April 9, 2011

A Disruptive Story: What happens when a disruptive product enters a market?

What is the end result when a disruptive product is introduced to the market?

1. More money is made by all parties in the (disruptive product's) supply chain

2. Consumers save money

Why? Because competition increases --> market forces shift so that better, more affordable products are produced. Prior to the introduction of the disruptive product, the industry had likely become stagnant. A stagnant market means that the quality and affordability of the product/service was not increasing -- it plateaued.

The Kindle ignited (pun intended) a revolution in the book industry on at least a few key fronts:

1. The ebook industry, since the introduction of the Kindle, has grown significantly

This is as clear a picture of accelerated disruption as one can find. Amazon entered the ebook market at the exact right time:

1. Supply was there: ebooks were available to some extent because libraries had begun offering them in the early 2000s and Sony introduced its reader in 2006.

2. Demand was there: consumers had time to adjust to the idea of reading an electronic book; they were just waiting for a more affordable and more convenient (downloadable anywhere) product.

Amazon accelerated the effect of the disruption by quickly and increasingly solving the two key pain points mentioned in #2 above = price and convenience.

2. Kindle's impact on the market meant increased revenue for all players in the supply chain. ebook revenue sharing differs significantly from print because the cost as a percentage of price is much lower.

A disruptive invention alters the incentive structure of an industry. In this case, it increased the incentive of every player in the supply chain to produce more content that is attractive to mass market readers more frequently. One example, romance novels are best-selling ebooks and authors/pusblishers are writing more (and shorter) novels than previously.

3. There are more readers and readers are reading more!

A 2010 Harris Interactive poll shows that e-reader owners are significantly more likely than average to buy books. Among the e-reader users polled, 17 percent said they bought between 11 and 20 e-books, while 20 percent purchased 21 or more over the past year. By contrast, 11 percent of all Americans bought between 11 and 20 books last year, while 12 percent bought more than 21.* Add to this that the decline of overall book sales has slowed and will possibly flatten out and begin growing from 2011-2014, and you can see that more people are reading and readers are reading more.

The cumulative effect is = more people buying more books at lower costs while still allowing the players in the supply chain to own a greater percentage of revenue compared to what they received with print.

Disruptive products create win-win-win situations for industries and the consumers they serve because of the "stir it up, turn it upside down" impact these products have on markets. The only players left out are the ones who refuse (or simply don't try) to disrupt!

*Source: http://www.teleread.com/ebooks/survey-shows-nearly-1-in-10-using-e-readers-and-e-reader-users-buy-more-books/


  1. Sam Walton successfully applied a response to a disruptive service, when he opened his first store in Bentonville, Arkansas. Who knew his vision of reacting and responding to a customer's disruption would create a store that would one day dominate the current market. I am waiting for the next visioneer to outbeat Walmart - it's time!

  2. Amazon has certainly disrupted Walmart's world.

    But I think the future is that I can see life-size holograms of the things I want to buy and can "try them on" or "pick them up" from home and then order:)