The question of low end disruption should be a concern to any manager. It’s one of the most important sources of growth and has led to a vast amount of wealth creation.
Apple was an early low end disruptor by selling personal computers at a fraction of mini-computer prices. Toyota also offered “cheap” cars as an entrant in the market. Pixar made blockbusters for a lot less than live action studios. Google offers good enough office software without a license. Finally Microsoft built its whole business on low-end business software at knock-down prices.
All these entrants made fortunes often at the expense of entrenched incumbents. Disruption grows the pie but also transfers a lot of value away from existing competitors.
So it should not be surprising that new products like the iPad should be scrutinized for their vulnerability to low end disruption. Brian Caufield asks the question if Apple has any future with the iPad given the potential for $99 tablets.
The question is indeed why not introduce an ultra-cheap tablet, for example from Amazon, which makes up for the low price with an innovative business model like selling content or user behavior data. After all, game consoles are sold this way. This is the classic razor/razor-blade business model.
The answer to why not is actually not simply that the economics don’t work. They might work some day even if they really don’t today.
The answer to why not is that the iPad is not good enough.
Disruption (low-end or otherwise) happens when a product over-shoots the market. It makes sense to compete on a new basis, be it low price or convenience or customization, if the prevailing basis of competition has led the prevailing products to be more than good enough. If you look through all the examples of low-end disruption, you’ll find that the incumbents were motivated to flee up-market and to continue to improve their products even though they exceeded the demands and expectations of mainstream buyers.
For the iPad to be vulnerable, it has to be way better than the mainstream users’ needs. Which asks the question of what needs are being served. If it’s book reading, it probably is more than good enough. But if it’s replacing a laptop computer, certainly not. Being too feeble is the most common complaint about the iPad. Being a bloated over-functioned and overly complex solution looking for a problem is definitely not on buyer’s list of concerns.
So on this basis, the iPad and other tablets pass vulnerability tests with flying colors. The product is woefully inadequate for mainstream computing.
The consequence is that people will yearn and beg for more functionality and will drop the last generation for the next without hesitation. This pattern of breathless upgrades is symptomatic of a product racing up a trajectory of improvements which are relevant to buyers.
So until buyers find the n+1 version of the iPad to be superfluous and over-specced, having too much battery life, too big a screen, too much storage and with more speed and bandwidth than needed, the iPad need not fear the low end.
- Other classic low-end disruptors are: Wal-Mart, GE Capital, Toys ‘r Us, Sun Microsystems, Dell, Hyundai, MySQL, Amazon, Visa, Embraer, E-trade, Macy’s, Japan Steel, Circuit City, Home Depot, Yahoo Travel.