The notion of first-mover advantage is often overstated. Pioneers of radical innovations seldom dominate the markets they create. Instead, established corporations with the resources and mindset to scale niche products into mass markets reap the major profits. Therefore, corporations should focus on consolidating results generated by start-ups rather than developing radical innovations themselves. This model, already successful in creative industries, should be adopted across various sectors. For instance, Ford, Procter & Gamble, and General Electric did not create their respective markets, but they capitalized on them, demonstrating that latecomers often outperform pioneers in new markets.
Revolutionary markets, those novel consumer landscapes shaped by the advent of new technologies or innovations, have significantly proliferated over the past half-century. This trend, expected to continue, underscores the importance of understanding the origins of new markets, their defining characteristics, and the strategies for thriving within them. Innovations, the catalysts for these markets, can be broadly categorized into four types: incremental, major, strategic, and radical. Incremental innovations involve enhancements to existing technology, such as the integration of four-wheel drive in passenger vehicles. Major innovations introduce novel technologies that leverage the competencies of established market companies, like online banking. Strategic innovations combine a unique business model with minor product modifications, enabling new customer tasks, as seen in online brokerage services. Radical innovations, however, are those that introduce a disruptive customer value proposition, creating entirely new markets and rendering the competencies of existing competitors obsolete. Over the last fifty years, radical innovations have given rise to markets for products such as television, personal computers, mobile phones, and medical diagnostic imaging. These innovations are disruptive, necessitating changes in consumer habits and devaluing existing producer competencies. The creation and destruction of markets involve significant adjustment costs, and interestingly, radical innovations are often not demand-driven but result from a supply-push process. Developers create products that interest them, hoping demand will follow. This supply-push characteristic means that many radical innovations initially appear as fortunate accidents, following a trajectory common to many products. The race to market these innovations occurs in scientific laboratories, focusing on the technology rather than the markets they might create. With science driving early action, a plethora of ideas targeting specific niches emerges. These innovations are typically underdeveloped, given the uncertainty about consumer preferences, leading to a disorganized and confused market introduction. Since these products do not meet a well-defined need, substantial consumer uptake is slow, evolving with experience and further product development. This slow start provides opportunities for other companies to enter the market. Initially, radical innovations appear as a cluster of niche products, with considerable debate about their appearance and function. Many ideas are tested to see what resonates with consumers. The evolution of the U.S. car manufacturing industry illustrates this process well. Between 1885 and 1910, hundreds of firms entered the industry, offering a wide variety of car types and features. However, this wave of new entrants eventually subsided, leading to a significant industry shakeout when a "dominant design" emerged. This design set the standard for the product and its core features, defining performance levels and customer expectations. The emergence of a dominant design allows a mass market to form, providing substantial first-mover advantages to the firm that offers it. Yet, history shows that firms securing the dominant design rarely dominate the market they create. Firms in these emerging markets can be classified as "colonizers" or "consolidators." Colonizers excel at exploring new technology and creating market niches, while consolidators segment the market, scale up manufacturing, and market the products to create a mass market. The skill sets, competencies, mindsets, and attitudes required for successful colonization are almost the complete opposite of those needed for consolidation. Attempts to encourage established enterprises to adopt more entrepreneurial approaches often clash with the cultures needed for consolidation, which are diametrically opposed to those conducive to colonization. Given these challenges, a more effective strategy for established companies might be to outsource technology development to startups, which possess the necessary skills and attitudes. This approach allows established firms to access innovative ideas and scale them for the mass market, leveraging their strengths in a way that is more likely to succeed than trying to instill a culture of innovation within a large, established corporation. This strategy not only benefits the established firms by providing them with access to innovative products but also supports startups by offering a pathway to scale their innovations.
book.moreChapters
