Low-end does not equal Low-end Disruption

Clayton Christensen outlines several rules as a litmus test to check whether certain strategies qualify as low-end disruptions. These are described together with some examples in his book “The Innovator’s Solution: Creating and Sustaining Successful Growth”, which is viewable on Google Books (although I highly recommend purchasing the book).

Although many people are aware that low-end disruptions can occur when the performance of the current technology is overshooting the mainstream, that is hardly sufficient. There are several more important tests which are just as important, but are often left out.

Here I want to review those which I think are critical.

1. If it is to be a low-end disruption, customers in the low-end of the current market must be over-served.
2. The disruptor must be able to earn attractive returns at the low-end prices.
3. If it is to be a new-market disruption, it has to compete against non-consumption. That means that a large untapped market exists which can be targeted with the new product.
4. The disruption must be so that the incumbents are motivated to flee upmarket.

In my discussion on Chromebooks, I argue that Chromebooks cannot be a low-end disruption nor new-market disruption;

1. Low-end Wintel laptops are virtually identical hardware-wise to Chromebooks except for storage (HD vs. SSD). The firms that produce the hardware are also the same. Hence Chromebooks do not allow attractive returns compared to Wintel (price differences simply reflect the OS price). Additionally, price wars have already begun making profits elusive.
2. The price difference or simplicity difference of Chromebooks compared to Wintel is not very significant. Certainly not significant enough to tap non-consumption, except in the most price-conscious markets.
3. Microsoft has traditionally aggressively pursued the low-end. Intel similarly targets the low-end with Atom and Celeron. It is unlikely that they will be motivated to flee upmarket.

In my discussion of Windows phone, I argue that Windows phone could be a low-end/new-market disruption because apparently Windows phone can run better on low-end hardware compared to Android, thus giving Windows phone the possibility to earn attractive returns at lower prices.

Android 4.4 KitKat has been reengineered to work better on low-spec phones to address this vulnerability, but until Samsung comes out with a low-end KitKat phone, low-end Windows phones will continue to thrive. The success of Windows phone largely rests on whether or not Google has really managed to get KitKat to work well on low-end phones. Given that Android up till now has always required more resources than iOS, even with Googles technical prowess, I don’t really know the answer.

Additionally, looking at MS-Office vs. Google Docs, it is evident that Google Docs is trying to be a low-end disruptor. The issue is that MS-Office is very much a standard file-format, and hence even low-end users require MS-Office. Unless the user is technically skilled enough to be comfortable with fixing format incompatibilities, they will take the safe route which is staying with MS-Office. The issue is not whether the low-end of the current market is over-served by MS-Office features. Instead, we should look at file-format compatibility. 100% file-format compatibility is something that most corporate customers require, and it is hence not over-serving in any way.

It is important to note that Microsoft is willing to bundle MS-Office at a low price for Windows 8. They really don’t like giving up the low-end.

To summarize, I have described why I think that a lot of the potential low-end disruptions that are being discussed on the web simply do not pass the litmus-test as described by Clayton Christensen. Windows phone might have a chance, not because Google is fleeing upmarket, but because it might take too much time until Android KitKat is ready for low-end phones.