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Why Platform Disruption Is So Much Bigger than Product Disruption

Why Platform Disruption Is So Much Bigger than Product Disruption

How does disruptive innovation differ when it’s applied to a product versus a platform?

For the sake of clarity, let’s call a product “a platform that is used for one or very few products” and a platform “a structure upon which many variations of products are built.” These definitions recognize that product vs. platform isn’t black-and-white, but let’s use them for practical purposes. For example, using this definition, a Tesla car battery is a product, because it powers only a few cars. But as more electric cars enter the market (including more Tesla models) and there are more uses for rechargeable electric batteries, perhaps the battery will one day move up the scale to become more like a platform.

Similarly, it’s useful to distinguish between types of disruption.

There’s high-end disruption, which means entering the market with a product or platform that is superior to incumbents’ offerings — again, the Tesla Model S, or, to take a completely different example, Chobani yogurt. Starting a high-end disruption is expensive and challenging, requiring a lot of capital up front. Even Chobani needed almost $1 billion dollars of funding to get going. High-end disruption also requires challenging incumbents head-to-head at the outset, something that’s very difficult to pull off.

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A second option is low-end disruption, which is making a product or platform more affordable and simpler to use. Markets are especially ripe for low-end disruption when the existing products or platforms overserve the mainstream customer base. To take just a couple of examples, think of Toyota and Honda entering the U.S. market with the Corolla and the scooter, respectively. Low-end disruptions are more common than the high-end variety because they’re less expensive to get off the ground and, at least in the beginning, they don’t directly challenge incumbents — instead, they gain market foothold with the incumbents’ least-profitable customers.

A third type of disruption is new-market disruption, which emerges from nonconsumers and usually creates a new category, or even new industries. For instance, in the medical sector, stents gained market foothold in the catheter diagnosis market but now are slowly and relentlessly capturing a significant share of the heart-related extracorporeal surgery market. Again, they didn’t initially challenge incumbents directly; they gained a market foothold in an adjacent space.

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In all the examples above, a company engaged in a disruptive process using a product. But it’s also possible to engage in all three kinds of disruption via a platform.

Platform-based high-end disruptions are very uncommon, mostly because they are expensive to fund and bring to profitability, though the few that exist get a lot of attention. They also directly attack incumbents head-to-head in a highly visible way, just as with product-based high-end disruption. But instead of challenging the incumbent on the basis of one product, you’re often contesting the entire customer portfolio. This often leads incumbents to counterattack aggressively.

The poster child here is Uber, which uses a platform to market its eight products, has raised over $9 billion so far, still is not profitable, and is being counterattacked by the taxi industry. Successful high-end platform disruptions often stem from “open innovation” initiatives: When all goes according to plan, potentially disruptive companies are co-opted into being resellers for the incumbents or partners with them (think of Apple Pay) rather than being direct competitors.

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Low-end platform disruptions make things cheaper and more affordable for overserved customers. They include platforms such as Flash memory, the Boeing 737-200 (the plane that enabled low-cost airlines), and many “cheaper and simpler” service businesses. They may be less visible than their high-end disruption cousins, at least at the outset, but they are no less dangerous to incumbents.;

 



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