Disruptive innovation is used as a byline to market a lot of startups these days. But the fact is that not all innovative products are disruptive and being disruptive is a lot more than just creating a new exciting product. Just because an industry is affected by a new player or product, that does not mean there is disruption at hand.

Breakthroughs happen all the time, but they do not all equate to disruptive innovation. Before moving on, let’s have a look at the semantics. There are two terms here. Innovation is relatively easy to comprehend and define: a product, service or experience with a solid business model that is new and brings certain benefits to users. There’s a plethora of definitions, but as a concept it’s quite familiar and easier to point out. Disruption on the other hand has been used in all sorts of situations, often undeserved. Clay Christensen has defined disruption in his book, The Innovator’s Dilemma, as a product that serves a market that previously couldn’t be addressed (new market disruption) or a product that offers a low level option, cheaper or more convenient (low level disruption) suitable for overserved markets. As such, disruptive innovation happens when new markets are created or when products get a foothold in the low end of an existing market. This occurs when a company provides customers with comprehensive products that constantly improve and pays little attention to customers that have fewer demands (and have less potential for profit). A new contender arrives that offers a cheaper product with just enough features for those consumers and enters the low end of the market. In both cases, the newcomer challenges the incumbents, who may or may not respond. Disruption creates consumers, either by creating a market or by offering a product that works for consumers that have been overlooked, the product being cheaper or more convenient. Most users will adopt the disruptive product once it reaches a certain level of stability and quality.

Here’s an example. Netflix launched in 1997 and offered a mail order/rental DVD service. Blockbuster took little notice of it at first, but they still did try to buy Netflix 3 years after it was founded. Nevertheless, they didn’t see it as a real competitor. As new technologies came into place and buyer behaviours changed, Netflix grew substantially, got into streaming and became a major player. Blockbuster didn’t, they went out of business in 2013. How? Well, Netflix started out small and slow, they didn’t make big waves and weren’t particularly appealing to most Blockbuster customers, so the incumbent in the market didn’t feel threatened. They got a foothold in the market and targeted people that found Blockbuster inconvenient. If they had started out aggressively pursuing a large share of Blockbuster’s customers, Blockbuster would have responded aggressively and the result might have been different. The DVD rental market was also overserved and Netflix offered a practical and cheaper alternative. It originally had a similar pay-per-rent model like Blockbuster, which later changed into a monthly subscription model and then a flat fee with unlimited rentals (without any extra fees) that proved highly successful. This is a classic example of disruptive innovation, a low end market type of disruption. Note that there’s a difference between disruptive innovation and sustaining innovation. The former creates products that are not viewed highly (originally) by most consumers, while the latter builds better products for consumers. There’s one thing to remember: Disruptive innovation is a process, it’s not a result. It’s a journey, not a destination. We can conclude that disruptive innovation has happened with a product or a company when it has already disrupted a market. That can take years. Or decades.

Blockchain

Blockchain in itself is not a product, but a technology that is poised to revolutionize the world. However, as previously mentioned, products can be revolutionary without being disruptive. Right now blockchain development offers amazing opportunities that companies and startups all around the world are tapping into. Overall, it’s definitely changing things, but it’s not putting anybody out of business. If we take a look at the two types of disruptive innovation (new market and low end market), we can see that Blockchain products have the characteristics of products entering at the bottom of the market, especially in emerging economies, but they can also build new markets by addressing nonconsumers.

Blockchain products