Earlier this year, I wrote how using analytics to gain deep customer insight could inhibit innovation, based on Clayton Christensen’s Innovator’s Dilemma. I wanted to dive deeper into the Innovator’s Dilemma, as it is important to all tech companies, from those trying to grow to those trying to disrupt established industries. I will also tie everything together by showing how the free-to-play model disrupted the electronic game industry, destroying companies like Acclaim and Midway and creating billion-dollar companies like King.com and Kabam.
What is the innovator’s dilemma
At its core, the innovator’s dilemma is the apparent contradiction between knowing your customers intimately and optimizing your product for them, versus the fact that innovation will be driven by a different group of customers. Additionally, if you are a successful company the problem is magnified, as the new market may initially be much smaller than your current market and thus not warrant your attention. Finally, as Christensen writes, “blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.”
Christensen cites many examples in the book, but one of the strongest is how the disc drive industry evolved. Some great companies, IBM, Control Data, Seagate, made all the right textbook moves by innovating based on what their customers wanted and then found themselves outflanked by other companies. In fact, the established 14-inch drive manufacturers were held captive by customers. Mainframe computer manufacturers did not need or want an 8-inch drive. They explicitly did not want it: They wanted drives with increased capacity at a lower cost per megabyte. So the drive manufacturers created products that their customers were demanding, missed the market for PC drives and then the manufacturers of PC drives went upstream and took their core market. This is a cycle that has been repeated in the drive industry buy also in multiple high-tech and low-tech industries. Continue reading “Understanding the innovator’s dilemma”