In the model of disruptive innovation, we're advised to move down market from incumbent enterprises. Moving up market offers sustaining innovations for the established enterprises who can usually defeat any new entrants. Up market spaces contain valued added services and products that support premium prices. Down market spaces contain products and services for non-consumers who feel overcharged, under-served or even dis-served by the incumbent offerings.
Incumbents view down market opportunities with disdain. They appear "cheap" in the worst sense and very much lacking in specs, quality or features. Think what symphony orchestras must have thought of the first vinyl records or AM radio broadcasts of orchestral performances. Incumbents think it's pointless to compete with market entrants who stoop so low and lower the bar of respectability. This assumption makes it possible for "little guys" to get started and scale over time.
In Free - The Future of a Radical Price, Chris Anderson explored this moving-down-market strategy for newspapers. He contrasted The Village Voice which lost readership when it switched to free circulation with The Onion which has scaled to national distribution and video supplements after starting out with free circulation. In the first instance, an incumbent sought to move down market. In the second example, the upstart innovated disruptively in the down-market space.
In the model of disruptive innovation, we're also advised to completely separate the upstart from any affiliation with an existing enterprise - no separate wholly owned subsidiaries. The incentives, unwritten rules and democratic decision making of a successful enterprise will extinguish any disruptive innovation. Imagine how difficult it would be for a baseball team to play in a stadium with a gridiron and goal posts, but no home plate.
In What Would Google Do?, Jeff Jarvis explored his failed attempt to get local bloggers to contribute to the Newark Star Ledger's online edition. Meanwhile a blogger launched a local news blog for one small city (Montclair) which attracted a flock of contributors and local advertisers. Once again, an incumbent tried to move down-market and an upstart began in the down-market space.
Following both pieces of advice from the model of disruptive innovation, I've concluded that "moving down market" is a set-up to fail. Start there or forget it. Incumbents cannot go down market successfully and they sabotage their own brands when they try.
Nice explanation of the Innovator's Dilemma/Solution Tom. Certain industries seem destined to be dramatically disrupted (like media or energy) over time if we're talking about essentially the same core service.
ReplyDeleteHowever, the opportunity for growth (regardless of company size) lies not only in innovation for existing customers, but also expanding existing or adding completely different products/services for non-customers (aka Blue Ocean Strategy).
Ah, the joy of analysis. I'll say though that the rapid and easy adoption of new media publishing tools will up the ante for unique differentiation (beyond content). Good graphic design and multimedia will help.
Thanks for adding some more facets to this exploration, Mario. One way I sometimes explain all that growth potential you point out is this: Some customers believe they get what they pay for and are willing to pay more when they can trust that they will get more. They are amenable to added features, differentiation of offerings, customization and service beyond the sale. These customers pay for sustaining innovations.
ReplyDeleteOther customers believe they can pay too much and look to get more than they pay for. Their pattern of bargaining hunting fuels the commoditization, loss of differentiation and "priced itself out of the market" dynamics on the downside of substitution curves. They also opt or the free starter pak in freemium offers without ever buying the premium add-ons. They are opposed to added features, differentiation of offerings, customization and service beyond the sale for many reasons: lack of sophistication/awareness/product knowledge, lack of contexts where the offer is useful in solving their problems, or lack of relationship opportunities to impress others, fit in with tribal expectations and respond to peer pressures.
Thus, I suspect the differentiation you're seeking (beyond content) will be valued by the high end of your market and invisible to the low end.