How Microsoft Missed The Disruptive Innovation In Paid Search
from the missing-the-details dept
We recently highlighted a part of one of Paul Graham’s recent essays that told the story of how Yahoo missed the paid search opportunity, by fearing that it would cannibalize all the revenue coming in from its “portal” business. As we noted, it was a great example of why big companies so rarely notice disruptive innovation, even when it’s handed to them. Ali Partovi picked up on the same part of Graham’s essay, and wrote a similar story about why Microsoft also failed to see the opportunity in paid search, despite the fact that Partovi and others were pushing for it, both from the outside, and then inside (after Microsoft bought his company, LinkExchange):
From 1997 to 2000, we visited Yahoo more than a dozen times to pitch the Keywords idea: pay-for-placement, keyword-targeted text ads on the side of search results. Despite repeated rejection, we pitched every member of Yahoo’s executive team multiple times, each time finding new ways to present the concept and new data to support how profitable and huge the opportunity might be, all in vain….In late 1998, Microsoft bought LinkExchange for $265 million, telling us they liked the “Keywords” vision. As Microsoft employees, we continued pitching the Keywords deal not only to Yahoo, but also to the up-and-coming Google. I wasn’t surprised to find that these companies were wary of partnering with Microsoft. My greater surprise was the seemingly insurmountable resistance we faced within Microsoft itself.
After almost two years of fighting bureaucratic obstacles, we finally got the green light to launch “Keywords” as an MSN Search feature in 2000. It started growing rapidly, and the MSN Ad Sales division feared (correctly) that it would cannibalize banner ad revenue. They therefore decided (incorrectly) to shut down Keywords after a few months. If Yahoo’s demise stemmed in part from being ambivalent about technology, perhaps Microsoft’s error stemmed in part from being ambivalent about ad sales: we couldn’t get the senior execs interested enough to intervene.
Both cases highlight the same basic point: the claim that big companies will automatically recognize a disruptive innovation and “copy it” is wishful thinking in many cases. Time and time and time again we see stories more like the ones above, where truly disruptive innovation isn’t just ignored, it’s actively blocked at big legacy companies who fear it cannibalizing an existing business, rather than recognizing the opportunity.
In the end, both Microsoft and Yahoo failed to jump into keyword advertising in any serious way until long after Google established it as a giant business. At that point, both tried to play catch-up, with Yahoo buying Overture and Microsoft rebuilding its product — and as we’ve also seen over and over again, by waiting that long, it was too late. The two companies still haven’t come anywhere close to catching up in market share, even if the technology is considered to be about equal at this point.
So the fear of some big company coming out and just “copying” you is generally overblown. If your idea is really disruptive, they probably won’t recognize it, and by the time they do, you’ll have a big head start, and their attempts to copy what you did will prove a lot more difficult than they expected.
Filed Under: ali partovi, disruptive innovation, paid search
Companies: google, microsoft, yahoo
Comments on “How Microsoft Missed The Disruptive Innovation In Paid Search”
This works great but...
Here’s my problem about disruptive technology. Napster was disruptive.
Grooveshark, Bittorrent, P2P in general, are disruptive technologies.
None of the music execs, movie people are looking at the opportunities, and yet they can impede the progress of these younger businesses.
I’ve yet to see Universal try to do what Napster did. Rather, they’re doing everything to impede the progress of technology for the detriment of all. Basically, what I’m saying is that even though you have a disruptive technology, it seems that if you gain the attention of the giants, you have to be prepared for an unnecessary battle.
Re: This works great but...
That’s exactly what I was just thinking.
This highlights the purpose of intellectual property in general.
For instance, big companies take out broad patents, which they can use to stop new entrants from implementing good ideas until they are ready to implement them first.
On a more global scale, IP-rich countries like the US will use patents to control up-and-comers like India and China. If you think about it, isn’t that what ACTA is about?
Re: This works great but...
Yes you will have an “unnecessary” battle. But if you are truly disruptive, you will win that battle. If it is disruptive enough, copyright law will be changed. Because voters will demand it. The more entrenched others in that “business” are, the more disruptive you will have to be. The point is that they won’t ADOPT. This discussion usually is in reference to the idea that a larger company will come in and copy you if you are a successful startup. But that isn’t what happens most of the time (according to this theory).
It isn’t what happens because the larger company won’t ADOPT. It will fight or maybe not even see the fight coming, but the last thing it will us usually do is ADOPT.
No, you actually prove M$ right.
“MSN Ad Sales division feared (correctly) that it would cannibalize banner ad revenue.” — They recognized it as disruptive, bought it up, and shut it down. You should really analyze *why* they shut it down (perhaps they *did* get the effect that they wished; you merely assume their goals), but apparently their ability to recognize it was okay.
Now, you got me to obliquely defend M$ as capable. I hope you’re happy.
Who needs to be agile? Not Americans!
Mike, you’re wrong again. Big Companies love to innovate in existing business spaces.
If you need examples, just look to the innovation within the Japanese automotive industry, or South Korean electronics manufacturer Samsung. What other businesses have new models coming out every year?
The point is this- It’s why we need more and stronger patents– to keep American Bureaucracy as it applies to ideas alive and well.
Re: Who needs to be agile? Not Americans!
If you omitted the first sentence I’d take your comment as satire. The entire premise behind disruptive entrants is that they see a new “business space” that is usually tangentially related to the dominant one. Big companies are so very focused on having “…new models coming out every year” that they miss the actual growth environment. So, no, unless one of the major automakers releases a (practical) flying car in 2011, they are not developing disruptive products (I’ve not seen one in the 2011 previews yet…).
