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ASPNews.com: Exploiting an Age of Disruption: Review of "The Innovator's Dilemma"

Jul 16, 2000, 14:08 (1 Talkback[s])
(Other stories by Ben Pring)


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[ 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."

Below is the full text of the article.

Exploiting an Age of Disruption

By Ben Pring, Gartner Group

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 value

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 enter.

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 using.

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 fail.

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 ben.pring@gartner.com.

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