
So, Apple keeps the price of the iPhone high in countries where people pay for
access to the cellular network separately from the phone hardware to keep US
carriers happy. Is that your assertion?

I still do not get it. It seems to me that US carriers subsidize the phone
hardware because US consumers have an irrational unwillingness to pay the full
price of the hardware -- or an irrational willingness to pay monthly
contractually obligated payments to carriers.

If that is true, then there I see no reason for US carriers to fear the
availability of high-end phones at full price -- even if that price is not
"artificially" high -- since US consumers have an irrational aversion to
paying full price. So why would US carriers pressure manufactures to keep
high-end phone prices high (in the US or in other countries)?

ADDED. I agree with you that Apple is able to keep the price of the iPhone a
lot higher than their cost to make iPhones. Where I disagree is where you
assert that any policy of the US carriers has anything to do with the price of
iPhones in non-US countries.

~~~
Touche
You misunderstand me. The prices of high-end smartphones are the result of
market pressures, not carrier policy. But the market pressure is, primarily,
between the manufacturers and carriers; not the manufacturers and consumers.
Carriers would like to pay less, obviously, but they make so much money by
keeping people on expensive contracts that the market prices the phones where
they are.

They prices of high-end smartphones have virtually unchanged in years, where
the price of mid-range and low-end phones have plummeted. My assertion is that
the reason for this is that high-end phones aren't targeted at consumers.

------
aaronbrethorst

        In a June 2007 interview, again with Businessweek,
        Christensen reiterated that the iPod was doomed,
        and further predicted that the iPhone would not
        be successful
    

The iPod _was_ doomed, and it was the iPhone that killed it.

Also, Apple has demonstrated time and again that they're willing to 'disrupt'
themselves by introducing hugely popular new products that erode their own
margins. See, for instance, the iPod nano, the iPad mini, and, now, the iPhone
5c[1].

I think Christensen got it exactly right. He's just incorrectly applying his
own research.

[1] Yes, yes. Apple hasn't released any numbers on the 5c yet. But, just wait.
It's going to be _huge_.

~~~
abtinf
You should try reading the whole article.

The OP's point is that Christensen has two theories of disruption, one of
which is invalid. The first, new market disruption, to which you are referring
with your comment, is not controversial. The OP would likely agree with you.

The second, low-end disruption, holds in business-to-business markets but
fails in consumers markets.

Thus, the iPod was not killed by a low-cost and standardized competitor (which
is the incorrect prediction of low-cost disruption), but by a vertically
integrated highly differentiated competitor (a possibility under new market
disruption).

~~~
whatusername
That sounds like low-end disruption to me (Possibly I'm misunderstanding the
theory). The iPod was killed when the marginal cost of an MP3 Player moved to
$0. Same thing is happening to Point and Shoot Camera's. My Phone isn't quite
as good a music player as a dedicated MP3 Player. And it's not quite as good
as a P&S camera. But their marginal cost to me as a consumer is $0.

------
mrxd
Some very interesting points. I think the thesis can be made even stronger by
observing that the flaw in Christensen's model is that he views a product only
as a means to an end. Two products that provide the same outcome are
identical, so the cheaper one will win in the market.

This assumption holds for business decisions, but consumers are people and are
capable of having experiences. I can love or hate the experience of using a
product — that's a fundamentally different kind of evaluation that happens
while I'm using the product, not after. A car is useful if it gets me from A
to B - that means I get utility from it once I've arrived at the destination.
Getting to the destination matters, but so does the journey. If I hate driving
the car, if I feel stressed out and exhausted while driving, I'm going to
value that in a way that a business won't and can't.

~~~
monkbent
OP here.

This is a wonderful point. I'm in general a big believer in the "jobs-to-be-
done" idea, but this is absolutely missing. Thanks for sharing.

------
31reasons
I think Christensen's statements on both iPod and iPhone stems from theories
and sweeping generalizations on how technology field works. But with Apple,
the devil is in the details. His argument is not taking into considerations
things such as

1\. Control of the supply chains so that other players can't get their hands
on similar hardware.

