Disruptive Technologies

The term disruptive technology (or disruptive innovation) has reached increasing popularity during the past 10 years since the publication in 1997 of ‘The Innovator’s Dilemma’ by Clayton Christensen. He systematized a conception of the term, where it came to mean technologies that, at an initial phase, may have a lower utility than existing technologies but which eventually will win the market because of their unfolding advantages and displace existing technologies. If a technology is to be disruptive, it will have to be a technology that incumbents in the market will not be inclined to introduce – not because they don’t have the technological competences, but because the new technologies are not sufficiently profitable and/or do not fit into the product portfolio of the incumbents. If a new technology, on the other hand, builds on and adds to exiting technology solutions used by incumbents and, consequently, will be introduced by these incumbents, the term sustaining technology is used.

The regulatory implications are obvious. If new technologies are taken up by the market but not by the incumbents, more competition will be introduced and less regulation is likely to be necessary. Not only can regulation be scaled down once new and disruptive technologies gain important market shares, but regulation should also pave the way for the introduction of new technologies that will have a disruptive effect on the market and no only constitute sustaining innovations.

However, the ability of incumbents to take up new technologies is often underestimated. Incumbents may not be the first in the market to introduce new technologies that do not build on existing technology solutions. But once it becomes clear that new technologies gain sizeable market shares or have obvious potentials, it is often seen that incumbents are able to include new technologies in their product portfolio – even though they may, at first, have been considered as potentially disruptive. Wi-Fi is up for discussion as an example. In some cases Wi-Fi operators disrupt the market; in other cases Wi-Fi is offered by incumbents. When Wi-Fi first hit the markets, there was a vivid discussion as to the potential disruptive character of this technology. It could eventually substitute for existing mobile solutions and thus constitute a threat to existing mobile operators. However, Wi-Fi has also been taken up by many incumbent mobile operators and complements the existing mobile services offered. This does not mean that Wi-Fi or other wireless solutions do not, in different cases. substitute for existing mobile solutions, but it means that Wi-Fi does not necessarily disrupt the market. Wi-Fi often complements the services offered by mobile incumbents.

There are, nevertheless, technologies that turn out to disrupt the markets. History has documented this. However, it is difficult ex ante to determine whether a technology is disruptive or sustaining. This will have to be determined ex post. The issue of disruption is not only a technology issue. It cannot be determined whether a technology is disruptive just by looking at its technology characteristics. Disruption is a market issue and the degree of disruptiveness will be determined on the market by the market players.

Still, public policy and regulation should seek to pave the way for the introduction of as many new and potentially disruptive technologies as possible. Though incumbents will be able to adopt the new technologies, new technologies will also open the market to new and alternative players. The end-result may eventually be major disruptions through cumulative innovations even though it did not seem that way at the beginning. It will, at any rate, be an advantage to the users to have as many alternative offers as possible, technologically as well as with respect to supplying market players.






Next: 7.2 Market and Regulation