Competition is not the Same as Disruptive Technology

disruptive-technologyCBC’s Don Pittis has a new article on technology: Disrupting the disrupters — Tesla faces the challenge of the mini-fluorescent. Let’s have a look at some of his opinions.

Any disruptive [technology] is itself subject to disruption.

This is not always true, at least not in a predictable time-frame. Often technology moves slowly, incrementally. Innovations that destroyed entire markets (the internal combustion engine, for example) live on long after their demise is predicted. But as a rule, no market is safe forever. Hell, with quantum entanglement, even the light-speed barrier has been broken.

Having only recently sent the the traditional energy-sucking incandescent bulb to the museum beside the coal oil lamp and buggy whip, the coiled fluorescent is on the way to the museum itself.

I’d agree this is a fair example of a short lived innovation. Note however that in 2010, ten years after their introduction, CFLs held less than 20% of the market, while incandescent still held more than 50%. Expect to see a similar trajectory with LED light bulbs, at the expense of CFLs and incandescents.

When Tesla boss Elon Musk began marketing his cars a few years ago, like the first CFL producers, he was able to charge a premium.

This is nothing like the CFL bulb. Tesla is a company. Their margins are going to be challenged (at least at first) by fast followers (Volvo and BMW), not a new technology that replaces the electric car or some aspect of it.

Like the makers of CFL bulbs, Musk and Tesla really did disrupt the established automobile industry.

Tesla has so far failed to have a significant impact. Sales of all electric vehicles last year were about 0.5% of the care market. By contrast, in 2010, CFLs had grown to almost 20% of the residential market in the US.

Auto giant General Motors had tried and failed to establish a popular electric car with its EV1. Similarly General Electric created a CFL bulb in 1976, but found it too expensive to manufacture.

Early prototypes are often seen by their creators as difficult to commercialize. Established players don’t need or want to cannibalize their own markets. In both these cases, the companies traded the risk of developing a new technology for the right to be first to market. This is a reasonable strategy. Often, it is the fast followers that win new markets, not the innovators. Here are a few examples:

  • Ingress built the first Unix database, Oracle fast followed and took the market.
  • Wordstar built the word processing market, Word Perfect fast followed and took it.
  • Visicalc built the spread sheet market, Lotus fast followed and took it.

Now that Tesla has succeeded in disrupting the market, its business model is already being disrupted. BMW competes at the high end with its i8 sports car. GM’s inexpensive all-electric Bolt challenges the Tesla with a range of nearly 400 kilometres. Everybody’s doing it.

This is not “disruption”. It’s simply competition. Disruption would be something like the lithium air battery that Volkswagon is developing.

While disruption can capsize an existing industry, it is difficult for the disrupter to hang on to the benefits of that disruption. Once Apple had wiped out the record and CD industries with its 99-cent iTunes tracks, it opened the fractured sector for new disruptions in the form of free-to-user streaming services.

Good example, but Apple was not the initial disrupter, it was Napster. Apple merely took advantage to fast follow and come up with a business model that the music industry liked enough to support. As Napster and others like Kazaa and BitTorrent services continued to eat the music industry’s profits, streaming technologies became practical. In order to compete with each other and independent musicians, music companies were uploading their content for free streaming on YouTube, another disrupting technology. This made them open to paid streaming, even though it further reduces their revenues.

The only way Apple could succeed was to keep on disrupting, desperately trying to ride a leading wave of technological change using its brand advantage, its cash pile and its reservoir of brainpower to keep ahead of the disruptive competition.

Other than competing in the streaming space, which Apple can do with the brand recognition of iTunes, there’s not much more they can do in music. Apple has already cannibalized the iPod market with the iPhone. Now, they need merely support their own streaming service for those who want it. They will not be able to keep others out of the market, due to their need to compete against Android.

Fossil fuel electricity producers have long scoffed at green power that only produces when the sun is shining or the wind is blowing. Tesla’s latest disruptive move is to announce it is building the world’s largest battery in Australia to make that problem go away.

This is an interesting experiment in buffering the energy from wind power. Maui was doing something similar, until their battery farm burned down. Is it a strategic direction, though, or merely a PR effort? That’s hard to say, as Tesla is selling the power wall, a home power storage system, and looks to be buying Solar City, entering the home solar power market. Maybe they hope to learn from the Australian project, or possibly see large scale batteries as a new strategic direction for the company.

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About jimbelton

I'm a software developer, and a writer of both fiction and non-fiction, and I blog about movies, books, and philosophy. My interest in religious philosophy and the search for the truth inspires much of my writing.
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