2\. Singularity of Taste coming from Jobs and Ive that blended with the
hardware.

3\. Software, that is very hard to replicate without years of effort.

The lesson is, theories are theories and Christensen is not god.

------
codex
Another counter-example is the automobile market. Can I take an engine from
BMW and put into a Buick? Can I swap stereos? Can I mix and match body panels
from Japanese and American cars? The answer is no. And the reason is that an
automobile is more than the sum of its parts: to appeal to the target market,
the _entire experience_ of the car is customized and optimized. Inefficiencies
from specialization are not as important as the conceptual integrity of the
whole.

Homes are another example: pre-fab has yet to catch on, because almost no two
homes are alike.

I think you see integrated approaches whenever the performance of a particular
product is highly multi-dimensional, such that global optimization is very
difficult.

------
tlogan
I think this exactly proves his theory (or at least my understanding of it).

He says: "technology matures and becomes good enough..." But phones before
iPhone were definitely not "good enough". Honestly, they all sucked. And
Android phones are still kinda plastic and clumsy with bad support (upgrades,
etc.) - definitely not "good enough" for me.

Also iPhone and iPads are disruptive to PC market.

In short, it is nearly impossible to predict disruptive technology. First, it
is really hard to measure what is "good enough" at which "price points". And
sometimes it is even impossible to figure out which market is being disrupted.

------
Steko
_According to low-end disruption, a bag is a bag is a bag. The credit card
statement reflecting my wife’s birthday says otherwise!_

Great line.

------
gz5
Apple hit a perfect storm, and hit it perfectly, partially because they helped
create the storm.

Historically excellent product strategy, design, and marketing to enough
fashion conscious, deep (enough) pocketed, perceived ease of use prioritizing,
quick twitch, mass market of buyers without a second brand being strong enough
(until now) to make it a buying "decision".

The masses went out to buy, not to compare or contemplate buying, partially
because Apple created (much of) the market to begin with. Perfect storm
meeting perfect execution.

------
jamesmcbennett
What about a simple porter analysis of Apple, still in a strong position, but
not as strong as several years ago.

Power of New Entrants: Xiaomi

Power of Substitutes: Google Glass

Power of Customers: demand for low cost iphone

Power of Suppliers: Moving back to US manufacturing?

Power of Competitors: All the big tech companies.

Also a fantastic article on Disruption from The Kernal. Key insight is that
companies are very aware of disruption considering it irresponsible for any
board of a large technology incumbent not to have read 'Innovator's Dilemna.'

THE STORY WE ALL KNOW "Kodak built film cameras, and made money on the film,
the classic “Gillette” business model, and was so obsessed with this profit
stream that it completely missed the tidal wave of digital photography and the
internet"

INTERESTING ADDITION "The next step for digital photography wasn’t the
internet. It was point-and-shoots. Canon and Fujitsu. Kodak was so focused on
disrupting itself and not falling into the trap of the innovator’s dilemma
that it lost a grip on its core business. It turned out that in order to
remain relevant in the internet age, it just had to make good cameras."

[http://www.kernelmag.com/comment/analysis/4696/the-man-
who-g...](http://www.kernelmag.com/comment/analysis/4696/the-man-who-got-it-
too-much/)

------
6ren
Like VR, touchscreens have not good enough _latency_. Because many components
and their architecture contribute to latency (touch-CPU-RAM-app-OS-GPU-
display), an integrated approach better improves it.

NB: For Christensen, "not good enough" does not mean "not adequate", it means
that even better would be valued. It means "need not satisfied". Consider a
meal: too small, you're still hungry (you'd pay for more); too big, you leave
some on the table (your need has been "overshot", you can't absorb the extra
improvement, you won't pay for more).

However, smartphones _have_ overshot the need for pure computing power, it
seems to me.

BTW: I too find his _disruption_ more compelling than _modular /integrated_. A
theory is not very predictive if there's many ways to apply it, giving
different results.

