[ Linux Today reader Les Brunswick pointed us to
this article and writes: ]
"The author uses the idea from Christiansen's book The
Innovators Dilemma to show why ASP is a disruptive technology that
established solution suppliers won't be able to deal with. The
idea is that companies with an established technology keep making
it more full-featured and more expensive, so that it becomes more
than most customers need. Along comes a new, disruptive technology
that provides a lower level of service that much cheaper and "good
enough" for many customers. The established companies can't compete
against the disruptive technology because they demand high profit
margins, and at some point the disruptive technology grows
exponentially and becomes dominant."
"The author says this will happen with ASP next year. He doesn't
mention it, but obviously one established player the ASP model will
greatly undermine is Microsoft with its overgrown office products.
Of course, all this is a great opportunity for Linux."
Top-tier suppliers will crumble when ASPs really get going -
Gartner's Ben Pring explains why.
Every so often a business book emerges that seems to capture the
zeitgeist and define a change that many people had sensed happening
but had not been able to articulate.
Clayton Christensen's The Innovator's Dilemma is such a
book. Subtitled "When New Technologies Cause Great Firms to Fail",
the book examines the nature of competition and how it is changed
by different classes of technology innovation. Required summer
reading for the great and the good - J.P. Morgan recently
recommended it on the holiday reading list it sends to its clients
- Christensen has come up with a model which, unintentionally, fits
the emergence of the ASP wave perfectly.
In 250 remarkably - for a business book - readable pages
Christensen examines a series of case studies in which he studies
why companies run by the sharpest brains available are often
tripped up by change even when they do all the text book things to
adapt to change.
The change being produced by the ASP wave, and let there be no
doubt about this, is fundamental. Many leading tier-one solutions
suppliers will find their nemesis in the wake of this change. Their
fall will produce interesting case studies when Christensen updates
his book in the years to come.
The great insight in The Innovator's Dilemma is to make
a distinction between technologies which are sustaining and those
which are disruptive.
Simply put, sustaining technologies help established companies
conduct business as usual more efficiently. Disruptive technologies
allow companies to do totally new things in a totally new way.
Christensen sketches out a scenario in which sustaining
technologies foster improved product performance - along the
dimensions of performance that mainstream customers in major
markets have historically valued.
Disruptive technologies bring to the market a very different
value proposition than had previously been available. Seen in this
light the Internet has, so far, been a sustaining technology; it
has allowed companies to do the same things - communicate with
employees via Intranets and with suppliers via B2B ecommerce - in
more efficient ways. Moving forward however, the Internet's impact
will be increasingly disruptive. The ASP wave, enabled as it is by
the Internet, is fundamentally disruptive; it is about doing
different things - sourcing a business service - differently.
Disruptive technologies, Christensen points out, underperform
established products in mainstream markets. However, they have
features that fringe and new customers value. They are cheaper,
smaller, simpler, and more convenient to use.
Meanwhile, in their efforts to stay ahead in existing mainstream
markets by developing competitively superior products, many
existing suppliers fail to realize the speed at which they are
moving up-market, over-satisfying the needs of their original
customers and racing towards higher-performance, higher-margin
markets. In doing so, they create a vacuum at lower price points
into which competitors employing disruptive technologies can
Over time however, customers in mainstream markets begin to
notice the increasingly attractive price/performance capability of
solutions available in these fringe markets, and they compare them
to the expensive, over-engineered solutions they are typically
At this point these customers switch and the fringe market
suddenly grows exponentially. New suppliers suddenly "scale" and
established providers scramble to re-align their operations to fit
the new business model. In the early growth phase of the disruptive
technology, the market has been unattractive to established
suppliers as it provides lower margins - because initially, it is
embraced by the least profitable customers in a market. Thus,
existing suppliers have cost structures that are completely
unsuited to the new, fast-developing - and now mainstream - market
opportunity. Christensen convincingly shows that few suppliers are
able to make this transition successfully.
This - in a nutshell - is what has been happening in the
enterprise application solutions market over the last five years.
This gap, between the very "top end" of the market and the
thousands of companies beneath that rarified air, is the vast
opportunity ASP suppliers can exploit.
The transition point - from fringe to mainstream market - will
occur in the ASP marketplace in the second half of 2001.
Examining the ASP market through Christensen's framework
produces some interesting insights, and argues that ASP suppliers
must position their offering as a:
fundamentally new way for customers to source IT
"good enough" solution
reduced-cost alternative to existing approaches
solution to the problem that working with established, top-tier
solutions providers creates
challenge to established IT solutions providers
Christensen's book explains why established suppliers will be
challenged to respond to the ASP wave and why "pure-plays" should
be wary of becoming too closely aligned with those established IT
solutions brand names - whose real agenda is to see the ASP wave
Already lauded by management titans from Andrew Grove to Michael
Bloomberg, Christensen's observations are so full of resonance to
an ASP "watcher", so full of "aha" moments, as to be unnerving. It
is set to become the Little Red Book of the ASP revolution. If you
haven't read "The Innovator's Dilemma" the next time we meet I
shall want to know why.
Ben Pring is a Principal Analyst in Gartner
Group/Dataquest tracking the ASP market. Ben is based in Mountain
View, California and can be contacted at email@example.com.
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