The start of April 2010 juxtaposed two intriguing events. First, Dr. Ed Roberts passed away. While he lived the quiet life of a country doctor in recent years, Roberts made history in 1975 through creating the first personal computer, the Altair 8800.
The day after Roberts death made news, Apple began selling its iPad, which the company touts as a revolution in computing.
While Roberts was deeply respected in a small community — Bill Gates recently visited at his bedside — he made relatively little from his invention, which catered to a hobbyist market. By contrast, the iPad has reportedly done quite well in its first weekend, with up to 700,000 units sold. The stark difference raises a key question often asked about early movers: when does a pioneer find gold, instead of arrows in his back?
The originator of the term “disruptive innovation,” Harvard Business School Professor Clayton Christensen, has built on the work of Øystein Fjeldstad at the Norgewian School of Management to suggest that there are three general types of business models: solution shops that create customized offerings, value chain businesses that produce standardized outputs, and facilitated networks that enable interactions. While there is of course much color that overlays this basic sketch, the three models help in explaining when the timing is right for early movers.
Solution shops often dominate at the early stage of an industry. An ecosystem of suppliers has yet to coalesce, customers are not yet certain about what they want, and firms are flexible in adapting their offerings as they learn more about the market. When an industry is fated to remain a solution shop because its value lies in customization or its customers are forever heterogeneous, early movers can do quite well. Customers frequently buy solution shop outputs based on the supplier’s reputation, because there are few other ways of judging the quality of an offering before it exists. Early movers in the market can create a reputation that others will have a hard time matching: think McKinsey or Massachusetts General. However, if an industry looks set to standardize — perhaps because this will create better quality or cater to broader sets of customers — leadership in the solution shop phase may translate poorly to the next stage of industry development. In part, this was the Altair’s struggle.
Value chain business models prize efficiency, consistency, market power and channel access. Microsoft capitalized on its development of a form of BASIC to run on the Altair — its first business venture — to become a value chain business catering to PC manufacturers, especially IBM. Apple runs another value chain business, using its leverage with developers, PR muscle, stores and other advantages to create ecosystems of firms in support of new industries, such as the iPad tablet. In a value chain business, it is not essential to be early; the iPod was far from the first portable music player. However, it is important to be first to create the ecosystem. Consumer electronics rivals now face many challenges in dislodging Apple from its pre-eminent place in the ecosystems it has created. The same dynamic underlies the success of firms like Medtronic in medical devices, or Monsanto in seeds.
Facilitated network businesses reap their competitive advantage from the size of their network. This is why eBay is so dominant in online auctions, or Facebook in social media. With the network business model, it is critical to be early. A firm need not be first — remember Friendster? — but it should quickly earn a strong position in a foothold market it can own, and which can serve as a launching pad to broader market penetration while the overall industry is still nascent.
Seen through this lens, the successes and failures of early movers fit a clear pattern. The Altair led a solution shop market, but this was irrelevant when the industry predictably migrated to become a value chain. Sony faces long odds in dislodging Apple from its ownership of portable music, but used its value chain position well in establishing the Blu-ray industry. Network businesses need a quick foothold where they can find customers providing critical mass for each end of the interaction, avoiding chicken/egg conundrums. There are clear advantages to being an early mover, but it is more critical to fit a firm’s business model and strategy to the type of industry that is being formed.
Story by Steve Wunker.
This section will not be visible in live published website. Below are your current settings:
Current Number Of Columns are = 3
Expand Posts Area =
Gap/Space Between Posts = 10px
Blog Post Style = card
Use of custom card colors instead of default colors =
Blog Post Card Background Color = current color
Blog Post Card Shadow Color = current color
Blog Post Card Border Color = current color
Publish the website and visit your blog page to see the results