Keep Growing and Innovating, Apple and Intel Prove Disruption Theory
Apple and Intel have proven their disruption theory that was put forth by Clayton Christensen 25 years ago and this is a wake-up call to any corporate innovator who has a responsibility to ensure their company can continue to grow under any circumstances. So what kind of disruption theory is it and what is the role of Apple and Intel in this story. Let's see…
25 years ago to be exact in the mid 90's. Clayton Christensen laid out his disruption theory to the Ende group, CEO and co-founder of Intel at the time. Ende was immediately inspired. For those who are not familiar with the disruption theory, Clay explains it in an article entitled What is Disruptive Innovation that was published in the Harvard Business Review in December 2015.
OK, so what is disruption theory? Clay describes disruption as a process by which smaller companies with fewer resources can successfully challenge established businesses. In particular because the established players focus on improving their products and services for the most profitable customers and tend to ignore the needs of other segments. The new, smaller players started out by targeting a segment that the established players had overlooked. They provide products that suit the needs of that segment at a price that is usually lower. Meanwhile, established players or often referred to as incumbents are busy pursuing higher profitability in their more demanding segments. Finally ignored the little player earlier.
The little players will gradually move up in class, the technology will be better as well as the performance, and the quality of the products will be better. Finally able to satisfy the mainstream customers worked on by the incamben. When mainstream customers start adopting the production of these small players in large quantities, that's when disruption occurs.
An example is Netflix. Netflix was launched in 1997 and at that time it was in the form of DVD rental by mail. The service initially did not appeal to most of the customers of Block Buster, America's largest video rental company at the time. Those Block Buster subscribers usually rent the video because they are looking for a New Release and it's spontaneous and they want to watch it right away.
The Netflix service model, which relies on sending DVDs by post, takes several days to reach the customer. So, it's not interesting, this postal video rental service is only attractive to a few groups of customers, namely movie fans who don't care about New releases. They are usually early adopters of DVD players and online customers.
Block Buster finally decided to ignore this competitor. Apart from not feeling threatened by Netflix's services, the logic behind it is that the two companies cater to very different needs for different customers. However, as technology later developed, it finally allowed Netflix to switch to streaming video over the internet and the company was finally able to attract Block Bluster subscribers.
Why? because tips offer a wider selection of content with unlimited viewing on demand, high quality, easy, convenient, accessible and low cost.
Finally, all Block Buster subscribers moved to Netflix, Block Buster failed to respond effectively to the projected development of Netflix products and services, which was the cause of the collapse of the video rental king.
Okay, you already know what disruption is. Now back to Intel and Ende Group. Inspired by group disruption theory, Intel is pushing Intel to do something that companies rarely do
that is, launching a low-margin product that cannibalizes its own products in a class above it. Intel finally did it, they introduced the Celeron processor in 1998 and it did cannibalize their Pentium processor to some extent.
But it also allows them to capture 35% of the market in which they compete. Perhaps more importantly Celeron managed to dispel threats from the segments below. Starting as an inferior product, Celeron's computing power capabilities increased drastically over time. Until finally able to exceed the performance of incumbent products, that is what allows Intel to win the wider computer market.
Even though personal computers are cheaper, selling products that are in every home and on every desk is ultimately a huge profit for Intel and more importantly puts Intel as an unbeatable industry leader. Intel succeeded in proving the disruption theory that Ende Group learned directly from Clay Christensen.
Now the story is reversed, there is a twist here. In 2005 Intel had the opportunity to make processor chips for Apple products that we now know as the iPhone, but Intel turned it down at that time.
For Intel, the margin obtained for making chips for the iPhone is too low. After all, Intel is also not sure the iPhone will be sold in large numbers. This is when Intel stuck to what Clay called the Innovator's Dilemma, a concept that is at the heart of disruption theory.
This innovator's dilemma occurs in incumbent companies or market leaders in their industry. They have to choose between continuing to focus on products and customers that currently provide clear margins or must invest in new innovations to pursue future market opportunities that are currently clearly not profitable. Research from Clay shows that in the end most incumbent companies choose the former, and so does Intel.
Finally, Apple designed its own iPhone chip. Apple's journey began with the A series chips that first made their way into the iPhone 4 and the first generation iPad and in the years that followed they became more and more powerful, smarter and more capable of performing complex tasks. And even though it has become very powerful, the great thing is that Apple's chip has less battery power requirements and the latest version, the e14 bayonet, now supports the latest generation of iPhones and iPads.
In 2018 Apple announced that it would build its own chips for use in the Max series of products. In November 2020 Apple announced the Apple Silicon, Apple's own processor that would eventually replace all of Intel's chips that for the last 15 years have been at the heart of all Apple laptops and desktops. Remarkably independent benchmark results show that the computing capabilities of the first version of Apple One from Apple silicon far exceed the capabilities of Intel's best processors. All parties predict that the computing power gap will get bigger over time.
The theory of disruption is proven again, right here in the story, Intel, which used to be used as an example as a disruptor in the microprocessor industry, is now being disrupted by Apple.
Reference: https://youtu.be/H_2-T2GOl00
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