Low and High Disruption

Rich Karlgaard (Forbes) writes:

Now that the economy is expanding again, stock markets like growth companies with higher multiples. What CEO or shareholder doesn’t want a higher multiple? So the pressure in boardrooms once more is for growth. At the same time, a new force this column has termed the Cheap Revolution (e.g., the combination of cheap technology, excess capacity and Internet-based pricing arbitrage) is exerting a powerful deflationary gravity.

I may be missing something, but I can see only two general ways out of this dilemma. Call them Low Disruption and High Disruption.

Low Disruption means leveraging the Cheap Revolution for all it’s worth to introduce products and services that are stunningly cheap yet make money because their cost basis is so low. Think Google. It’s ranked third in the world in Web pages served daily. The search engine’s IT infrastructure is built entirely from Linux software and computers that are so cheap they’re junked instead of fixed. Ravi Aron, a Wharton professor, thinks Google’s cost per Web page served is ten times below the industry average.

Low Disruption is the path favored–though not always–by entrepreneurs who nimbly figure out before their established competitors do just how to harness cheap tech and global resources. In 2003 such cheap tech includes throwaway servers; open-source software; Wi-Fi; voice-over IP; radio-frequency identification chips; Web services from Salesforce.com, RightNow or the new Siebel/IBM alliance; network applications from One Network Enterprise; utility computing from Mercury Interactive; “on-demand” computing from IBM; programmers working from India; engineers from China; and Web designers from Estonia–just to name some.

High Disruption is what BMW, Mercedes and Lexus did to Cadillac and Lincoln in premium automobiles (although Cadillac, under new leadership, has fought back impressively of late). It is what Miele did to Maytag in washers and dryers. It is what Pixar is doing to Disney in animation (even as those two companies remain connected). It is what NetJets is doing to commercial carriers in the battle for first-class business travelers.

High Disruption is the act of directing a premium product or service at today’s affluent customers.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.