Re: Re: Who needs to be agile? Not Americans!
It’s obviously satire. Look at the nick…
Thanks, Ben!
Ben, that’s great news about the flying cars. However, as a prerequisite, to flying cars to work, MLMS needs to be cured.
Here’s some information that will help you discuss it with your doctor:
http://URLShorteningServiceForTwitter.com/c4pt0
They'll just let the little companies experiment and then come it
Based on what I’ve seen, the bigger companies wisely wait while someone else spends a bunch of money to test the market. Once it is shown there is money to be made, then the big companies have the resources to come in.
There really is no need to get there first as long as you can grab market share later on. And for mass market items, by the time average consumers are ready to purchase, they may go for a product from a brand they trust, even if that brand didn’t come up with the idea initially.
You see it is sporting goods all the time. The boutique stores are the first to offer a new product, for a very high price. Then it goes to the sporting goods chains. And eventually the same technology hits the discount chains selling the product for 1/10 what the boutique stores were selling it for two years earlier.
Re: They'll just let the little companies experiment and then come it
Another industry were you see the big companies letting the little companies take the risk is in beverages. Teas, fruit drinks, enhanced water. Those are usually launched by a smaller company which then gets bought out by Pepsi or Coke.
Re: They'll just let the little companies experiment and then come it
And research shows that the odds of success doing this is incredibly low.
http://en.wikipedia.org/wiki/Disruptive_technology
http://www.youtube.com/view_play_list?p=5B14C683F830A679
Re: Re: They'll just let the little companies experiment and then come it
And research shows that the odds of success doing this is incredibly low.
Maybe I missed something, but I found this which seems to suggest that sometimes it makes sense to let the small companies proceed and then jump in.
Disruptive technology – Wikipedia, the free encyclopedia: “Even if a disruptive innovation is recognized, existing businesses are often reluctant to take advantage of it, since it would involve competing with their existing (and more profitable) technological approach. Christensen recommends that existing firms watch for these innovations, invest in small firms that might adopt these innovations, and continue to push technological demands in their core market so that performance stays above what disruptive technologies can achieve.”
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Also a few years ago I was at a presentation by a senior BP exec. He was asked about alternative technologies. He said his company was actively investing in them, but since the profitability of those technologies depended a lot of various incentives provided by government agencies, BP couldn’t yet predict when to phase out fossil fuels and when to switch over to renewables. In other words, he said they were developing the technology, but the point at which they would fully make the switch depended on what was going to happen with legislation. They were hedging their bets. The time frame could be 10 years. It could be 40 years.
I think you see the same thing with Apple. They always seem to introduce an interim product while continuing to work on more advanced technology down the road. They sell the early adopters a product that still doesn’t have all the bells and whistles, and then bring out better products 6 months to several years down the road.
Re: Re: Re: They'll just let the little companies experiment and then come it
What you said suggested that a company could merely breeze in and win because of superior resources, but this is absolutely not the case. Note that Christensen recommends investing in firms already in that market, not jumping into the market yourself, which is a very big difference. This is with good reason, something that disruptive innovation/technology is entirely about (the difference in business models and the mismatch between the incentives of the company and market size this creates).
What you described with BP is the opening that disruption creates. Whilst BP is hedging its bets, companies working in countries with high non-consumption of oil or aiming at markets where the goods have low power needs (most extreme example of this would be solar powered little calculators) would be better placed and actively work in those markets. By the time BP enters, it’ll have great difficulty and expense in doing so.
I highly recommend the playlist, it’s a talk by Christensen himself on the topic.
Re: Re: Re:2 They'll just let the little companies experiment and then come it
Note that Christensen recommends investing in firms already in that market, not jumping into the market yourself, which is a very big difference.
That’s exactly what I said. The big companies let the small companies establish the market and then buy them.
Re: Re: Re:3 They'll just let the little companies experiment and then come it
Then they screw it up and give up.
Like big tobacco that tried for years to “diversify” and failed.
What works for one company doesn’t work for other types of business, that is what big companies don’t see and that is why new companies emerge, if they just buy smaller ones they shelve it and forget about it or try to close the market using the legal system and that harms the economy greatly.
Re: Re: Re:3 They'll just let the little companies experiment and then come it
Well, then there enters a whole other issue of in what way you buy them – integrate them entirely or keep them as a fairly independent unit ;).
There’s a whole set of detailed specific and minute details that go beyond the wikipedia article I could go on forever about, but I won’t. If you want more details/info just Google Clayton Christensen.
Re: Re: Re:4 They'll just let the little companies experiment and then come it
We could probably generate a lively discussion by looking at the combination of the myth of first mover advantage and how that factors into disruptive technologies.
I haven’t started to do much research on the subject, but I will toss this out to start:
10-102: Demystifying Disruption: A New Model for Understanding and Predicting Disruptive Technologies: “The results of their analysis suggest that many aspects of the disruptive technologies theory are exaggerated. Though an entrant disrupting a well-funded, giant incumbent with a lower attack makes for a good story, such disruptions account for only a small fraction of all cases–for example, only 8% of all technology disruptions and 25% of all firm disruptions were caused by entrants using a lower attack. The hazard of disruption by incumbents is significantly higher than that by entrants. Further, technologies that adopt a lower attack are not cheaper than older technologies.”
