Another great episode of The Critical Path.
Horace is pointing out the BS news write about Apple and then thinks loud about possibilities in car manufacturing disruption.

I believe Craig Mod is right in his vision of what’s to come for publishing. Everyone in publishing should read this.

I was fortunate enough to get to talk at Future of Web Apps + Future of Web Design double conference in Prague. First, I would like to thank to Future Insights (previously Carsonified) and personally to Cat Clark for the trust in me to give me the speakers wild card.

Bellow are my slides and complete text of my 30 minutes speech. I spoke from memory so I have probably digressed on a few places. Also, please, forgive any typos or grammatical errors I’m basically posting my notes and I had no time to do thorough proofreading.

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In an article “A Trillion-Dollar Transfer Of Wealth Is About To Hit Silicon Valley” Dan Lyons writes something I happen to be in agreement with for last 6 years:

Enterprise customers have been locked into overpriced, underperforming software and equipment for a decade or more, and the’ve been loath to spend money to change things. But now it seems a huge transformation is about to occur, driven by mobile devices, cloud platforms and the software-as-a-service business model.

But his vision is too narrow. This is not just about building better products against SAP or Microsoft. This is about opening whole new market niches which couldn’t be approached before. Ultimately it will be about more than trillion dollars.

Coincidentally, I will be speaking about this next week at FOWA in Prague.

James Hamilton wrote and article about using ARM processor in servers. He describes how ARM architecture offers better price/performance ratio and consumes less power.

It’s very nice example of disruption. You see, ARM started in small niche of processors that were constrained by small power consumption. They build up knowledge advantage in this field over the years.

And as mobile computing in form of smartphones and tablets is taking over the world, ARM is no more a niche player, they are providing architecture for billions of processors.

And now, ARM is going up market. Interestingly enough it’s beginning to take the very high-end of the processor market – servers.

How long before it is going to strike the real Intel fortress of desktop processors? Well, maybe not that long.

Another interesting aspect is that ARM is licensing the architecture so that others may be producing the chips or even doing their own design of them, as Apple does for their iPhones and iPads.

Horace Dediu is killing it again, this time with James Allworth.

Just one of the many thoughts: The cycle of disruption – When product is not good enough (in disruption theory kind of sense) the market tends to be better for integrated player (e.g. Apple). If a product is good enough it tends to favor modularization. Modularization in turn leads to being open for disruption (not just) from your suppliers that integrate in some new way. And we are at the beggining of a new cycle with new integrated player.

Horace Dediu asks this question from the viewpoint of disruption theory, where if you are trying to make better something, that’s good enough from perspective of some customers, you are creating a room for being disrupted.

The clue to this experiment is the presence of a control group. We could test the question of absorbability by by keeping a version of the product which did not improve (or got cheaper) and measuring whether is performs better vs. the “improved” version.

Of course, this is exactly what Apple does with the n-1 generation products. By ranging products which are older and at lower price points it can measure whether the improvements are valued.

This article by Mark Sigal on GigaOM goes nicely with my post about disruption.

We’re all lemmings in terms of following what works. So when the horizontal model made Bill Gates the richest man in the world, industry after industry embraced it as the one right way.

With the advent of the Internet, however, a vicious cycle of commoditization — horizontal’s downside — began to play out. We are now at the endgame of that cycle, a point where few companies can make money via commodity economics, and HP and Dell are Exhibit A and B, respectively.

As we just passed 5 year anniversary of iPhone going on sale it’s fitting to look back.

Asymco linked to his post from 2010 which goes nicely with my article about disruption and web applications.

So the iPhone seems to be correctly classified as a sustaining innovation. Something that moves the phone market forward and which, except for a temporary misallocation of profits, will entrench the incumbents after they manage to copy it effectively.

However, here is where we have to dig a little deeper.

This article should give you quick overview of Clayton Christensen’s ground breaking book Innovator’s Solution and then I will try to apply his point onto the web application industry.

The Concept of Disruptive Innovation

Citing from the book:

Disruptive innovations … don’t attempt to bring better products to established customers in existing markets. Rather, they disrupt and redefine that trajectory by introducing products and services that are not as good as currently available products. But disruptive technologies offer other benefits–typically, they are simpler, more convenient, and less expensive products that appeal to new or less-demanding customers.

Disruption has a paralyzing effect on industry leaders. With resource allocation processes designed and perfected to support sustaining innovations, they are constitutionally unable to respond. They are always motivated to go up-market, and almost never motivated to defend the new or low-end markets that the disruptors find attractive. We call this phenomenon asymmetric motivation.

You should definitely take a look at Innovator’s Solution, it’s great book and has more interesting concepts in it like the cycle between integration and modularization in an industry or the job to be done approach to business strategy.

I will introduce you to two key concepts of the book – low-end and new-market disruption.

Low-end Disruption

Low-end disruption, as described by Clayton, starts at the low end of the existing market. But the lower price is a result of new business processes not just lower margin on the same process employed by established market players.

One example of this strategy may be Walmart and other discount stores that offer their customers cheaper goods but compensate the lower margin via much larger amount of sold inventory and quicker turnover of inventory. So they may have lower margins than traditional stores, but they turn it over three times faster thereby more than making up for it. And then there are all the elaborate logistic things Walmart does, going so far as to direct their suppliers businesses in some ways.

Another example may be personal computers, which were low-end disruption relative to the mainframes. Or now the tablets (iPad) which are disrupting the PC.

The key is that there are overserved customers in the existing markets that are willing to let go of some features of the product in exchange for lower price, simplicity, convenience etc.

Established players are motivated not to fight with the new entrant as he is attacking the least earning portion of their business.

Two kinds of disruption

New-market Disruption

The target group of new-market disruption are non-consumers or non-consuming occasions. The disruptor is somehow able to transform existing product and get the new consumers.

Example might be the first transistor radios that were too low quality for the existing customers but were great for teenagers who were able to listen to what they wanted for the first time. And they allow everyone to listen on the go or outside home, which was impossible before.

The best thing from the point of view of the disruptor is that established market players ignore you for a long time because you are not eating their lunch. At least not for some time. And then it is too late for them.


OK, this was really quick and simplifying intro, again, read the book and/or watch the videos linked bellow.

In part 2, I will look at the implication of all this on the market of web applications.

Other sources

Yesterday’s reveal of Surface, Microsoft’s first personal computer, was a watershed event in the evolution of value chains around computing.

And so we can see value chains evolving in real time before our very eyes. They have always evolved but in technology industries they evolve far more rapidly and will continue to accelerate.

The evolution of the computing value chain, Asymco