------
gculliss
An interesting confirmation of this theory is explained in the recent
Washington Post article entitled, "What killed BlackBerry? Employees started
buying their own devices." That article basically explains how the smartphone
market shifted from a business market to a consumer market, where consumers
wanted the superiority of non-blackberry devices. While not dealing with the
modularity issue, the article supports the different values in those two
market perspectives (they're really not segments).
[http://www.washingtonpost.com/blogs/the-
switch/wp/2013/09/20...](http://www.washingtonpost.com/blogs/the-
switch/wp/2013/09/20/what-killed-blackberry-employees-started-buying-their-
own-devices/)

------
Tloewald
Phones are computers. They're bound to become more complex and powerful over
time. Who best understands this and constantly innovates to manage this
complexity? Not Samsung. Apple's approach not only pays for this constant
innovation, it acquired and retains the people who most care about it. As
Christensen himself argues — it's very hard for a company to internally
sustain competing business models, and Samsung is in the commodity imitation
business (everywhere, not just phones). Just as it can't easily be Apple
without ceasing to be Samsung, Apple can't be Samsung without ceasing to be
Apple. What's odd is that everyone is happy to let Apple be mercedes. bmw,
porsche, and rolls royce while they fight to be GM and Toyota.

~~~
r0h1n
> Phones are computers. They're bound to become more complex and powerful over
> time. Who best understands this and constantly innovates to manage this
> complexity? Not Samsung.

> Samsung is in the commodity imitation business (everywhere, not just phones)

Wow. That is 100% pure and unadulterated hyperbole. Walter White would be
proud.

Care to share any facts or data that proves why Samsung, a company that
straddles more segments than any other company in.the world (smartphones,
semi-conductors, memory, televisions, cameras, air conditioners, washing
machines, PCs and foundries, to name a few), is "unable to manage complexity"?

Or why you think Samsung is in the "commodity imitation" business?

There are Android smartphones today that are not just competing but better
"BMW, Porsche or Rolls Royce (though strictly, a RR is never a competitor to
any of the brands you mention)" to Apple's "Mercedes".

Wean yourself off the Apple Koolaid.

~~~
Tloewald
I'm talking about managing the complexity of the device for users, not manage
internal complexity (which they clearly can do very well). I own quite a bit
of samsung gear, and they're quite awful at e.g. TV menu systems.

Samsung isn't an innovative company (at least in terms of products). They're a
fast follower -- a hardware microsoft if you like. Good at execution and
imitation. Nothing wrong with that, the world needs Samsungs just as it needs
Apples and Googles.

------
Paddywack
It is interesting to separate consumer from business when looking at this
theory.

Prof Baba Shiv is a Neuroeconomist from Stanford, and has been looking at the
neurological effects of "emotional attraction" to a product.

His current thinking (as of Nov last year at least) was that a positive
emotional response to a product has a multiplier effect on the premium that we
will place on that product. Thus, if a product can get an irrational emotional
positive response (through how it looks, feels, makes us feel connected or
cool, etc.), then this needs to be taken into the mix when discussing relative
positioning. As mentioned - it is way more than the mere product
specifications.

~~~
Touche
I wonder how long this effect lasts. I suspect that over time people feel less
that the product makes them feel cool and move on to a different type of
product to get the emotional positive feeling from.

~~~
Paddywack
Interesting comment - I will try and find out.

The other side of the coin is perhaps post-rationalisation, trying to justify
to yourself why you spent the extra money in the first place re-enforcing your
initial irrationality further, and making the whole effect last longer?

------
borismus
Yes, Apple is really good at creating usable, beautiful user interfaces and
vertically integrated solutions. Yes, it's very difficult to quantify this,
and yes consumers get it. However, Apple isn't the only company focused on
getting the experience right.

Once the UX of a competing platform/product is on par (modulo product/company
loyalty), Christensen's low end disruption model kicks in. The way Apple can
continue winning is to be ahead of the curve, creating new features and
product categories that can dominate, until the low end disruption model
catches up to them.

------
ThomPete
Even if he got it wrong with apple (which I don't believe is the case)
Christensen still is the one who got it mostly right.

