In the theory of disruptive innovation, Clayton Christensen argues that the incumbent companies introduce new and improved products year-by-year with the sustaining innovations, which eventually overshoot the performance that some customers can use because companies innovate faster than customers’ lives change. Overshooting creates opportunities for firms to change the basis of competition in order to earn above-average profits. After functionality and reliability have become goo enough, for example, the next competition dimensions could be convenience, customization, and price, etc.
This theory has achieve tremendous success with strong supports in many business cases. Few academic management theories have had as much influence in the business world as the theory of disruptive innovation. However, the tricky part is how to find out when the overshoot happens and where the new competition dimension is. Even Christensen himself and masters like Andy Grove made mistakes on them.
As an early adopter and supporter, Andy Grove credits the theory of disruptive innovation as having been the main impetus for Intel introducing the Celeron processor in 1998. However, overshooting didn’t really happen in desktop computing in 1990s and early 2000s. AMD never posted strong challenges to Intel with cheaper and lower-performance CPUs. On the other hand, AMD really threaten Intel’s dominance in 2003 with their Opteron processor, which has superior performance to Intel’s Pentium 4 and Xeon. AMD missed the chance of overtaking Intel then because of their limited manufacture capability.
In the book Seeing What’s Next (2004), Christensen argued that customization and convenience would be the new competition frontier in semiconductor industry. He took Tensilica as an example. Tensilica allows engineers to customize their own systems-on-a-chip on a website. Xilinx is another example that lets users to decide what specific functionality they need. However, convenience and customization have not become the decisive factor for customers to choose processors.
The true threat to Intel is mobile ARM processors. With the introduction of iPhone, ARM has become the king of personal/mobile computing due to its energy efficiency. More than 95 billion ARM-based chips have been shipped to date. Recently, ARM-based server chips are introduced by industry giant Qualcomm and several startups, which may significantly lower the utility bill of data centers. If ARM finally gets into data center successfully, Intel will lose its last hold.
The competition dimension of processors did change as Christensen predicted. However, it is not because of overshooting but because of the shift of computing paradigm. Since processors are not used by the end users directly but are only a module of computing devices, we should not try to find the new competition dimension by only looking at their attributes but have to see the big picture of ecosystem.