Innovator's Dilemma

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Hod Lipson and Melba Kurman:

"the Innovator’s Dilemma, Clay Christensen describes the cyclical rise and fall of mature, industry-leading companies that at first, enjoy market dominance, and then again and again, fall into sudden obsolescence. The force that pulls powerful, well-managed companies to their knees is not, as typically believed, poor management or brain drain. Instead, powerful market-leading companies falter because they are defeated by the innovator’s dilemma: sales of their once cuttingedge, feature-rich, market-leading incumbent product are cannibalized by cheaper simpler products which Christensen calls “disruptive technologies.”

A disruptive technology is not the most sophisticated or highest performing technology. Instead, a disruptive technology is a lower-cost product, or commodity product, that has fewer features but is cheap and considered “good enough” by at first, fringe users, and eventually, by mainstream users. The lifecycle of companies felled by the innovator’s dilemma is as follows: a tech company painstakingly develops and improves their product according to ongoing feedback from their most lucrative customers. Although the incumbent company does everything right according to conventional business wisdom, its market dominance can’t last forever.

Eventually, a small company appears on the scene that presents a disruptive technology to the marketplace. The disruptive technology at first, appeals only to smaller customers who can’t pay for, or don’t need the incumbent company’s expensive, feature-rich product.

The underdog business selling their disruptive technology continues to develop its product and eventually moves up market as their low-end technology improves to the point of being “good enough” for mainstream use, yet is significantly cheaper than the incumbent technology. Eventually, the disruptive technology cannibalizes the market from the incumbent technology, putting the putting formerly leading incumbent company out of business. Interestingly, before their demise, incumbent companies facing the innovator’s dilemma are fully aware of commodity-level competitors. In Christensen’s analysis of the phenomenon of disruptive technologies, the incumbent companies 1) already knew about the technology that eventually undercut them yet 2) chose to not do anything about it due to the small market size of potential customers and fear of cannibalizing sales of the incumbent product. In a sense, incumbent companies could be considered a victim of their own success.

We mention Christensen’s work here to call attention to the possibility that personal manufacturing technologies have the potential to disrupt the dominance of their larger, more powerful industrial cousins in the manufacturing machine marketplace. The average selling price of an industrial-scale 3D printer continues to drop. In 2007, the average cost of a commercial-scale 3D printer was $77,000; in 2008, the cost was $70,000 in 2008; in 2009, the average price dropped further, to $52,0009.