Introduction
Clayton Christensen is a prominent expert in the field of innovation and disruption. In his acclaimed 1997 publication “The Innovator’s Dilemma,” Christensen introduced the concept of disruptive innovation to demonstrate how smaller companies can potentially challenge dominant players in an industry. According to Christensen, disruptive innovation alters a market by introducing simplicity, convenience, accessibility, and cost-effectiveness(Saïd Business School, 2013). Disruptive innovations initially fall behind widely accepted alternatives. In addition, they provide convenience and cost-effectiveness to appeal to new or less exacting clientele. Over time, the disruptive invention undergoes enhancements that enable it to rival and supplant its existing competitors effectively.
Christensen’s Theory of Disruptive Innovation
One of the main reasons why the 14-inch drives were disrupted is because the dominant manufacturers, such as Seagate, concentrated excessively on fulfilling the specific requirements of its mainframe computer clients. Mainframe systems necessitated increasing storage capacity and performance to manage workloads at the enterprise level effectively. Seagate invested in research and development to increase the density of megabits on 14-inch platters. This allowed them to provide more excellent capacity drives with annual price/performance increases ranging from 50% to 100%.
Meanwhile, the established players regarded the developing 5.25-inch drives as trivial or insignificant. Initially, they possessed only a third of the data capacity compared to 14-inch drives. However, firms such as Quantum recognized that 5.25-inch drives could adequately fulfill the fundamental storage requirements of the emerging personal computer market, where users prioritized convenience and affordability. Although 14-inch drives are more dependable and have greater storage capacity, the drives in question were far more affordable, costing 90% less, and occupied considerably less space within PC cases.
Throughout subsequent generations, the manufacturers of the 5.25-inch disks made determined efforts to reduce expenses and enhance the overall quality to meet the increasing demand for desktop PCs. By the late 1980s, they achieved parity with 14-inch drives in capacity and price per megabyte while maintaining a size advantage. Once the performance reached a satisfactory level for most apps, customers showed a preference for the smaller size(Saïd Business School, 2013). The increase in volume and expertise allowed the 5.25-inch drive performance to surpass vital benchmarks, enabling them to cater to a broader range of market groups. In the early 1990s, there was a widespread shift among OEM equipment manufacturers, resulting in 5.25-inch drives surpassing 14-inch drives in sales quantities in all market segments. This illustrates Christensen’s theory that disruptive innovations emerge from underappreciated areas, establish a position through novel value propositions, enhance through substantial investment, and ultimately ascend to challenge established competitors in higher market segments.
Assessing Disruption Potential
Clayton Christensen, a business theorist, suggests discovering structural asymmetries between sector incumbents and potential disrupters that might be utilized when assessing disruption opportunities. For example, disruptors may have advantages in terms of incentives, resources, processes, or values compared to established players who have difficulty responding. Capitalizing on these imbalances is essential for successfully challenging dominant incumbents. According to Christensen’s theory, digital advertising is one industry ripe for disruption, notably the rapidly rising digital ad market dominated by Google and Facebook (Johnson, 2020). Google and Facebook account for more than half of the market, with solid advertising platforms designed for targeting, automation, and performance. However, there is a growing call for regulations on privacy and data collecting concerns. Younger generations, in particular, are becoming increasingly sensitive to perceived misuse of personal data for advertising targeting.
The Market: Scale and Growth
To assess the potential for disruption, it is vital to understand the magnitude and patterns of growth demonstrated by critical participants. In 2021, Google produced over $200 billion in advertising revenue, with adverts displayed throughout its broad network of websites and services like Search, Maps, Gmail, and YouTube, accounting for 80% of that total. Facebook earned over $115 billion in advertising revenue in 2021, mostly from its main App and Instagram. Google and Facebook account for more than 60% of total digital advertising expenditure in the United States. Digital advertising spending in the United States is expected to climb from $178 billion in 2021 to $315 billion by 2025 (Kaufman et al., 2023). This change is ascribed to causes such as increased online time, the growth of e-commerce, and advertisers shifting their money away from traditional media. During this time, Google and Facebook will likely maintain a combined market share of more than 50%. Their systems use vast user data and engagement to improve ad targeting and maximize advertising returns for advertisers.
