Strategy 101: Characteristics Of Disruptive Technologies — Wii has bad graphics!

I’m always amazed to hear what kids pick up from conversations, TV shows, books, friends, … Recently I heard my 9-year-old tell his friend that the Nintendo Wii has “bad graphics”, but he doesn’t care as he enjoys the games. Turns out he was repeating what he heard during a game console comparison on Cartoon Network. The source of this propaganda is irrelevant, but it gives us an opportunity to discuss the characteristics of disruptive innovations.

Clayton Christensen first defined the concept of disruptive technologies in his book The Innovator’s Dilemma: The Revolutionary Book that Will Change the Way You Do Business (Collins Business Essentials). The concepts that he described have become the reference work on disruptive technologies, particularly for large and established firms. Christensen defined disruptive products as follows.

First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies.

I am a fan of James Burke‘s PBS TV series Connections (Connections 1, Connections 2 DVD Set, Connections, Vol. 3). In his shows, he explains disruptions occurring from coincidental inventions, changes in regulations and society, exploding demand for new products as well as growth in complementary technologies created through strange connections. With that broader context, it is possible to further define disruptive technologies and products as follows.

• They create new markets and customer segments that previously did not exist or were thought unattainable;
• They initially target underserved customers;
• They are perceived as inferior by existing mainstream customers;
• They attract early adopters and create loyal followers as they offer new performance vectors previously unmet;
• They reduce complexity and are simpler in design and easier to use;
• They specifically target breakthrough improvement in a new performance vector;
• They can require a new business model or distribution method;

Nintendo’s focus has been continuous improvement of customer experience through innovative products, such as the release of Nintendogs that enabled gamers to train virtual puppies. They also made it to the Forbes‘ list of The Top 10 Disrupters Of 2006. With the introduction of Nintendo Wii, they have seriously impacted the status quo of console videogaming especially from the perspective of how, who and why:

• how we interact with the virtual world of gaming;
• who plays with these games;
• why we play them;

With that, Wii certainly had a disruptive impact on the society and its ecosystem, which not only enabled Nintendo to change the way it competes, but also enable revenue growth through new high-value customers that was previously not attainable. It is important to note that even the name Wii was chosen to bring a sense of inclusiveness and togetherness.

Many hard-core mainstream customers might disagree that we reached a point of diminishing returns in graphics. As Sony and Microsoft concentrate on more graphics power and beefier consoles, Nintendo is focusing on changing the rules of the game by coloring outside the lines. With the motion-sensing controller, they are redefining how we interact with video games where the players take a very active part in the game, and burning calories in the process. I was personally surprised to see how entertaining Mario Party 8 is for both the players and the spectators. As the games are more interactive, parents are more willing to let their kids play the video games, and also more likely to play along.

With more graphics power and beefier consoles, Sony and Microsoft are leading the pack with more realistic graphics which are also more complex in nature. For me it is a challenge to remember all the push buttons and movements on a controller. However, Nintendo Wii’s motion-sensing controller broke down barriers by removing complexity in playing games. It made real life games, such as tennis, boxing, baseball, more fun and simple to play, thereby entering into a market, ages over 35, that was not accessible to the videogaming industry previously. Today, it is not unheard of for grandparents to buy a Wii system for themselves after playing with their grand kids.

Nintendo Wii is also opening up doors to new uses beyond gaming. Glenrose Rehabilitation hospital in Canada is using the consoles to help patients with movement and balance issues. Wii Big Brain Academy enabling all ages to participate and keep brain sharp, but also connect with WiiConnect24 to network and measure how they are doing against other kids. The educational and health-care arena is a new market previously untapped by the videogaming industry.

Nintendo has proven the validity of motion-sensing and control technology. With that, we’ll see rise of new markets and industries utilizing the motion-sensing technology, where it will be embedded into everyday technology from cell phones, TV remote controls, computers, cars …

So, when is it important for you to look for disruption in your product lines and technologies?

• Your definition of competition has been to match competitors functionality and feature set. You feel like you are fighting them in their battlefield and not making any headway towards the hill. So, it is time to look for a new hill with your own rules.
• Your mainstream customers are more interested in price than feature set or functionality. They are starting to highlight good-enough products that are cheaper from your competitors.
• You are praying for a miracle and your growth is mainly driven through mergers and acquisitions.
• You are noticing and dismissing new entrants that are penetrating your market through your under-served customers.
• You lost touch with your lead users and have been stuck in a never ending cycle of continuos improvement.
• Your market is shrinking, yet there is clearly untapped markets and customers to be reached.

Ultimately the powerful disruptive innovations are about the people. It is not as much about the impact they may have on industries or markets, but how they transform our lives. Just think back to the introduction of glucose meters and how they improved the lives of diabetics, or iPod/iTunes on how we listen to our music, or blogging technology and YouTube on enabling anyone to become the content creator and publisher, or Internet enabling globalization. Anyone, any where, any age, any skill-level now have access to the products and technologies, inexpensively, easily without dealing with the previous complexity.

There is obviously more to disruptive technologies than what we just discussed. Though the risks are high and the immediate return on investment is not obvious, with well planned technology/product management, clear focus on customer and good timing the results can be spectacular.

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