I teach college classes on innovation, as well as speak regularly on the topic. And I am frequenty asked how to determine whether new products are sustaining innovations, or disruptive ones. In 2008, the most common product I was asked about was the iPhone. To me the answer was obvious. As a phone, the iPhone was sustaining. But, as a new platform from which to do a multitude of things that went way, way beyond phone use it had the potential to be very Disruptive. For those reasons, it's initial (if expensive) ability to be sustaining, coupled with it's long-term potential to be Disruptive (and therefore wildly inexpensive), made iPhone look like an easy product to introduce yet really important as time and applications progressed. It was easy to predict the iPhone as a product that would make a big difference in the marketplace.
So far, I've not been disappointed. Today, Apple announced an iPhone application allowing it to behave like a Kindle (read article here). The Amazon.com launched Kindle was the most successful new product of 2007 and 2008 Christmas seasons, selling out production and selling in greater volumes than the initial launch of the iPod. Kindle offers the opportunity to read anything digitally – from the morning newspaper (why have a paper if you can get the info digitally), to magazines to books. Literally thousands of publications and hundreds of thousands of books. When I had to buy a Kindle device to gain this access, I had to deliberate. Yet another device to carry? But now that I can get this "library" access on a device which can also deliver internet access, text messaging, mass messaging on twitter, my PDA services and telephone connectivity — well this is pretty amazing. It keeps demonstrating the iPhone as a device not like any other device in the market — a game changer – that can bring in new users to each of the individual markets it serves by offering such strong cross-market delivery.
Just 3 months ago tech reviewers felt that "netbooks" were the next "hot" item. These downsized, book-sized laptops gave basic computer performance at a very low price. And analysts chided Apple for not participating. Forbes seemed to chide Apple recently with a headline that the company was living in denial (see article here). But a closer read shows that the headline was tongue-in-cheek. Forbes too recognized that Apple has a product in the netbook class – but it does a whole lot more – and its called the iPhone. Meanwhile, Apple doesn't intend to lose value on Macs by chasing downmarket with the larger platform.
I've told many audiences that sustaining innovations – those that do the same thing but a little better – create 67% of incremental revenue. They feel comfortable, and are easy to launch. And because they give revenue a shot, we justify doing more and more of these product variations and simple derivatives. But, disruptive products produce 85% of incremental profits. Variations and derivatives are easy for competitors to knock-off, and their value is short-lived (if they produce any value at all). Disruptive products are hard to imitate, and produce long-term profits. The iPod disrupted the music business, and now years later it still has the #1 market share as an MP3 device (despite a market attack from behemoth Microsoft with Zune) and iTunes remains #1 in music downloads even though Apple produces no music. iPod and Mac make money because they cannot be easily imitated. And the same is proving true for iPhone. It is more than it looks, and it has lots of opportunity to keep growing.
Apple demonstrates every day that even in very tough economic circumstances, if you go to where the market is headed YOU CAN GROW. You don't have to sit back and bemoan the lack of credit or the change in markets. You do need to have a clear view of where markets are headed, with vivid scenarios allowing you to track behavior and target. You also have to be obsessive about competition, and realize you must relentlessly take action to remain in front. And you can't fear Disruption as you use White Space to enter new markets and test new products. That's why Apple stock is flat in 2009, while almost everyone else has gone down in value (see chart here).