Re: Re: Re:5 They'll just let the little companies experiment and then come it
Giving that link a quick look, it doesn’t appear to do much to contradict much of the existing research of disruption, at least on the summary they provide. It seems to not properly understand that disruption is more about the business model than technology, and Christensen is keen to note that technology does not always have to be new, in some cases it may merely be “rearranged”, where focus is put on an attributes not previously focused on by mainstream markets.
The Innovators Dilemma for example has a fairly in depth study of the hard drive industry, where disruption occurred within the move between different sizes of hard drive (like 8 inch to 5.25 inch drives), even with no fundamental difference in technology. Minicomputers at the time primarily valued hard drive space, and were willing to pay premiums for increases in capacity, but both existing and new companies had difficulties introducing 5.25 inch drives – they were smaller, but didn’t meet demand in the capacity of drives. There just so happened to be however desktop computers emerging that were happy to accept smaller drives for less space, and small companies making 5.25 inch drives were happy to even have a revenue stream compared to already incumbent hard drive makers that dismissed or couldn’t commit to the smaller drives. This also eventually led to a disruption of minicomputers.
This is also something already established – Back in 1997 it was recommended by Christensen and co. for movie theatres facing disruption from improving home theatres and the like to focus on unique attributes like social and family friendly aspects.
The problem that report seems to make is to focus too heavily on the technology when disruption is intended to be more of a description of changes in business models (which technology can some times enable). The effect of first mover advantage is said to be amplified by the asymmetry of motivation created (incumbent companies given incentive to flee upmarket seeing no money at the low end or new market, whilst upstart looks up and sees only money).
I wander with the effect of increased knowledge on this too, and whether the companies were better enabled to handle disruption then they were on previous occasions of studying the effect, also leading to a comparatively lesser effect than previously observed.
Re: Re: Re: They'll just let the little companies experiment and then come it
Ya right you are listening to BP?
Does BP has anything like FCS-Clarity the home energy station?
http://automobiles.honda.com/fcx-clarity/home-energy-station.aspx
Dozens of solutions spawned from that project from dozens of manufacturer’s in Japan and they are selling that equipment to power a house right now for 10 thousand dollars, that industry in America is already behind the competition a decade or more.
Re: Re: Re:2 They'll just let the little companies experiment and then come it
Dozens of solutions spawned from that project from dozens of manufacturer’s in Japan and they are selling that equipment to power a house right now for 10 thousand dollars, that industry in America is already behind the competition a decade or more.
I definitely think the US is falling behind in alternative and clean tech. But one of the big reasons is the artificially low price of fossil fuels. There won’t be a market for alternative energy in this country until it gets too expensive to use fossil fuels or until there are incentives to make alternative energy more price competitive.
Boulder is doing everything it can to be forward thinking it terms of the alternative energy use here and yet some of the plans are criticized for not being cost effective now, even though they will likely be so in the future.
If you have some ideas as to how to make this country a leader in alternative/clean tech I’d love to hear them.
What do you do when you have consumers and tax payers who want the cheapest option now, the future be damned? How much of private and public R&D should be devoted to the future, even if it isn’t profitable now?
I totally want to see the US focused on developing clean tech, but what do you do with a “drill baby drill” mentality?
Please offer some ideas.
Re: Re: Re:3 They'll just let the little companies experiment and then come it
“If you have some ideas as to how to make this country a leader in alternative/clean tech I’d love to hear them.”
Simple solution don’t do hi-tech, go old school and back to basics. Using thermodynamics is simple and low cost.
You just gave me an idea thanks …
Re: Re: Re:2 They'll just let the little companies experiment and then come it
BP Solar probably has the largest install base of solar arrays on the planet. They are HUGE in the solar industry..
BP Solar, look em up !!!.. you might be surprised, (if you never notice what is happening in the world). learn something..
Re: Re: Re: They'll just let the little companies experiment and then come it
“He said his company was actively investing in them, but since the profitability of those technologies depended a lot of various incentives provided by government agencies, BP couldn’t yet predict when to phase out fossil fuels and when to switch over to renewables.”
The problem with that approach is the same one the content distributors have right now. When something becomes so inexpensive to do, that the cost approaches zero, existing business models break down. Then the section of the industry affected dies.
In the case of BP they will be destroyed along with the rest of the energy sector when two technologies become cheap, electrical energy storage, and cost per watt of solar. Imagine a panel that is 80% efficient at converting solar energy to electrical energy in the 1 cent per watt range (thats 800 watts per m^2 or 80kw per avg roof top). Combine that with a cheap super capacitor. It would be over for Coal, Gas, petroleum, nuclear, and a sizable chunk of the energy distribution companies (grid, pipeline, super tankers, rail, etc).
How in that case does BP switch to renewables? Do they go into manufacturing of these items? highly unlikely its outside of their experience. Disruptive Technologies destroy old businesses, period, end, fin. Disruptive Technologies are about massive changes in efficiencies and the associated lowering of cost. No amount of laws or regulations ever stop efficiencies from prevailing, and old legacy players always get destroyed.
Re: Re: Re:2 They'll just let the little companies experiment and then come it
How in that case does BP switch to renewables? Do they go into manufacturing of these items? highly unlikely its outside of their experience. Disruptive Technologies destroy old businesses, period, end, fin. Disruptive Technologies are about massive changes in efficiencies and the associated lowering of cost. No amount of laws or regulations ever stop efficiencies from prevailing, and old legacy players always get destroyed.
