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Disruption in the Software Industry

Examples of Disruption

Visicalc_2

Lately I've been thinking about how open source is disrupting the software industry.  In Silicon Valley, people tend to focus on a very narrow view of disruption focusing on prices or features.  But I think disruption is more than that. 

Consider these examples:

  • The PC disrupted minicomputers by giving individuals power to develop and run their own applications outside of IT
  • Digital cameras disrupted film by providing instant gratification
  • Netflix disrupting Blockbuster by eliminating late fees
  • Salesforce.com disrupted Siebel by eliminating long CRM implementation cycles

Typically new entrant disrupts the market by doing something different than the incumbent vendor.  PC's weren't just smaller, cheaper minicomputers.  They served a different purpose.  Many considered early microcomputers toys --and for the most part, they were right.  But along came Visicalc (pictured above on an Apple ][ computer), and later Lotus 1-2-3 and suddenly they opened up new markets based on new applications. 

What makes something disruptive is making it more convenient, simpler, more flexible and sometimes, making it cheaper.  Often, for a business to be disruptive it requires a different business model.  Sometimes the business model itself is the source of the innovation.  The idea of getting DVDs in the mail may not seem radical today; but if you're Blockbuster and you've built your entire revenue on thousands of retail stores, its hard to wrap your head around using a web site to send DVDs out by mail.  Even more radical was the fact that NetFlix eliminated "late fees" which made up roughly  $300 million of Blockbuster's revenues in 2005. 

Once you get locked into a business model you tend to hire people to perpetuate and fine tune that model.  So the typical response from an incumbent is to ignore a disruptive force as long as possible.  After all, the last thing in the world they want is to draw attention to something that could jeopardize their core business.  But at some point, they can't ignore it any longer and so they try to craft some kind of hybrid disruption strategy. 

Going back to the PC example, Digital Equipment's response was the DEC Rainbow 100, that was "even better" than the IBM PC since it ran MS-DOS and CP/M and it was a DEC VT100 terminal also.  But as it turned out, neither DEC's existing customers nor the new purchasers of PC's were looking for a solution that combined the old and the new.  Instead it was companies like Compaq and Dell that thrived by meeting the needs of a new market.  They could focus on the needs of new customers without worrying about protecting any legacy business. 

But as is typical in these "Innovator's Dilemma" situations, the real challenge is not the technology, it's the business model. Few companies are able to successfully navigate those waters.  (Interesting aside: Larry Ellison owns the majority share of NetSuite, but it's run independent of Oracle, which likely results in both companies operating more efficiently.)

What other examples are there of disruptive technologies or business models?  What makes them disruptive?  Is open source disruptive?  What are the pains in buying and using closed source software that should be changed?  You can post comments here or send email to disruption (at) mysql.com. 

Comments

You can find it in any industry at any time.

CAD (Computer Aided Design), circa late 1980's: The big dogs were Catia, Unigraphics, CADAM (fading).

Disruptive influences: Autocad in the 2D market (drafting on the computer as you draft on paper.
ProEngineer from Parameteric Technology Corp.

Early 90's: This solid modeling concept sounds neat, you just change the radius of a hole and the entire solid model changes along with the 2D drawing !!! Revolutionary! Granted, when we were selling it, all it could do was change the radius of a hole. Couldn't do much else. Just a toy.

Late 90's: ProEngineer is the big dog, the gold standard. Nobody except AutoCAD does 2D drafting anymore. Along comes some upstart called SolidWorks. Does ~80% of what ProEngineer does at ~20% of the price. Just a toy, really (it only runs on Windows!!!).

Mid 00's: Looks like Parametric Technology Corp. is slashing prices yet again!

This isn't new. Disruptive Market forces have become almost cliche (73773 titles on amazon.com alone). Yet the entrenched market leaders nor their customers have learned a damn thing since this toy called the "automobile" started to displace horses as the primary mode of transportation.

Charles,
great examples. I think it gets down the same issue: what makes you successful can sometimes be your downfall. You get a lot of entrenched thinking and sometimes that blinds people to changes among their customers or the emergence of new markets.

--Zack

I'm surprised you didn't mention one of the most important business model disruption strategies, namely Google's. To quote from a former post of mine (http://hecker.org/mozilla/jwz-considered-disruptive):

"... Google provided small and medium-size businesses an easy and simple way to do precisely-targeted national and even international advertising, without having to hire expensive ad agencies or direct marketing firms. ... Google also enabled small specialty publishers, including individuals, to become sellers of advertising space, competing against major newspapers, magazines, and television networks."

In essence Google overturned the traditional business model for print and online advertising (e.g., classic web banner ads), based on advertising agencies, dedicated ad sales forces, etc.

Frank,
excellent example. Google is a hugely disruptive business model and a great example. While most viewed it as "yet another search engine" its real power has been in disrupting online (and other forms of) advertising.

--Zack

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