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The impact of disruptive innovation – on PCs and on Retail

January 17, 2013 Leave a comment Go to comments

Two recent items highlight the impact of disruptive innovations on industries. The first is a presentation from the Business Insider called the The Death of PC. The second is an article looking at Amazon and mentioning its March 2012 purchase of Kiva Systems.

Since 2009, the PC market has hardly grown. In the same period, Smartphone & Tablet sales boomed. Many tasks that used to be done on PCs are now done on these newer devices: email, web-searching, social media, and more. This has had a massive impact on the traditional PC market and its suppliers such as Intel and Microsoft. Whereas Apple’s and Samsung’s share prices have grown substantially, Dell & HP have been static or fallen. The introduction of both Smartphones and Tablets illustrate how disruptive these technologies are to the traditional PC industry – although as the The Death of PC presentation shows, things are actually more complicated. This is typical for a disruptive innovation – especially in the earlier stages.

Disruptive innovations do not always kill the products and industries they replace. What they do is change them radically. Smartphones haven’t killed the camera industry. They have, however transformed it so that DSLR and higher-end / special function cameras are now the main products sold. The cheap mass-market snapshot camera has gone – who needs one, when a Smartphone does everything that they could do, and much more. Disruptive innovations also mean that companies that fail to adapt quickly enough disappear. Kodak’s filing for Chapter 11 bankruptcy is an example of this. Kodak and photography were synonymous – but the company failed to anticipate how digital camera usage would change the way people process photographs.

In the case of the PC market, so far it’s only the home PC that’s dying. The PC in the workplace is doing fine – and that’s because the type of task it is used for is different. It’s hard to work on a spreadsheet, or a complex graphic or even a long report using a Tablet and almost impossible on a Smartphone. These aren’t tasks that the home computer was used for. So Tablets haven’t changed the work PC – only the home PC market. However expectations have changed – and this has led to newer devices and cloud computing which promises to be as disruptive for the traditional hard-disk based PC and so the PC as we knew it last century is gone or going. It’s not yet dead – just changed.

Amazon’s purchase of Kiva Systems in another example of a disruptive innovation. Amazon itself has shown how disruptive e-commerce is to traditional retailing. The high-street and even the out-of-town retail outlets struggle to compete with Amazon on price. However they can still compete on service: if you want something on the same day, then such outlets beat Amazon, even if the price is higher. Further, Amazon’s warehouse distribution system could be copied and many of the larger retailers now offer online options. Currently both use human labour to select and package products for delivery – and this represents a significant proportion of retail costs. The Kiva Systems purchase promises to change all this. Kiva Systems manufactures robots and the software used to control them. The robots are designed for use in warehouses for accessing goods. They remove the need for a human being to go to the relevant shelf and remove a product for sending to a customer – instead a machine does this. Eventually such systems are likely to completely automate the distribution process – meaning that Amazon’s labour costs will fall dramatically.

Any retailer that still depends on human labour in their warehouses or retailing is likely to find it even harder competing with Amazon’s prices. Such retailers should start thinking now on how they could compete. Options include looking at ways of improving service or focusing on narrow niches requiring in-person expertise. Waiting and hoping that some shining knight on a white charger will come and rescue them is not an option. There will be no shining knight because, however much retailers may wish it was, true life is not a fairy story.

[After writing this post, Michel Bernaiche, Program Development Director of AurowaWDC and current Chairman of the SCIP board, pointed out this news story to me – highlighting how robots are impacting not just retailing but many other business areas – from hospitals & surgery to legal research. CBS News Video on Impact of Robotics in Industry]

  1. January 20, 2013 at 9:15 am

    And it was Kodak who invented the digital camera – but gave it away so as not to ruin their film business.

    • January 20, 2013 at 1:51 pm

      Actually it’s more complicated that that. Kodak didn’t give digital technology away. Polaroid did that – as their R&D were very early in researching digital technology but management couldn’t see it being commercially successful and so sold it. (This Yale case study only gives a part of the story. http://qn.som.yale.edu/content/what-was-polaroid-thinking. The reality is even more tragic as not only did Polaroid stop its R&D efforts but focused on cheap instant cameras for parties and as teenage toys. They put all their money into advertising & marketing and thought that this would be enough).

      Kodak didn’t give digital technology away. The surviving bits of Kodak are likely to still involve imaging technology. However like Kodak, they didn’t anticipate the change in usage patterns – with people not printing out photos. They thought people would – which is one reason they spent so much effort bringing out specialist printer paper and dedicated printers.

      Their imaging divisions still make money – and microfilm / microfiche is likely to last for some time. In many ways they are a better media for archives than digital media. They are analog so won’t suffer the problem of change in the way digital media does. Consider readers for floppy disks today. Now fast forward 100 years – how easy will it be to read digital media held on formats common just 20 years ago. In contrast, microfiche has a lifespan of over 500 years. http://www.nedcc.org/resources/leaflets/6Reformatting/01MicrofilmAndMicrofiche.php)

  2. January 23, 2013 at 11:58 pm

    The PC market was supposed to be dead or at the very least dying. After all, goes the refrain, who needs a clunky old PC when you can now hold the world in your fingertips?

  3. January 24, 2013 at 10:49 am

    If this trend does play itself out as I have suggested, the impact on the traditional PC market could be very disruptive within two to three years. As consumers buy inexpensive small tablets that will only get better in performance, screen clarity and apps, the use of these tablets will supersede their PC use, and demand for PCs and laptops could decrease significantly.

  4. January 26, 2013 at 2:29 am

    At times, Christensen seems to take the pessimistic view that there is no escape from disease of disruptive innovation. It is simply part of the inexorable life and death of firms. “In biological evolution,” says Christensen at one point in the TechCrunch interview, “individual organisms don’t evolve. They are born and they die. But the population evolves. The mutants gain more market share. You get the same sense in corporate evolution.” The Fortune 500 evolves, even as the individual companies that make up the Fortune 500 are dying at an ever increasing rate. On this view, there is no way out.

  5. January 28, 2013 at 4:59 pm

    There are 263 million onlne PC gamers worldwide, added Stude, saying it was proof that the PC gaming market’s death has been greatly exaggerated.

  6. February 2, 2013 at 10:04 am

    There was great hope through the first half that 2012 would prove to be a rebound year for the PC market. Now three quarters through the year, the usual boost from the back-to-school season appears to be a bust, and both AMD and Intel’s third-quarter outlooks appear to be flat to down. Optimism has vanished and turned to doubt, and the industry is now training its sights on 2013 to deliver the hoped-for rebound. All this is setting the PC market up for its first annual decline since the dot-com bust year of 2001.

  7. February 3, 2013 at 8:00 am

    There are many definitions of a disruptive technology, but to me, a disruptive technology is something which disrupts the business models of large numbers of companies. You can see the train wreck happening in front of you, but you cannot get out the way.

  8. February 3, 2013 at 12:34 pm

    • Amazon sold about 2.7m of its Kindle e-readers in the second quarter as it took 51.7% of the e-reader market, IDC says. The second-larger share was taken by Barnes & Noble’s reader, with 21.2%, in a market totalling 5.4m units in total for the quarter.

  9. February 5, 2013 at 7:55 am

    If this trend does play itself out as I have suggested, the impact on the traditional PC market could be very disruptive within two to three years. As consumers buy inexpensive small tablets that will only get better in performance, screen clarity and apps, the use of these tablets will supersede their PC use, and demand for PCs and laptops could decrease significantly.

  1. September 9, 2014 at 2:56 am

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