They are already invested in alternative technologies. His point was that his company wasn’t sure yet when to drop out of fossil fuels.
I used to write about the alternative/clean tech industry in CO. I interviewed the head of an organization promoting a hydrogen economy. She said they were working with the auto companies. That surprised me because I thought of them as the enemy of green tech. She said no, that huge private companies were the only ones with the financial resources to make the necessary switch over to hydrogen cars, installing the necessary fuel pumps at stations, etc.
It made a lot of sense to me. BP is funding alternative energy companies. They just haven’t abandoned oil yet.
I think you’ll see the same thing happening with big international companies investing in China. They may see the US as the current market, with China being the primary market in the future.
Re: Re: Re:3 They'll just let the little companies experiment and then come it
Here’s just a little bit about BP’s alternative energy investments.
BP: No plans to sell alternative-energy units – MarketWatch
Re: Re: Re:3 They'll just let the little companies experiment and then come it
“They are already invested in alternative technologies. His point was that his company wasn’t sure yet when to drop out of fossil fuels.”
You are not getting my point about Disruptive Technologies. BP is investing in Solar, Wind, BioFuel, etc. Someone is going to decrease the cost per kwh to half or less than a big utility can provide energy for. If they can reduce the total system levelized cost for energy generation to under 20 USD/Mwh it basically makes the energy grid obsolete except for cities.
The point I was trying to make is that some technology IS going to crop up that will obsolete centralized energy production. Something that will make the pay monthly energy crowd hide under the sheets and shiver in fear. Something that will make generation of energy abundant, efficient, and really cheap. Eventually it will make energy cheaper than the cost of maintaining the grid.
The efficiency needed for PV solar energy to provide all a households needs is 54%-80%. That includes heating, cooling, electric, and automotive. Once that happens with PV cells it basically removes the energy providers from the equation. That is what a disruptive technology is.
Re: Re: Re:4 They'll just let the little companies experiment and then come it
The point I was trying to make is that some technology IS going to crop up that will obsolete centralized energy production.
I got it. And my point is that the very same companies that invest in fossil fuels are investing in alternative energies. They see themselves as energy companies. Everyone is anticipating the switch to solar when the technology becomes cheap enough. No one will be caught unprepared for that.
Solar won’t become a disruptive technology unless someone discovers something revolutionary overnight and can immediately make it available in the marketplace. Or unless something happens to the current energy systems which make them become horrendously expensive overnight.
BP’s Gulf problem didn’t disrupt our use of fossil fuels. Three Mile Island did discourage the building of more nuclear power plants, but the nuclear energy industry is starting to get a second look these days.
At the same time, there is a lot of natural gas drilling in the state. So Colorado is in the middle of fossil fuel discussions, too. And there is oil-rich shale here, so whenever that technology looks promising, fuel companies want to come here and work those deposits. Lots of coal mining in Wyoming.
Everyone knows alternative energy will be adopted; it’s just when. Biofuels look promising and people are building small plants for that and doing experiments on how to break down wastes and how to grow oil rich algae.
I follow all of it pretty closely. The National Renewal Energy Lab is based near Boulder so there are a lot of people working in the field around me. Big wind manufacturing plants in Colorado. Solar manufacturing startups here as well. Several projects involving efficient use of vehicles/motors here too. I don’t think there is anything going on in green tech that we don’t have happening here in some form. Plus overall Boulder and Colorado support renewal energy so everyone is looking for ideas/solutions. Tesla has a showroom in Boulder. The state provided such massive credits for the cars that people were essentially able to buy them at half price.
Re: Re: Re:5 They'll just let the little companies experiment and then come it
I edited my post, but didn’t cut-and-paste carefully enough. Here’s how the second half should have read:
_______
BP’s Gulf problem didn’t disrupt our use of fossil fuels. Three Mile Island did discourage the building of more nuclear power plants, but the nuclear energy industry is starting to get a second look these days.
Everyone knows alternative energy will be adopted; it’s just when. Biofuels look promising and people are building small plants for that and doing experiments on how to break down wastes and how to grow oil rich algae.
I follow all of it pretty closely. The National Renewal Energy Lab is based near Boulder so there are a lot of people working in the field around me. Big wind manufacturing plants in Colorado. Solar manufacturing startups here as well. Several projects involving efficient use of vehicles/motors here too. I don’t think there is anything going on in green tech that we don’t have happening here in some form. Plus overall Boulder and Colorado support renewal energy so everyone is looking for ideas/solutions. Tesla has a showroom in Boulder. The state provided such massive credits for the cars that people were essentially able to buy them at half price.
At the same time, there is a lot of natural gas drilling in the state. So Colorado is in the middle of fossil fuel discussions, too. And there is oil-rich shale here, so whenever that technology looks promising, fuel companies want to come here and work those deposits. Lots of coal mining in Wyoming.
Re: Re: Re:5 They'll just let the little companies experiment and then come it
“Solar won’t become a disruptive technology unless someone discovers something revolutionary overnight and can immediately make it available in the marketplace.”
Thanks, i will forward that on its the missing piece.
Re: Re: Re:6 They'll just let the little companies experiment and then come it
I’ve been following the industry for 10 years (and on a less rigorous basis for 40 years — back when the Whole Earth Catalog turned me on to low tech, efficient building techniques). The reason alternative energy technologies haven’t taken over the market is that they aren’t cheap enough and don’t look like they will be cheap enough in the near future. There’s a ton of research going on, but nothing that has dropped the price where it is competitive against fossil fuels without government subsidies. And since the subsidies have tended to be granted on a short term basis, the companies with money don’t want to invest fully until they know the market will be supported.
