Do you remember Schumpeter saying that in general it is not the owner of stagecoaches who builds railways?

Or remember Clayton Christensen’s book The Innovator’s Dilemma from 1997, about how established companies and industries lose their mojo to upcoming entrepreneurs eating away their customers, profits and business and often in that order?

Fifteen years on, the challenges and consequences for disruptively innovative new entrants is hardly a new insight. Nevertheless, the disruption of entire industries seems to have become more common place and is no longer the exception to the rule.

Take the recent dispute between the upstart company Aero and the established cable TV companies, CBS, ABC and Fox. The story is that Aero applies small Internet based antennas as a way for customers to stream live TV to all sorts of mobile devices. The price Aero charge is $1 per day or $80 per year. This is not only the text book example of how disruption works, it is also an almost identical replay of the disruption and fight that took place between Napster and the established music industry about 14 years ago. As we know, the established music industry lost almost all to Apple and the iTunes business model, and later on to Spottify. The argument here is that some of the key components for a wave of disruptive innovations inside a broad range of industries are well in place. The components are:

• The Internet and mobile-internet are mature enabling technologies.
• Channel innovations are likely to explode.
• Commodities that can be modularized will be turned into customized offerings.
• Regulation is behind, but will eventually follow-suit of successful market disruptors.

If we take the components in turn, it is almost trivial to say that the Internet and mobile-net are mature technologies. The important thing is that they have become enabling technologies, platforms for innovation and services in their own right and have the ability to add content to any business. In short, the Internet of things has come of age. The free enterprise market system is based upon transactions between producers and customers. Where the customer buys is conditioned upon the information available.

Traditionally, the producer of goods and services has had the upper hand, as the customer could only get a fairly limited amount of information compared to the global pool of market opportunities. With the Internet this upper hand of the producers has become more equalized, and the customer has gained power. Today’s Internet born start-up is in a much better position to meet this new reality than many large established companies who have built their sales and marketing strategy upon a costly traditional sales force. Any new start-up company can easily reach consumers with an Internet connection or mobile phone, and it can do so globally. Moreover, the former bounded rationality of the customer has become much less so.

Everything that can be modularized, whether it is a car, packaged TV program, travel, or even mining excavators, are going to be so, and it will be customized by the most innovative companies or entrepreneurs who will outcompete or confine incumbent laggards to marginal market positions.

Finally, there is no such thing as an entirely free market. All markets are subject to some level of rules, regulation and standards. Take any industry’s 5-10 national or global market leaders, and the chance is that existing regulation benefits them more than it does the disruptive entrepreneurs. (Why else do they budget for lobbyists?) Market leading corporations whose business model is wholly or partly dependent upon existing regulation or status quo are living a dangerous life. Politicians will almost always try to increase or maximize voter support. Hence, in the advent of an entrepreneur introducing a business model which gains popular demand and support and at the same time upsets existing regulation- the market leaders are faced with an uphill regulation struggle and future problems.

Established leading corporations who fail to recognize the importance of first of three of the mentioned components yet rely on current regulation will arguably be disrupted or run into serious trouble within 1-3 years’ time.

As a small test of Aero versus the cable TV broadcasters, I asked a couple of influencers and friends and family in the Nordics and Europe about their TV preferences. All said that they no longer pay a subscription for 40 channels, because their preference is limited to e.g. Travel and a few news channels, and they don’t want to pay for the 38 other channels. Given the history of disruptive innovation, the odds seems clearly in favour of companies like Aero and against the established TV broadcasting companies. Considering the burgeoning examples of disrupted companies and industries the key question is:

How can the disruptive warning signals be learned and translated into de-risking actions by incumbents? More to follow on this subject but till then, what do you think?

At PreScouter, we help companies find the most innovative solutions to any challenge. Contact us today and challenge us with yours!