Privacy and Policy Pressure Points
Google and Facebook’s ad platforms provide advertisers with substantial value by leveraging the extensive user data and targeting capabilities that underpin them. Nevertheless, data privacy is facing increasing scrutiny and policy pressure. Notably, younger demographics consider ,excessive monitoring and ad targeting based on personal information intrusive. Legislators also believe that oversight of how platforms profit from user data is a necessity.
Affected by Facebook advertisements, Apple implemented App monitoring Transparency regulations in 2021 that permitted iOS users to block cross-app monitoring. In contrast to Google’s commitment to eradicate tracking cookies from Chrome, Facebook intends to transition its campaign reporting system to aggregated event measurement. Such modifications exemplify how demands for privacy and transparency can affect revenue and the underlying mechanisms that facilitate targeted advertising. In addition to disadvantageous costs associated with compliance, swiftly evolving regulations also present a burden for established players. As Google and Facebook endeavor to adjust in an effort to safeguard user confidence, their substantial reliance on optimizing data acquisition and advertisement views for financial gain exposes them to greater susceptibility. A model that is ethically consistent and does not rely excessively on user data, on the other hand, may evade scrutiny while fostering benevolence. This asymmetry between values and incentives creates an opening.
Subscription-Based Models: A Disruptive Force?
Subscription-based business models such as The Washington Post’s are introduced. With more than 3 million digital subscribers, The Post has effectively moved away from relying solely on ad revenue. Because they prioritize quality over clickbait content and eliminate display adverts, their membership model improves the reading experience for readers. Additionally, it offers ongoing business planning that is more dependable than variable digital ad rates subject to policy changes. A subscription model, in contrast to ad networks, which some critics contend put interaction, data collecting, and advertiser ROI ahead of high-quality content, notably aligns incentives between publishers and customers. The Post attributes its digital transformation to this subscriber-centric strategy, which has produced profitability and exceeded 4 million total subscribers across print and digital media by 2022.
Though the majority of news organizations still mostly depend on digital advertisements, pioneers such as The Post point to a potential. A news publisher that focuses on subscriptions might completely embrace a more pristine reading experience devoid of intrusive advertisements. Research indicates that customers would favor an ethically sponsored subscription-based ad-free strategy over platforms that rely heavily on data. A disruptor of this kind may win widespread support by collaborating closely with readers to deliver high-quality journalism rather than relying on sponsors. Furthermore, if subscriptions grow to the same magnitude as the top ad networks, which bring in over $100 billion a year from millions of companies, an incentive-based subscription model has the potential to upend digital publishing and advertising.
Exploiting Asymmetries and Overcoming Disadvantages
To effectively disrupt by embracing subscriptions over advertisements, an entrant must still overcome major hurdles in terms of distribution, resources, and persuading incumbent attitudes that have been engrained over nearly two decades since Google pioneered the performance advertising model.
Distribution & Discovery
Google and Facebook solved significant difficulties in digital distribution and discovery. People use Google to navigate the internet and Facebook on a daily basis to connect with others and consume material. New users were acquired organically over time, when adoption reached critical mass. To acquire early traction, a subscription news disruptor may carefully use social platforms and influencer marketing. Many younger consumers mistrust established periodicals as politically biased or subject to advertisers, therefore an independent, transparency-oriented brand may appeal. Word of mouth about a particularly clean, honest news experience might generate viral adoption, similar to other digital media companies. Positive press coverage emphasizing an innovative, consumer-oriented concept would increase awareness. Once subscribers reach critical mass, retention, delivery, and referrals will drive growth.
