What can Ernest Hemingway teach us about industrial disruption? The master of terse prose was more concerned with war, pugilism and other overt displays of masculinity than with the ups and downs of the marketplace, after all.
But in a recent essay on his blog, former Microsoft executive Steven Sinofsky quoted The Sun Also Rises to illustrate a larger point he was making about the precipitous decline of RIM/Blackberry.
“How did you go bankrupt? Two ways. Gradually, then suddenly,” Hemingway famously wrote. “That is how disruption happens,” Sinofsky concludes.
Gradually, then suddenly. That timescale is borne out by the fate of both RIM and also of Nokia, the two major victims of the modern smartphone. Horace Dediu, the most perceptive mobile analyst in the business, recently pointed out how both RIM and Nokia, who looked like untouchable behemoths of the mobile industry just a few years ago, actually managed to increase sales until 2010 or so, three years after the debut of the iPhone, before their businesses fell off a cliff.
The full scale of their ignominious collapse – both sold for a pittance in recent months – is only now coming into perspective, pored over by analysts, investors and business professors eager to understand the dynamics of their decline. The Canadian newspaper The Globe and Mail recently published an exhaustive account of Blackberry's fall from grace, prompting Sinofsky to pen his essay on how disruptive forces feel to those being disrupted.
“Disruption has a couple of characteristics that make it fun to talk about,” Sinofsky writes. “While it is happening even with a chorus of people claiming it is happening, it is actually very difficult to see. After it has happened the chorus of ‘told you so’ grows even louder and more matter of fact.” (Reading between the lines, Sinofsky is none too subtly describing the dilemma faced by Microsoft.)
It's instructive to read that Globe and Mail article in conjunction with Fred Vogelstein's recent piece on the introduction of the iPhone in the New York Times. Side by side, they show the internal forces that sent one firm into the stratosphere and consigned the other into irrelevancy. The obsessive drive of Steve Jobs, pushing his team to ever greater heights of engineering achievement, versus the complacency of RIM's then chief executives Mike Lazaridis and Jim Balsillie, content to compromise with carriers and limit their engineering ambition.
But that narrative, about the iPhone merely disrupting RIM and Nokia, oversimplifies what "disruption" is all about, in a business sense. What we often describe as disruption is the process defined by Harvard business professor Clayton Christensen, author of the classic business text The Innovator's Dilemma.
Christensen looked at the mobile phone market and thought it could only be disrupted by a low-end disruptor, describing a new product that is good enough for most users of an established technology, but considerably cheaper than offerings from the incumbent, therefore eating into the incumbent’s margins and market share. Given that pattern, he was famously pessimistic about the prospects for the iPhone – this was a $500 device, after all, so it certainly wasn’t going to disrupt Nokia and RIM from the low end.
It was much only later that Christensen identified and acknowledged his analytical error – rather than disrupting the phone business, it disrupted the computer business. This was a $500 computer that was vastly more limited than a traditional laptop, but vastly more convenient too.
New market disruption
It was, instead, a new market disruption, a new technology that doesn't fit within established business patterns or appeal to existing customers, but eventually matures to the point that it threatens the incumbents. But according to Christensen's model, the new market disruption of iOS and subsequently Android is actually impacting Microsoft and the traditional PC manufacturers, rather than the incumbents in the mobile space.
As analyst Ben Thompson has discussed in a few typically insightful posts on his blog, the Blackberry and Nokia's entire handset line-up were not "disrupted", par Christensen's definition, they were "obsoleted". "The problem for Nokia and BlackBerry was that their specialities – calling, messaging, and email – were simply apps: one function on a general-purpose computer. A dedicated device that only did calls, or messages, or email, was simply obsolete," Thompson writes.
At first blush it’s a subtle enough distinction, but without appreciating the differences it’s hard to predict future threats or opportunities. Of course, whether your business is enduring disruption or obsolescence, the innovator’s dilemma still stands, though the necessary response will be different. Crudely, disruption from the low end demands that incumbents lower prices to counteract disruptive rivals, thereby eating into margins – a spiral that can be hard to get out of. If your business is being obsoleted, on the other hand, well it doesn’t matter how much you lower your prices, it’s imperative you change direction.
Consider, then, disruption and obsolescence as the Scylla and Charybdis of the technology industry, twin challenges that must be navigated with care lest your company end up dashed against the rocks or consumed by the vortex. Which is exactly the sort of maritime analogy that even Ernest Hemingway himself would have appreciated.