I was provoked into writing this post today when Horace Dediu tweeted the following chart:
The chart is a thing of beauty although we should take it with a grain of salt. It shows how value has been transferred from a set of incumbents to Apple over the last four years. It has some choices for symmetric effect (starting date and the omission of Google/Facebook) but nonetheless, it is a powerful depiction of what has happened.
What provoked this post was the description: “What Disruption looks like.” But this use of the word disruption is confusing but it is a commonly used one. So I wanted to take the opportunity to clarify things that might make the word ‘disruption’ more meaningful.
The definition of disruption Dediu was relying upon was: disruption is the “transfer of wealth in an industry from dominant incumbents to disadvantaged entrants.” This is not a useful definition because it does not allow us to distinguish disruption from ‘mere’ competition.
Instead let’s start with a notion of disruption closer to the original Clay Christensen use of the word that associated it with a technology. A disruptive technology is a technology that (quickly or eventually) destroys valuable capabilities and assets held by incumbents in an industry. Disruption is when that technology is actually deployed. So newspapers were disrupted by the Internet that destroyed their printing/distribution capabilities and their traditional means of gathering advertising revenues. (See the graph below to see what disruption looks like.)
But does this apply to anything Apple has done? The answer is no. The capabilities that Microsoft, HP, Dell, Sony, Nokia and RIM possess, have not been completely destroyed. Take Microsoft. It has taken its capabilities in software design and is now innovating to compete with Apple. The others are pushing for smaller computers. To be sure, many are in serious trouble. RIM, for instance, has had its old technology for communications disrupted (yes, disrupted) by Apple and Microsoft’s use of standard Internet access to achieve the same thing.
Instead, what the Dediu chart tells us is that the incumbents have faced competition from Apple. Apple have come in with products that are more valuable to consumers and so consumers are buying them and not the products of the previous incumbents. Those profits have been transferred from them to Apple — hence, the change in market valuations. This is not disruption because those incumbents have capabilities that allow them to compete with Apple and will likely do so into the future. True disruption makes those capabilities irrelevant as a competitive threat. This is not the case here.
In summary, what we have in mobile devices and computers is not disruption but competition. It is very traditional entry by an innovative firm. Consumers benefit and firm value remains in the industry.