And look at something like wind energy, which I am totally in favor of. The places the wind blows tend to be out the middle of nowhere. So to get that energy to where it is needed you either need transmission lines or storage mechanisms that can store the energy and then have it transmitted where it is needed. The two most likely storage devices are batteries and hydrogen (via electrolysis — using the wind energy to break down water and then use the hydrogen directly as fuel or in fuel cells). A lot of pieces have to come together to make some energy technologies work in the marketplace.
The cheap solutions are being implemented. Those are things like more efficient buildings, smaller cars, etc. And they are being used, but it takes awhile for all of that to filter through the system.
I’ve looked at solar and wind on a home basis, but it still will take about 20-30 years at current rates to recover your investments. There are even proposals to have nuclear generators small enough to work on a block-by-block basis.
If anyone has some ideas how to revolutionize energy in the next ten years, there are a lot of people who are interested. My guess is that China will take the lead, and when there is need of big private money, it will come from the energy companies. Do I have a problem if China dominates the market for electric cars and for solar? No, if they get it done before anyone else. I’d like to see more done in the US and I vote accordingly. Alternative energy advocates always get my vote.
Re: Re: Re:7 They'll just let the little companies experiment and then come it
There’s so much being written about green tech that I can’t possibly cover it here.
But this might be of interest:
How China Beat the U.S. and Became the New Green Tech Giant
If we're talking huge disruption (Google) the incumbants miss it.
Suzanne’s well reasoned observations aside disruption on a Google scale is rare but it does happen.
In smaller spaces as well. Sports goods and beverages are both highly competitive even if only two dominate the space in soft drinks and juices now. And their markets are notoriously fickle. No other example be given than “New Coke”.
The iPod and iPhone much as I detest both were disruptive products which changed entire markets. Certainly the newest iPhone has forced Blackberry into a response that may have been a premature release of their newest phone.
The reality that this reveals in stark detail is that CEOs, in common with Generals, always prepare to fight the last war. The disruptive technology of World War I was, relatively, recoilless field cannon.
The end of that war brought the foreshadowing of the next two disruptive technologies that burst on the scene in World War II namely tanks and aircraft. The end of World War II saw a foreshadowing of the recent spate of current wars fought in ways embraced by Allies to defeat Germany and Japan with the examples being the French resistance and the small, lightly armed, well trained well led units larger armies face today and are often ground down by that appeared in Special Air Service, Special Boat Service and the US Navy Seals and other special ops units. The Germans, of course, called the Resistance terrorists while the Japanese found they couldn’t handle an enemy that was there one moment and gone the next.
Large incumbents such as Microsoft can’t be attacked head on any more than the US Army, well equipped, trained and motivated can be taken on by lesser armies something clearly illustrated in Iraq. Yet the lessons learned from the Resistance, SAS and others pinned down the Americans and the British for years and continue to pin down the Americans, Canadians and others in Afganistan.
Google caught Microsoft and Yahoo on the flanks in a position neither thought strategic enough to investigate much less defend.
The Blackberry and iPhone smashed Microsoft’s dominance in mobile space which was also crumbling from open source “attacks” until Google came along with its Linux based mobile based OS. Microsoft is learning what monopolists have learned before (and Empires) that you can’t defend everywhere, all time and win. Something will give and often, when it does, it’ll collapse completely. By the time you respond it’s too little, too late and the ground that was once yours is gone forever.
This is why truly disruptive innovation is ignored or missed or both by incumbents as much as anything. They’re too busy defending their hard won turf, particularly after the market has reduced itself to a few players who all agree, more or less to play by the same rules. They remain convinced that the game will be played by the same rules forever until they’re outflanked by an innovative and motivated newcomer. That newcomer doesn’t go after the whole market the incumbents dominate, just a part of it and then expand once they’re established as Google has done.
The entertainment industry missed, in order, the World Wide Web writing it off as a fad (a mistake Microsoft came perilously close to making as well), ignored and abused their market after consolidating down to a few well connected companies, ignored the reality of falling CD sales long before what came next, then the mp3 format (as terrible sonically then as it is now), then for a while Napster, then Bittorrent which they have discovered isn’t a product or company as much as it is a protocol, rediscovered P2P which has been around since Unix and other mainframe and mini computer platforms allowed it and which Hollywood has made great use of for its own purposes for years. It was one of the early adopters of bittorrent as well and was fine with it as long as it was used their way and they could clearly profit from it.
The entertainment industry and it’s legislative supporters has run headlong into something more than a company and less than it at the same time. It’s run into a paradigm shift in its customer market that is no longer prepared to accept the abuse of the past, the plastic popcorn, the theatres with seats that would break the back of a cat, CDs with 13 cuts and only 3 of them any good. That little genie isn’t going to be put back in it’s bottle regardless of legislation or secretive treaties like ACTA.
Nor will the United States keep it’s IP lead by grabbing ACTA and running with it. Emerging economies such as the BRIC ones will enact ACTA but in such a way as they can ignore it when it’s convenient to do so.
In that sense they’ll have learned from the United States who refused to honour copyrights attained in other nations until they finally signed on to the Berne Convention when it was in the US’s advantage to do so and not one moment before.
The United States is preparing for the last war in the IP area rather than the next one. It’s not really the next one as I noted above it’s an old one they used to lead.
