Digital transformation has the potential to disrupt numerous markets and industries, but this disruption should not be surprising. Disruption is nothing new. In fact, disruption is arguably a natural product of market economies. Joseph Schumpeter way back in the 1930s, referred to the gales of creative destruction. While other economists were talking about the efficiency and benefits of markets, how demand and supply get balanced out in markets, Schumpeter was interested in the disruption potential of markets. In particular, he saw this disruption as a hallmark of market economies. It would lead to new innovations, to new technologies which better the quality of life for humans. It's this birth and renewal, he argued, that are really what's important for our market economies. So in this sense, disruption shouldn't be feared but rather it should be embraced as a good thing, an opportunity for bringing in new ideas and new technology. Now, there are many different types of disruption out in the marketplace. Probably first and foremost what people think about disruption, they think about technology. So, think again about digital watches. Digital watches were a fundamentally radically different technology than what came before it, which were mechanized wind-up watches. While one was based on minute workings with springs and gears, the latter was about electronics and new dealing with quartz technology. Similarly, digital cameras replaced film based cameras. Film was really almost a chemical industry in terms of its roots in science. Digital cameras come along and they're more of electronics industry. So once again, these are both examples of radical changes in the fundamental technology within an industry. Now, disruption doesn't have to be about changes in technology. Rebecca Henderson and Kim Clark at Harvard Business School have referred to what they call architectural innovations or architectural disruptions. Take the Sony Walkman as an example. The Sony Walkman came about not with any fundamentally different technology, they were really just utilizing existing technology that existed in different types of cassette players and the like. But they redefined the form by shrinking it and making it a portable player that you could wear on your side while you're walking around or going for a run. So, while the underlying technology didn't change, the value proposition and the way they organized it did change very much. You might also think about what we sometimes call business model innovation or business model disruptions. Take Airbnb. Since the dawn of civilization, people have been renting out their homes or renting out for others to use
their homes. Airbnb comes along and they leverage technology as a way to create market efficiencies in there. And as a result, redefine the market, redefine the value proposition and create new opportunities for others to participate in those exchanges. Zipcar is another example of redefining a business model. Rather than a traditional rental car model where you go to the rental car agency and rent your car, they create a world in which you can walk on the street, put in a code, and enter a car and use it for a couple hours. Once again, leveraging technology changing the business model. We might also think about disruption from the consumer side. There are high-end disruptions like the iPhone which came in with a completely different set of features at the high-end of the market, arguably three, four times the expense of some of the other phones that were on the market at the time. You can also imagine low-end disruption. One of my favorite examples of this is the Nintendo Wii. We had two dominant players leading up to that in Microsoft with their Xbox and Sony with their PlayStation. Then comes the Wii. Both Sony and Microsoft were competing on the idea that the winner would be those who offer the most highly technical
new gaming system. The one that had the most processing power that allowed for the most
sophisticated games. Nintendo came in with arguably a much, much technologically simpler machine, one that cost a fraction of the cost of the other players, but had an innovative game control that allowed them to do some creative things with games that resonated with the marketplace. So, it entered in at the low-end and then ended up disrupting the whole market, and in that generation became the market winner. You might think of Wikipedia along the same way. Wikipedia is arguably not of the quality of an Encyclopaedia Britannica, but its new model of using crowdsourced information allowed them to have a very low cost entry, obviously a free entry for usage by individuals. While it didn't have necessarily the same quality, it still provided enough value that it could penetrate the market and take over large parts of the Encyclopedia market. Many times when we think about disruption, we might think about new market disruptions. Once again, the Word Processor disrupting the typewriter industry. The automobile redefining transportation and putting harm to the horse-drawn carriage industry. Smartphones redefining whole sets of different industries including cameras, mapping, and maps, and the like. And last but not least, you might think about various types of value chain disruptions. One of my favorite examples of this is Craigslist. So, Craigslist really innovated around classified advertising and how that's delivered. Yet this had a huge impact over the value chain to newspapers. Now while, Craigslist wasn't competing directly with newspapers, newspapers primary income stream came from the selling of classified ads. So, a disruption in one part of the value chain ended up impacting a whole another industry in another part of the value chain.
