Disruptive innovation can be described as a new technology that is inferior in certain respects to existing ones, but has other desirable attributes (The Economist, 2014). These specific innovations can challenge incumbents and eventually destroy their existing business models. The term ‘disruptive innovation’ is often misunderstood and even misapplied in different situations. The theory of Professor Clay Christensen states that every successful business will be affected by disruptive innovations and eventually be overtaken by them. Customer preferences vary in each market, some customers demand a high level of performance from a certain technology, while others just expect basic needs (Itonics, 2016).
The success of Netflix can be considered a great example of a disruptive innovation. Its business model pushed an incumbent of the industry, Blockbuster, into bankruptcy (Ostrower, 2011). Netflix targeted the segments of the population that were overlooked by its competitors and offered the customers an alternative that was both inferior and lower in price (McAlone,2015). Initially, Blockbuster and Netflix were not even competing for the same customer segments. Eventually, Netflix wins over the mainstream customers and managed to move to the top, leading to the collapse of Blockbuster (McAlone, 2015).
According to Christensen, not every innovative company is considered a disruptive innovation. He explains this using Uber as an example. As stated above, it is important to focus on the overlooked segments of the population (McAlone, 2015). Uber did not target the overlooked segments, nor did it provide alternatives for a lower price. It provided their customers with a more convenient taxi system, and therefore attacks the competitors’ core business from the beginning. Christensen explains that Uber did the opposite of a disruptive company by shifting more downmarket, as they began to focus on overlooked segments in a later stadium. It is fair to call Uber innovative, but according to Christensen it is not disruptive (McAlone, 2015).
References
The Economist. (2014, September 6). Pardon the disruption.
Itonics (2016). https://medium.com/datadriveninvestor/why-uber-isnt-disruptive-but-netflix-is-disruptive-innovation-explained-198d250f4db0
- McAlone (2015). The father of ‘disruption’ theory explains why Netflix is the prefect example and Uber isn’t. https://www.businessinsider.com/the-father-of-disruption-theory-explains-why-netflix-is-the-perfect-example-and-uber-isnt-2015-11?international=true&r=US&IR=T
- Ostrower (2011). Netflix Instant Video Streaming: A Disruptive Innovation That’s Disrupting Netflix. https://www.altitudeinc.com/netflix-a-disruptive-innovation-thats-disrupting-netflix/