Disruption can come from the past as much as it does from the future and present.
Re: If we're talking huge disruption (Google) the incumbants miss it.
The entertainment industry missed, in order, the World Wide Web writing it off as a fad (a mistake Microsoft came perilously close to making as well), ignored and abused their market after consolidating down to a few well connected companies, ignored the reality of falling CD sales long before what came next, then the mp3 format (as terrible sonically then as it is now), then for a while Napster, then Bittorrent which they have discovered isn’t a product or company as much as it is a protocol, rediscovered P2P which has been around since Unix and other mainframe and mini computer platforms allowed it and which Hollywood has made great use of for its own purposes for years. It was one of the early adopters of bittorrent as well and was fine with it as long as it was used their way and they could clearly profit from it.
I don’t think it was necessarily ignoring the market. Sometimes it has been about being unable to capitalize on the changes.
I am familiar with some of the developments in the entertainment industry, but I’m more familiar with the developments in the online news industry. In 1993-94 I was working part time at Apple’s media research lab in Boulder. Knight Ridder had a research office down the hall. Steve Outing hadn’t yet set up the online news mailing list, but it was coming in a couple of years. Apple sponsored OneNet, which was an early network and was working well, but Apple pulled funding in order to create eWorld, which wasn’t successful.
I was in daily conversations about how to move news online. People were trying everything. There were projects uploading local sports news in real time. There were lots of restaurant review sites. There were online news archives. There were early experiments with hyperlocalization. Apple was having conferences about online community networks, and anyone who was involved in online networks was attending.
The problem with everything was that none of it was profitable and no one knew how long they would have to keep funding it. I think many people anticipated that news was going to shift online (this was 17 years ago), but turning it in a paying venture was something else. That’s what’s stopped a lot of projects early. People just ran out of money. And it was especially acute after the dotcom crash because both the VC money and the ad money disappeared. So we had one wave in 1993-94 with experimentation. Another wave during the dotcom boom. Another now another wave. The ideas are there, but profitability often isn’t.
I’m not surprised that some established companies hesitate before pouring millions into projects which may never turn a profit. It’s a lot easier to let someone else risk their time/money, and then buy them out. That doesn’t always work either, but at least you can let lots of little companies experiment and then cherry pick the ones that look most promising.
Re: Re: If we're talking huge disruption (Google) the incumbants miss it.
Roger showed me his tablet back in 1993 or 1994. The concept was there back then but it has taken until the iPad and Apple’s technology and money to bring it into existence.
ROGER FIDLER AND HIS EARLY VISION OF THE NEWSPAPER TABLET
Re: Re: Re: If we're talking huge disruption (Google) the incumbants miss it.
It failed because it had no interface, the only thing different from Apple is the interface that is what made all the difference that is what all the other players didn’t see.
Of course this is hindsight still proves the point, Apple tried a lot of crap over the years and got almost bankrupt but it survived and refound is older glory for now.
Re: Re: Re:2 If we're talking huge disruption (Google) the incumbants miss it.
It failed because it had no interface, the only thing different from Apple is the interface that is what made all the difference that is what all the other players didn’t see.
I’m not sure it could have been done much sooner. The technology wasn’t there, or at least to do it for an affordable amount. Recently some Indian entrepreneurs say they can make a $35 tablet, but that has been met with a lot of skepticism.
I know Apple passed on the $500 computer years ago saying that they couldn’t make a decent one for that price. So PC makers moved to fill that market instead.
My point in all of this is to say that I don’t think companies necessarily pass on technology because they don’t realize it will be disruptive. They may decide that even though it is coming, it’s not something that fits their strategic plan at the moment. And they may feel that they can pick up on the technology at a later date, or even jump past it into the next generation of devices.
Re: Re: Re:3 If we're talking huge disruption (Google) the incumbants miss it.
A couple of interesting references:
The Long Fail: A Brief History of Unsuccessful Tablet Computers
A Short History of the Tablet Computer
Re: Re: If we're talking huge disruption (Google) the incumbants miss it.
What little companies?
The same little companies being put out of their misery by litigious big companies?
The same little companies that can’t experiment with anything because of absurd IP laws?
Those little companies that don’t exist in America anymore?
Yay!
Re: Re: If we're talking huge disruption (Google) the incumbants miss it.
A lot of the business models of that time period were known to be kinda out to lunch even during the dot-com bubble. Some of those were adopted by news organizations who felt a need to get on line before there was an on line audience.
There’s even a problem with cherry picking because you’d better pick from the right cherry tree or you fail again. That’s what the stories are pointing at. Organization A may realize the change barreling down on them, look to find someone successful in the same field, buy them then change the very culture that made Organization B successful to start with. Organization A is left holding a worthless asset and probably an increased debt load.
The problem with disruption is that it’s disruptive. Organization A may want into the on line world and may, desperately, want to make a profit on it while they completely fail to understand that what works for Organization A (a newspaper, say) in print does not and cannot work on line. They may even say they’d tried before when they cherry picked Organization B (an on line news site, let’s say) but that Organization B’s culture wasn’t the same as theirs and they couldn’t get Organization B to recognize that Organization A had been doing this for over a century and making a handsome profit so Organization B should adapt to what they do. The people that worked for an in Organization B leave and in short order are back to doing what they did before just as successfully but willing to live with the reality that the profit margins on line are much lower than in print. (Most of the technical and journalistic staff of the Huffington Post comes to mind.) And the dance starts again.
