Disruption

Disruption

Silicon Alley Insider: Next Up for Google: Launch MSFT Powerpoint Killer

*New technologies are considered "disruptive" when the market leader--in this case, Microsoft--adds so many features to a product that it overshoots the needs of the mainstream market. This leaves room for a competitor to offer a simpler, cheaper version that the incumbent can't respond to because doing so would crush the margins of its core business. So, instead, it responds by adding even more features and increasingly concentrating on the high-end of the market. Meanwhile, the competitor continues to gain market share at the low end until the incumbent is marginalized...

I have been reading the Christensen book on the subways lately, and this observation is right. The Google Docs product does less, performs worse, but is cheaper, more convenient, and suitable for different customers/less penetrated customers than the incumbent's franchise. In the face of this, the incumbent (and it's most valuable customers, which is a key Christensen insight) have been saying "what the heck is this garbage?" But the way disruption works is that the commodity, cheap, simple, convenient attacker builds scale and then starts getting better performance and then suddenly crosses the performance curve of the incumbent. And then, all of a sudden, the incumbent is sitting there looking stupid without anything that matches.

Why doesn't the incumbent just copy-and-paste? Because it's own best customers tell it for years that the disruptive approach is useless. And by the time the new approach is big, the incumbent lacks the design know-how or the production scale to do it well. Microsoft sucks at making web-based technologies and certainly doesn't do them efficiently. The core Google Docs apps were built by 15 people at the startup Writely. At MSFT, 15 people probably worked on the spell checker of the latest Word.

Another example: Google AdWords. It was a low-end disruption against Yahoo!'s display ads franchise. They started with an attack that had Yahoo! saying for years that Yahoo had the quality advertisers and the quality guys didn't give a crap about search terms. Well, Google attacked where Yahoo wasn't with customers that Yahoo "overserved" (with homepage ads that plumbers didn't have interest in). And as that machine grew to tremendous velocity, Yahoo can't cut-and-paste to imitate. The performance of search marketing has surpassed display, and the cost to run the network per unit for Google is far lower than for Yahoo. As for MSFT, forget it.