Thursday, June 6, 2013

"Unintentional" Market Disruption Now a Growing Possibility?

Market disruption arguably is a very different thing than “competition in a market.” The former often leads to radical reshaping of markets, typically “destroying” much of the former total addressable market revenue.

“Normal” market competition typically puts pressure on retail prices, and causes more market segmentation,  but is relatively incremental in its impact.

Even when the strategic approach is “same service, lower price,” most efforts at competition simply aim for taking some share away from existing providers.

Incumbents may not like competition, but market share shifts, margin pressure and other changes do not necessarily cause the overall market size to shrink.

On the other hand, deliberately disruptive assaults often have an indirect aim of literally destroying a market. The new issue is whether, in a world increasingly based on Internet forms of competition, unintentional market destruction can result, even when a competitor would rather “only” take some market share.

You might argue is more rational for an attacking firm to take the “same service, lower price” approach because that might stimulate overall market growth, even as it creates an opportunity for the new entrant to take market share from incumbents.

That was the tack taken by virtually all U.S. competitive local exchange carriers and is typical of U.S. cable operator assaults on the small business Internet access and voice markets.

Apple is unusual in that regard. It attacked legacy markets by providing a “better experience at a higher price.” That is relatively rare in communications markets, but well understood in many other markets such as automobiles and luxury goods of all sorts.

Still, the more common approach in the communications market is the strategy of “take market share by offering equivalent value at lower prices.”

Some assaults are deliberately disruptive, such as Skype’s attack on long distance calling, collaborative approaches to building networks such as Fon, Republic Wireless or FreedomPop approaches to the mobile business, Some might say SoftBank’s approach in the Japanese mobile market was intentionally disruptive in this sense.

Perhaps the new issue is whether disruption can occur even when market participants “only” want to protect or gain market share. One thinks of the U.S. long distance market, for example. It arguably never was MCI’s strategy to destroy long distance profits to the point where long distance ceased to be an independent product category.

But that is what happened.

More recently, Internet-based attackers have been more willing to radically disrupt pricing in markets, because radically-lower capital, marketing or operating costs make such assaults possible.
Perhaps the new issue is unexpected disruption of markets, when that was not intended.

It probably is true that most of the time, new entrants are viewed as representing only one more source of incremental competition, since the initial value proposition is quite limited, compared to that offered by the market leaders.

Of course, as now is well understood, attackers tend over time to add features and capabilities that make additional market segments take notice. Eventually there can be nearly head to head competition offered by the attacker, across market segments and price ranges.

The perhaps new angle is whether more markets are susceptible to unintentional disruption. SoftBank, for example, might originally only thought it could succeed in taking market share from other incumbents.

But one might wonder whether market disruption now is happening, whatever SoftBank originally thought it could achieve.


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