augustjackson dot net

Upon reading this post Ive come to conclude this is something of a stream-of-consciousness post.

Halfway through I am loving this long weekend. With no big plans for the holiday weekend Ive been able to rest, get some exercise and catch up on some of the chores around the house and reading Ive wanted to get done for some time. After several busy weekends in a row this is an excellent respite.

One of the books Im making my way through this weekend is Seeing Whats Next by Clayton Christensen. The first couple chapters are a decent summary of what constitutes a disruptive market entrant and some of the strategies they employ. What Mr. Christensen seems to do best is to lay out an explicit framework for some of the strategies executives understand by might not be able to articulate. These are actually the kind of business books I like best, because they facilitate building a framework for strategic market analysis that underpins conclusions and recommendations. In other words, they make my life easier.

Mr. Christensen breaks down the three basic categories of customer targets for a disruptive market entrant as follows:

Non-consumers: those who do not use a product either due to its cost or requirements for technical expertise. These customers likely have a need or application for a product or service, but no means to employ those products. One example is the telephone itself, which displaced the telegraph (an example Mr. Christensen employs) partly because it did not require knowledge of Morse code. A second example would be the personal computer, which ended up displacing the mainframe market by making computing accessible to a wider range of hobbyists and non-Computer Science professionals both on the basis of lower cost and reducing the need for specific expertise.

Over-shot consumers: those consumers whose needs are far exceeded by the functionality of the products on the market. These are the customers that can often be heard saying, I only want it to do X. These customers are easily targeted by low-cost market entrants that provide products that only do X and leave Y and Z by the side of the road. These overshot customers are pleased to buy a simpler product at a lower cost, and market incumbents tend to respond to new market entrants targeting this segment by focusing on their higher-end, high margin customers and generally ceding this space. One example of this is the low-cost airlines that were once ignored by the mainline carriers but now command respect from an industry in turmoil. This is an interesting dynamic however, because many customers insist on the Swiss Army Knife solution even if they dont need all of the bells and whistles. Examples of the latter phenomenon include customers who eschew low-cost word processor and spreadsheet software in favor of continuing to use Microsoft Word and Excel, even when the low-cost softwares files are perfectly compatible with widely used software. In other words, in some domains customers continue to insist upon a higher functionality tool regardless of whether or not they leverage the higher functionality regardless of the higher cost.

Under-shot consumers: those consumers whose requirements are not met by the current product set. There are specific features and functions these customers desire, and they can often be observed saying If only id did X. These are the consumers that are generally willing to pay a premium for incremental functional improvements to a product. A disruptive market entrant has the potential to target these customers by offering a product that does X. However, since these consumers are generally the high-margin customers of the incumbent, it is much harder to introduce a disruptive strategy at the high end. Incumbents do not cede this ground.

Reading this book, I cannot help but think of the market for computer operating systems. Several of the responses Mr. Christensen attributes to incumbents threatened by new market entrants bear a strong resemblance to what Microsoft executives have to say about Linux. The potential disruption in the operating system environment occurs along each of the dimensions Mr. Christensen outlines. Non-consumers in the third world are targeted with very low-cost PCs running Linux. Overshot customers in the server market run Linux because it does not have all the bells and whistles (and performance overhead) of the Microsoft OS for servers. Undershot customers can leverage the open nature of Linux to add to the capability set of the OS. While Linux threatens the Microsoft product set on each dimension, the appeal to non-consumers and over-shot consumers is particularly interesting as Microsoft continue their feature creep in future versions of their software.

In a somewhat related consideration, I took a look at a post from a few months back from Robert Cringely. In this post, Cringely covers have a $70 box could challenge the telecommunications industry. This post details how a Linksys router/wireless access point running Linux can be employed in a mesh network. Mr. Cringely outlines how an enterprising broadband or voice over IP provider could employ a franchise strategy to extend wireless broadband in a particular area. This is a very interesting example of potential disruption to the traditional telecommunications indsutry. Perhaps incumbent telecom providers have well-recognized this, and this is why they have been fighting municipal Wi-Fi efforts so strongly. This recent piece from Forbes talks a bit about efforts to deploy wireless mesh Wi-Fi in rural America. The mind boggles at the opportunity to mesh small towns and neighborhoods with pervasive wireless broadband and voice over IP. Maybe I need to figure out something for my hometown of Harmon, Illinois. With technology such as this small-town America could begin to close the digital divide that exists between rural America and large cities.