At least newspapers are trying. I’ll give them that. The fact that television news has found it easier to make the transition, though not as profitably in the news area, simply because the technical and presentation of Web 2.0 is more television than newspaper like. And then there’s the HuffPo’s and Politico’s who are native web creations and do it better but not better enough to batter television web sites (yet) as they and television have newspapers.
For better or worse, the day of massively profitable newspapers and chains is over. Most may disappear as they’re currently structured screaming and yelling as the disrupted always have about unfair competition. Some will survive but will have lost the political and social sway they once had. I, for one, won’t miss it.
The fourth estate will continue but differently. Journalism will survive, if for no other reason, because humans love gossip and telling stories and are quite in love with “when it bleeds it leads” they’ll just be getting all that in a different form. Those adapting will make a profit, perhaps not a big one initially but a profit.
And. after it really gets going the shakeout will start, massive consolidation will begin again, people will complain again. Then the next disruption will roll on down the line and the cycle starts again.
The difference in the entertainment industry, on the other hand, has cried foul and the sky is falling for as long as I can remember. First it was reel-to-reel recording, then it was cassettes, then the CD, then this strange thing called the Internet and it’s web and then they discovered file sharing. (Nothing new, as I’ve pointed out.) Then they go trotting off to government seeking welfare for themselves all the while yelling at the top of their lungs that they’re really interested in “the artist” or “the creator” to avoid the disruption faced by newspapers that the disruptive change has brought on. That way they can resume “business as usual” going back to their usual treatment of artists, musicians, screenwriters, and so on which has been anything but stellar.
In the preparation for the next war by fighting the last one this is analogous to the Iraqi army running to someone to get the Americans to stand down while someone quickly gets them the weaponry and training they need to at least fight the hated Yanks to a standstill.
Western nations are doing something similar in Afghanistan with the insurgency there loudly yelling that the Taliban and others are not following the rules (Afgans have a long history of that) after between 1939 and 1945 the West normalized such things with the Resistance and the tactics and strategies of the SAS among others. The Taliban aren’t going to dress in snappy uniforms and form neat predictable skirmish lines just because we’d like them to.
For all of the entertainment industry’s screaming about “free culture” and how it cannot work for artists, ok well the industry’s benefit because artists are less than pawns in this game, because they (the industry) isn’t getting paid. The problem there is that the self-same industry normalized “free culture” by helping to enable a few generations to get their music for “free” from radio. What’s changed is that instead of needing radio, suddenly those generations now can do it on their own without annoying ads from used car dealerships on top of the fade out of their favourite songs.
They’re not only being disrupted they’ve done their level best to enable the disruption to occur the very moment the technological stars aligned to make the disruption happen on the scale it is now.
That genie is not going back in the bottle again. Ever.
It’s not that they didn’t see it coming. Instead of preparing for it they’ve whined about it. They’ve run off to governments to get their legal protections expanded far beyond the intent of them (copyright) so that they can live off corporate welfare should the whole house of cards collapses on them.
To give the devil his due, at least the motion picture industry has reacted. They’ve rediscovered that movie theatres need to be an experience rather than stuffing people like sardines into a multiplex. So now theatres are appearing again that resemble those of 50, 60 70 years ago where there were places people wanted to go. Not just for the movie but because they were, in themselves, places where people felt comfortable and wanted to socialize. I’ve even heard vicious rumours that they’ve discovered real butter for real popcorn again! And, gee, they’re starting to turn out real product again that people are willing to go and see. They’re back to making a bundle at the box office again, too. Who’da thunk?
I doubt the recording industry has that option. It’s a one trick team of ponies, fat, out of shape and filled with the feeling they are ENTITLED.
Suzanne, I’m not saying disruption is or ever has been easy. Those that suffer the most are those at the bottom of the food chain. I’d far rather expend my energies on them rather that the fat, overpaid, disconnected execs of the recording industry.
They may get all the extensions they are drooling over from the US Congress and the Canadian Parliament and sneak in more from ACTA.
At the end of the day they’ve treated their workers (artists) and customers so poorly that the sea change happening on and off line won’t stop.
They can tell the tide in the Bay of Fundy stop but it won’t. It’ll cover them instead.
Re: Re: Re: If we're talking huge disruption (Google) the incumbants miss it.
The problem with disruption is that it’s disruptive.
For that reason it might not be all that fair to say some companies missed disruptive innovation.
As for the music industry, I anticipate far more disruption, and everyone who is currently going to be disrupted disagrees with me. I think technology will push music creation down to the individual level. So everyone is going to be a creator and the idea of 1000 fans or tribes to support music makers is going to go away. Of course, every aspiring musician doesn’t believe this. And every company that hopes to distribute music or sell music-related merchandise doesn’t believe this.
But I think the technology to allow people to make their own music will be as disruptive as MP3 technology, home recording technology, file sharing, etc. And I think music will revert to localized experiences again. So if you can have fun in music with your neighbors, you’ll have less incentive to pay to go to a concert.
Three reasons I think music will head this way:
1. People want to be their own rock stars.
2. The apps to make music are coming quickly and are cheap. The infrastructure is already there with mobile devices. No need to deal with licensing, or having to create a big site like YouTube or iTunes. It can be done at the grassroots level.
3. People don’t have much money to spend. Expecting fans to spend money to support musicians when the fans don’t have money isn’t going to work.
Google is the ones looking harder for a new model.
