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According to Clayton Christensen's model of disruptive innovation, once disruptors push all incumbents out of a low margin market segment, the prices in the low

According to Clayton Christensen's model of disruptive innovation, once disruptors push all incumbents out of a low margin market segment, the prices in the lower market segment plummet, and margins drop toward zero. The only way for the disruptor to continue profiting is to follow the incumbent up the market, applying their disruptive invocation to more profitable market segments. The cycle continues until the incumbent is pushed out of the market entirely. Detroit's moves away from low-margin compact cars is what enabled Toyota to make Lexus. Microsoft moving away from mobile phones would have a similar effect. It's essential for their survival. Also, Google's business model doesn't commoditize hardware, it commoditizes software. Google's business model is to monetize data, not software. They are trying to do to Microsoft and Apple what Microsoft did to hardware manufactures.

raganwald 15y ago
I follow the structure of your argument. Going with autos, Detroit's move away from low-margin compact cars enabled Toyota to make Lexus. Let's grant this as true. But does it imply that sticking with low-margin compact cars would have protected their market for luxury cars? What if--like Windows 7 so far--they failed to make significant headway with the low-margin compact cars? What if they lost time and management attention trying to do so much? Or what if someone else--Hyundai or Kia, for example--beat them hollow on low-margin cars while Toyota moved upmarket and beat them on luxury cars anyways? This is why I'm not sure that Windows 7 is the right move. I can see they are in trouble in mobile, but I can't see that Windows 7 is the right thing to do. It would be nice if they could gain a dominant position, but a lot of things would be nice.
- nextparadigms 15y ago
  Andy Grove understood this idea very well, I think before Clayton even wrote this book, but they later became very good friends. Andy Grove once that that "if we lose the low-end today, we lose the high-end tomorrow." That's actually how disruptive innovation works. The disruptor comes from the low-end and it slowly moves into higher levels, up market. That's why ARM is so dangerous to Intel for example, but Paul Otellini doesn't seem to understand this theory as well as Andy Grove. http://www.youtube.com/watch?v=DaKgMcFP4Mo&feature=related http://www.youtube.com/watch?v=DaKgMcFP4Mo&feature=relat...
  - wisty 15y ago
    Grove wrote a book on this called "Only the Paranoid Survive". Terrible title. Good book. He points out that if you own the low end, you gain huge economies of scale. You pay for your foundries and R&D with cheap low-end parts, but only barely. Nobody can compete, because they don't want your rubbish margins. But then you can put huge margins on your high-end products by using cost-cutting technology and your huge efficient factories to lower your costs. It doesn't work in all industries. But it's great in technology, as efficiences of scale do exist (what's the maringal cost of 1 more chip, or one more CD-ROM?)

raganwald 15y ago

I follow the structure of your argument. Going with autos, Detroit's move away from low-margin compact cars enabled Toyota to make Lexus. Let's grant this as true. But does it imply that sticking with low-margin compact cars would have protected their market for luxury cars? What if--like Windows 7 so far--they failed to make significant headway with the low-margin compact cars? What if they lost time and management attention trying to do so much? Or what if someone else--Hyundai or Kia, for example--beat them hollow on low-margin cars while Toyota moved upmarket and beat them on luxury cars anyways? This is why I'm not sure that Windows 7 is the right move. I can see they are in trouble in mobile, but I can't see that Windows 7 is the right thing to do. It would be nice if they could gain a dominant position, but a lot of things would be nice.

nextparadigms 15y ago
Andy Grove understood this idea very well, I think before Clayton even wrote this book, but they later became very good friends. Andy Grove once that that "if we lose the low-end today, we lose the high-end tomorrow." That's actually how disruptive innovation works. The disruptor comes from the low-end and it slowly moves into higher levels, up market. That's why ARM is so dangerous to Intel for example, but Paul Otellini doesn't seem to understand this theory as well as Andy Grove. http://www.youtube.com/watch?v=DaKgMcFP4Mo&feature=related http://www.youtube.com/watch?v=DaKgMcFP4Mo&feature=relat...
- wisty 15y ago
  Grove wrote a book on this called "Only the Paranoid Survive". Terrible title. Good book. He points out that if you own the low end, you gain huge economies of scale. You pay for your foundries and R&D with cheap low-end parts, but only barely. Nobody can compete, because they don't want your rubbish margins. But then you can put huge margins on your high-end products by using cost-cutting technology and your huge efficient factories to lower your costs. It doesn't work in all industries. But it's great in technology, as efficiences of scale do exist (what's the maringal cost of 1 more chip, or one more CD-ROM?)