Resources & Data
Facebook and Google possess enormous resources. Their scalable user retention and rapid product development are made possible by their financial support, cash reserves, technical infrastructure, and seasoned workforces. These are not resources that a startup possesses; subscriptions necessitate fewer. A subscription brand maintains members through the provision of superior content, as opposed to utilizing costly ad swaps, data mining, or targeting. Funding expansion through revenue over a period of 5-10 years as scope increases. Investor support may stimulate global expansion subsequent to the establishment of a recognizable brand. Another benefit is that Google and Facebook target users with their data. Subscription publishers exclusively gather email and payment information by design. In contrast, they conduct readership tracking and subscriber surveys to determine audience interests. Content and site features are guided by community feedback for the benefit of devoted readers, not by algorithms or marketers.
Swaying Incumbent Incentives & Values
Facebook and Google possess enormous resources. Their scalable user retention and rapid product development are made possible by their financial support, cash reserves, technical infrastructure, and seasoned workforces. These are not resources that a startup possesses; subscriptions necessitate fewer. A subscription brand maintains members through the provision of superior content, as opposed to utilizing costly ad swaps, data mining, or targeting (Bischof & Rudolph, 2021). Funding expansion through revenue over a period of 5-10 years as scope increases. Investor support may stimulate global expansion subsequent to the establishment of a recognizable brand. Another benefit is that Google and Facebook target users with their data. Subscription publishers exclusively gather email and payment information by design. In contrast, they conduct readership tracking and subscriber surveys to determine audience interests. Content and site features are guided by community feedback for the benefit of devoted readers, not by algorithms or marketers.
The Challenges and Promise of Disruption
Facebook and Google have unparalleled advantages in distribution, infrastructure, and data. However, considering social worries about fake news and data privacy, news is a susceptible area. A subscription model gets around the system of data collection used to power display adverts. By offering a unique user experience, this promotes disruption from below rather than directly competing. Regulation, as Christensen notes, can facilitate disruption by reducing the previous capacities of incumbents. Therefore, any limitations placed on Google/Facebook regarding targeted advertising and data collecting may contribute to the emergence of subscription-based competitors.
Conclusion
In conclusion, the disruptive innovation hypothesis developed by Clayton Christensen is still very applicable to the state of technology today. It’s critical to recognize the blind spots created by industry leaders concentrating on their top clients. The duopoly of digital advertising appears vulnerable to competition from other business models that address growing customer concerns about content quality and data privacy. Starting from the bottom up, a journal focused on subscriptions might increase reader loyalty by aligning incentives and providing clear, concise content. Should such a product become widely available, the current digital advertising infrastructure appears susceptible to being disrupted.
References
Bischof, S., & Rudolph, T. (2021). Consumer Goods Subscriptions: How to Win in Retail in the 21st Century. In Google Books. Walter de Gruyter GmbH & Co KG. https://books.google.com/books?hl=en&lr=&id=qw1QEAAAQBAJ&oi=fnd&pg=PP5&dq=A+subscription+brand+maintains+members+through+the+provision+of+superior+content
Johnson, M. L. (2020). Disruptive Innovation and Digital Transformation: 21st Century New Growth Engines. Asmedigitalcollection.asme.org. https://asmedigitalcollection.asme.org/bep-ebooks/book/chapter-pdf/7147804/9781952538933.pdf
Kaufman, I., Horton, C., & Soltanifar, M. (2023). Digital Marketing: Integrating Strategy, Sustainability, and Purpose. In Google Books. Taylor & Francis. https://books.google.com/books?hl=en&lr=&id=AVbGEAAAQBAJ&oi=fnd&pg=PP1&dq=According+to+Emarketer
Saïd Business School. (2013). Clayton Christensen: Disruptive innovation. Www.youtube.com. https://youtu.be/rpkoCZ4vBSI?si=tcPWlwklvdSjb734
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