How Disruption Works: Case Study

Apple Apple’s story over the past decade provides a perfect illustration of this. Remember that Apple used to be called Apple Computer. They built their name, not on the back of iPods and iTunes, but on their Macintosh computers. For years their primary business model was solely building and selling computers and operating systems. Today, iPhones make up about half of Apple’s revenues and iPads almost a quarter. From 2006 to 2012, revenue from desktop and laptop sales declined from 43% to 14% of total company revenue, with laptops taking up the lion’s share. Mac desktop computers currently account for around 3% of overall revenue. What has recently been the core of the business is now basically irrelevant.

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What does this tell us about how to deal with disruptions? Apple saw the writing on the wall when disruptively cheap PC’s began to vastly out-compete higher end Macs for down-market users. Instead of jumping into the fray and diluting their core business model by releasing lower quality products to compete on price, Apple held on to its core customer base, continuing to offer that niche the product it wanted.

Meanwhile, behind the scenes it set to work on building its own disruption: the iPod. While the Mac continued to lose market share to Windows-based systems, the iPod quietly catapulted Apple to the top of the music distribution industry, leaving the crumbling edifices of Tower records and Virgin in its wake.

The icing on the cake is that Apple’s computers are still around, more popular than ever and bolstered by improved resources and economies of scale driven by iOS device sales. It’s only in relation to iPads and iPhones that they seem insignificant. Had Apple gone the route of conducting a pitched battle on price instead of sticking with their model and creating the iPod, it’s unlikely that it would still be solvent as a company today.

The lessons here about dealing with disruption should be clear: when faced with a disruptive technology or business plan, don’t try to face-off against it like a bareknuckle boxer, but don’t ignore it either. Perform a little business jiu-jitsu: feint and absorb the blows, whilst getting your company ready to completely reverse the situation with a disruption of your own. If you think of the business landscape as a vast chessboard, competing directly with a disruptor is like sacrificing your queen to save a rook: the best you can hope for is a temporary and pyrrhic victory. Look to the other side of the board and try to create your own checkmate.

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