It’s cool to wear the label, “disruptive innovation”. It’s a fast-growing business model that many successful businesses have used to break into their markets in new, unique ways. But like most trends, its definition has become somewhat bastardised. Creatives can be the worst offenders. Adland is fadland. Give creatives something that’s trending and they’ll probably overdo it.
So what is disruptive innovation really? And is the term is being overused?
To find out, you need a clear definition of what it actually is. Disruptive innovation works by finding an overlooked part of a business model and providing a service that targets these missed sections. The new service is often offered at a cheaper price than the competitor’s quote and targets a low-end or niche demographic. Because of this, the original service provider doesn’t bother responding to the competition, confident of successes in the mainstream market. Over time though, the new, more complete service grows in popularity and begins to be expected from all service providers. The new service becomes more mainstream and begins to cut out the original service providers who don’t offer the in-demand service. Once the new service becomes commonplace, disruptive innovation has occurred.
Like Netflix. When the service first began, Netflix identified that some film renters would prefer to order their selection online and have them mailed to them for a monthly fee. At the time, this appealed only to a few, who would otherwise have gone to a local Blockbuster store to pick out a film in person. Because the market was so niche, Blockbuster didn’t try to compete with Netflix, believing that its service was complete enough. Over time, Netflix became more in-demand, especially as it combined its mail service with online streaming that allowed Blockbuster customers the same instant gratification that renting in-store provided. This meant that as well as appealing to the niche market who wanted their films posted to them, it also appealed to Blockbusters’ main demographic and a new generation of technology-savvy millennials who would prefer to stream than to physically borrow.
Netflix is now used worldwide, while Blockbuster is now a shadow of its former glory, being offered through vending machines.
Disruptive innovation vs. sustaining innovations
Then there are sustaining innovations. Similar to disruptive innovations, but not quite the same. The sustaining innovation model takes an already successful business model and improves it. The improvement can eventually become commonplace industry-wide but it doesn’t cause any disruption that can put others out of business. An example is the dry cleaning pick-up and delivery service offered by Master Dry Cleaners in Melbourne.
Master Dry Cleaners identified that most of its customers would prefer the convenience of having someone collect their clothes from their home and deliver them clean and pristine. It improved an existing service, and it appeals to the mainstream, rather than entering at the low-end or underserviced part of the market and moving upstream. Sustaining innovations have mass appeal much quicker than disruptive innovations, which can take years or decades to gain enough traction to displace traditional services.
Getting things straight with an example
Is Uber a disruptive innovation or sustaining innovation?
Uber is universally cited as a prime example of disruptive innovation. No doubt about it, Uber has definitely revolutionised the taxi industry, but this doesn’t fulfil all the criteria of disruptive innovation. As Master Dry Cleaner highlights, innovation can catch on throughout the industry without it being a disruption. Likewise, Uber. While Uber has caught on to a niche market and taken it mainstream – that is, those who’d rather book a taxi online than over the phone – it hasn’t expanded or improved its service enough to drive its competitors – other taxis – out of business. In fact, Uber and traditional taxis appeal to very different markets. While Uber appeals to younger generations and the more technology-savvy, taxis are still very heavily favoured by the older generation.
In the future, taxis could become obsolete. Taxis don’t own older generations. And older generations may catch on to Uber. Perhaps one day Uber will be rightly called a disruptive innovation because it has put its competitors out of business. But it could also be just an example of a natural technological development. Uber spotted a way to make the industry more technologically advanced and capitalised on it – rather like how CD players and video players became defunct after a while.
True, Uber is looking at ways to expand its empire with Uber Eats, which delivers from regular restaurants that don’t usually deliver. This is a similar service to up-and-coming businesses like Deliveroo. But Uber Eats has one important advantage. It uses its own vehicles rather than relying on delivery people with bikes, so it appeals to an underserviced market – the diner who wants delivery quicker – at a competitive rate. While Uber’s taxi service may not be disruptive innovation, Uber Eats service has disruptive potential. Watch its space.
By freelance writer, Julie Scott.