Yes, interesting, but its not really like MS has been struggling, or has not spent the past 25 years providing products and services and making huge money.
MS knows about disruptive technologies, that is why they are where they are now.
They were certainly not the first, and possibly not the best but they were suitabily disruptive, and they won the market.
Now the tides are turned, Google is a one trick pony, it does search, and gets paid for advertising.
Sure, they are trying very hard to catch up with the likes of MS who have been creating actual products for some time now.
So in that case, its google who missed the boat, put all their eggs into search, and are now struggling to move into software.
MS has been in software for years, has many different and popular products, and BTW: they can also do search,, just like google. (but not as obviously evil).
So its all a bit of give and take, its not about disruptive technologies, its about providing products and services to customers and potential customers and keeping those customers.
Something MS has done very successfully throught its history.
MS has advanced far more into search and cloud services, than Google has advanced in software development, support and deployment. I know what position I would rather be in.
Google a low IP asset company (they have search and thats about it), or MS who has a huge base of products and services they can offer clients.
Ie, MS does search and software very well, google does search well but has (also) a dirty public image, and lack of trust.
I have not used google for years.
Re: Google is the ones looking harder for a new model.
I really want to know what caused you to gain a view of reality that is completely backwards.
Disruptive technologies
Okay, my Dad and an uncle both smoked heavily all their lives, and didn’t get throat or lung cancer, so that “proves” that smoking isn’t related to lung cancer, right?
As a practical matter, as a patent attorney I have seen at least a dozen cases of unpatented ideas being stolen.
Does that mean IP, as it is now, is good? No, it is terrible. Does it mean that if properly used (for the common good, not just for the wealthy) it wouldn’t be good? Of course not!
Check out BP Solar..
BP Solar, is one of the leading solar power companies on earth !!
You might want to check them out, This entire argument about disruptive technologies makes little sense.
most here seem to think that its all about competition between companies, ITS NOT.
Its about providing products and services that consumer want, need, desire.
Most here seem to look at things as if there is a very small possible consumer base, or customers. Where you cannot succeed unless you put out the other guy.. WRONG.
That is not the case, there are lots of customers, and potential customers.
Companies compete for customers, they dont compete to disrupt.
What does that give the consumer?? CHOICE..
I prefer choice, i like that I can purchase a news paper, or I can look it up on the web.
I like that fact that I do not have to rely on google, or bing or Microsoft, or FOSS, or apple.
So what do you want, a single company doing search, a single company doing OS’s, a single company doing applications.
Do you think it would be better, if it was not possible to purchase music of songs from shops, or do you think its better that consumers have a choice?
Why do you think its bad that someone with talent, who lots are people are willing to pay to see or listen too, is somehow wrong, why do you think that there is not room for all models and players.
Its a big world, and the consumer,, not the suits will decide what is right or wrong.
Mike, let us in on your dream of a Utopia !! please.
Tell us in one hit what you would like if you could make the rules?
I assume, you would disband record and film industries, stop payments for artists, allow radio stations to profit from advertising, and providing free content, on the artists dime ?
Tell us, paint us a picture of your utopia ???
Complementry not disruptive.
Mike, this entire article would at least make some sense if something like Google search and Microsoft software are disruptive. In fact they are highly complementry, one thrives because of the other, and would not thrive without it.
Its the same for hardware. Hardware, software and what you can do with that software and what services you can gain access too are all complementry technologies.
Google are trying to move into the software market, and MS is moving into the search market, they are both working on cloud solutions.
Thats how commerce works Mike, companies provide things that people are willing to pay for, that do what they want and expect them to do, in turn the company provides ongoing support and improvements to keep existing customers and gain more customers.
Maybe you can explain how the development of the internet or in search systems was a disruption to CPU or software manufactures ?
It was not, it was complementry, and enabling, ie one could not exist without the other components.
Sure you can live without search, but you can do much usefull stuff without a computer or software.
So if you can, Mike please give us some examples of REAL disruptive technologies, not complementry technologies.
The internal combustion engine was a disruptive technology to steam engines. The transistor was disruptive to valve technology, the IC was disruptive to the trasistor technology, ACIS’s disrupt CPUS, GPS’s disrupt CPU’s and so on.
But all these ‘disruptions’ only occur because something is better, cheaper, faster, more efficient and so on, its not popular because its “disrupts” the status quo. That is a strawman argument. And its certainly not about individual companies, or even industries, its about technology advancement, it happens all the time, it greatly benifits mankind.
But what you try to explain is not anything like the petrol engine disrupting steam technology, you try to make the case that “google search” is somehow ‘disruptive’.. what too ?
So people who use google search (or petrol engines) will never use an operating system or a word processor ?
And being first certainly does not mean you are the best, or deserve any rights, should someone else do it better than you, people dont care. If there was an OS that was better than MS for a similar price or even more expensive people would quickly move to the new platform, by the new company. But its certainly not disruptive, unless it does something that replaces an existing (but not as good) technology. (like steam Vs ICE)
Technologi is moving so fast these days that you get changes so often and have to keep updated daily.
Baycooler Computer Fans
There is a load written about green tech stuff!
Dog Training Guides
Corporate fat cats think they know everything...
Big corporate managers and executives all think that they have enough experience to know WHERE WHEN HOW AND WHY the industry is gonna turn. It’s their own pride which is their own demise honestly…
And now that the internet is overall MAJORITY saturated w/ affiliate marketing guru’s, entrepreneurships, and what not.. it’s a huge business.
Sucks 2 be them..