By Sanchita Tibrewal
The tech arena has experienced a relentless unfolding of breakthroughs, and unicorn startups are leading the path of disruptive innovation. Disruption or disruptive innovation, coined by Clayton Christensen, is the process by which an underrated product or service creates a new market and popularises enough to displace an existing market. The phenomenon’s implications are wide-spread and undeniably evident; large institutions such as KPMG have established ‘Innovation Labs’ to monitor disruption across industries, while the individual consumer is faced with, for example, a plethora of streaming platforms ranging from Netflix, Amazon Prime, to Hulu – a significant upgrade from limited options of cable TV and Blockbuster within merely a decade.
The concept of disruptive innovation is hardly new; historic parallels can be found in Schumpeter’s theory of innovation, dating back to the mid-1990s. As firms grapple with external disruptions and strive to maintain their competitive ground, an incredibly interesting corollary of fast-paced innovation is self-cannibalism within businesses. Self-cannibalism occurs when a company’s new line of products crowd out their existing products. Self-cannibalism or market-cannibalism can be done strategically and proactively but can also be a bitter unintended consequence. If done right, it can renew a firm’s competitive advantage and introduce a brand new value proposition – both essential to survive in a world of disruption.
The most common and notable example of successful self-cannibalism goes back to Apple’s introduction of the iPod Nano when the company’s Pod mini sales were soaring. This was ensued by the iPhone launch, which immediately made Apple’s leading iPod series, obsolete. The iPhone provided users with a device that carried out the same functions as the iPod and so much more. Similarly, a few years later, the launch of the iPad receded revenue from the Macbook. Needless to say, these difficult but ultimately fruitful choices let Apple evolve from solely being the best music-device manufacturer to a market leader for every consumer technology product. However, not every company is able to undertake the tough decision of destroying its very own sustenance in pursuit of uncertain success. For instance, think how Blockbuster declined offers to Netflix, citing it was a niche platform.
A recent firm that has made the headlines for its strategic development and possible self-cannibalism is Tesla. In the quarter ending 30th September, Tesla delivered 139K vehicles of which approximately 90% were the $35k+ Model 3 and $50k+ Model Y as compared to the older $75k+ Model X or S. The graph below clearly shows the shift in consumer demand and deliveries over the last 8 years. Given that Tesla is relatively young, only slowly realizing economies of scale, it is hard to distinguish if the firm is engaging in self-cannibalism or simply making its products available to the masses. Regardless, much like every move Tesla has made in the past years, it is paving the way revolutionizing its business model and space with its fan following backing every product even before getting their hands on it.
Strategic self-cannibalism can generate crucial long-term benefits, but requires accuracy in foresight and timing; sometimes the pursuit of self-cannibalism doesn’t execute as expected and can instead result in a social phenomenon called the Osborne Effect. The Osborne Effect occurs when customers cancel or defer orders of an existing soon-to-be obsolete product due to a firm’s premature announcement of newer products. It was coined after Osborne Computers Corp. in the 80s announced a successor to their most competitive product that they couldn’t deliver for months. The firm was unable to ever recover from the losses.
Given that the Osborne Effect is purely based on timing and death by pre-announcement, it is only one of many unintended negative consequences of a firm’s attempts to stay relevant through self-cannibalism. With disruptive innovation occurring faster than ever before, firms are incessantly grappling with external and internal forces to survive. Between these two, strategic business development is a high-stakes game only a select few win. However, for the consumer, it means infinite choices for most possible needs. Perhaps this is what Adam Smith meant by a free market? □
Work Cited
- Image source
- Tesla cannibalized itself – Robinhood Snacks. (n.d.). Retrieved from https://snacks.robinhood.com/newsletters/7di9bYkP6XBYN4iFIJfNlp/
- History of Tesla, Inc. (2020, October 13). Retrieved from https://en.wikipedia.org/wiki/History_of_Tesla,_Inc.#Timeline_of_production_and_sales
- Howard Yu and Thomas W. Malnight. (2016, July 14). The Best Companies Aren’t Afraid to Replace Their Most Profitable Products. Retrieved from https://hbr.org/2016/07/the-best-companies-arent-afraid-to-replace-their-most-profitable-products
- Moore, M. (2016, April 27). Apple’s sales decline as a result of lacking ‘self-cannibalism’. Retrieved from https://sdtimes.com/apple/apples-sales-decline-result-lacking-self-cannibalism/
- Says, O. P. (2016, March 28). Disruptive Innovation cartoon: Marketoonist: Tom Fishburne. Retrieved from https://marketoonist.com/2016/03/disruptive.html
- Thom JordanFollowManaging Director at Rocket Wagon Venture Studios……….IoT – Telco – Datacenter – Martech – Blockchain – TetrisLike42Comment6ShareLinkedInFacebookTwitter0. (n.d.). Cannibalism is key to Innovation. Retrieved from https://www.linkedin.com/pulse/cannibalism-key-innovation-thom-jordan/
- What Is Disruption, Really? 8 Examples and What to Learn From Them. (n.d.). Retrieved from https://www.startupgrind.com/blog/what-is-disruption-really-8-examples-and-what-to-learn-from-them/
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