Last week Google sent shockwaves through the technology world when it announced plans to introduce an operating system in fall 2010. Pundits quickly termed Chrome OS "classic disruptive innovation" that promised to up-end historic market leader Microsoft. Do the pundits have it right?
Harvard Business School Professor and Innosight co-founder Clayton Christensen coined the term "disruptive innovation" to describe a pattern he observed across a range of industries where an entrant would transform what existed or create what didn't through simplicity, convenience, affordability, and accessibility.
Recent disruptive innovations include Nintendo's Wii gaming console, General Electric's $2,500 echocardiograph machine and Tata's $3,000 nano automobile.
At Innosight, we've helped dozens of companies recognize and respond to disruptive developments, and we've developed a straightforward set of tests to assess a strategy's disruptive potential. Running Chrome OS through the assessment suggests significant disruptive potential -- but some real questions as well.
The first part of the assessment looks at the degree to which the would-be disruptor has picked an appropriate "foothold" approach to start their disruptive march.
Google's planned foothold in the netbook market fits the three characteristics common to high-potential disruptors:
- Google plans to start away from the market's mainstream. While the netbook market is growing rapidly, it remains tiny compared to the more established laptop and desktop markets that constitute the core of Microsoft's business
- Chrome will intentionally sacrifice raw performance to give customers something simpler, more accessible, and more affordable. Google doesn't plan to try to match Microsoft feature for feature. Rather, it is designing a system from the ground up, optimized for netbook-friendly operations like Web browsing.
- Google is following a business model that looks unappealing to the market leader. Microsoft makes good margins selling its operating system. Google is likely either to sell its operating system at sharply lower rates, or to give it away, because its strategy is built around getting more people on the Web to increase exposure to Google-powered advertisements.
So far so good. The next part of the assessment looks at the potential for the disruption to progress from its foothold. Is there a clear path for the entrant to expand its business? And will the market leader ignore or -- better yet -- run away from the entrant?
Here there are some troubling signs. First, while there certainly are conceptual opportunities for Google to build a sizable business in the netbook category or expand into other categories, there are legitimate questions about the company's ability to seize those opportunities.
Despite the hype about Google's innovation prowess, the company hasn't proven that it can build sustainable new growth businesses. After all, more than 95 percent of its revenues traces back to its core search advertising model. Recent reports suggest Google is trying to fix this problem with a more disciplined approach to innovation. Chrome will be a crucial test of this approach.
Second, there is every reason to expect that Microsoft will fight fiercely for the netbook market. In an ideal disruptive circumstance, the market leader either ignores the disruption because it is too small to matter, or it decides to cede what appears to be unimportant low-margin business in order to focus on more attractive opportunities up market.
As the pattern of disruptive innovation has become increasingly clear, companies like Intel, Dow Corning, ING, and General Electric have demonstrated how to organize and execute in a way that allows incumbents to "catch" disruptions emerging in their markets' peripheries.
Microsoft seems poised to join this list. The company has made significant strides in the netbook market. Its hotly anticipated Windows 7 operating system will have a de-featured netbook-specific offering.
One cautionary note: Microsoft appears to be approaching the netbook market in a defensive way. In other words, its strategy appears to be centered on protecting its core business in more demanding market segments. Winning against Google -- and Intel, who is also emerging as a competitor in the operating system space through its efforts in the "Moblin" coalition-- requires Microsoft to flip its strategy and plays offense.
Disruption isn't pre-ordained. It depends on the choices made by the disruptor and the company that faces the disruption. My current bet is that Chrome OS ends up being less of the "nuclear bomb" proclaimed by one pundit and more of a nuisance -- unless Google overcomes its historical struggles to scale non-search advertising businesses and Microsoft slips back on its heels to a more defensive posture.
Scott D. Anthony is the president of Innosight, an innovation consulting company, and the author of The Silver Lining: An Innovation Playbook for Uncertain Times (Harvard Business Press, 2009) and the Innovation Insights blog.