Why Sony did not invent the iPod

The explanation can be found in Clayton Christensen’s analysis of the innovator’s dilemma. Established companies in an industry are naturally resistant to disruptive innovation, which threatens their existing capabilities and cannibalises their existing products. A collection of all the businesses which might be transformed by disruptive innovation might at first sight appear to be a means of assembling the capabilities needed to manage change. In practice, it is a means of gathering together everyone who has an incentive to resist change.

The executives of music companies, film studios and book publishers did not rush to embrace the opportunities offered by new channels of distribution. They saw these technological developments as threats to well established business models in which they had large personal and corporate investments. And they were right to think this. So convergence was accomplished by groups such as Apple and Amazon, which had no similar vested interests to oppose change. These companies succeeded precisely because they were outsiders.

Economic growth is held back by industries where established interests are so powerful that disruptive innovation can be staved off for ever. Financial services is probably one. And education another. I think often of the contrast between the power of information technology to transform the process of learning, and the little progress that has been made towards actually doing so.

Buy an incumbent, become an incumbent.

The telecoms industry and a dual-dilemma problem

Thinking about this more today, I’ve realised that my view can be explained quite simply. The telecom industry is (as far as I can tell) the first to face two classical “dilemmas” simultaneously:

  • The Innovator’s Dilemma: The title of Clayton Christensen’s seminal book on disruptive innovation (from which I take a great deal of inspiration, including my company name). It refers to well-managed, profitable companies watching disaster unfold, as they ignore a low-cost / low-profit new technology because it targets only adjacent markets, and would threaten cannibalisation if applied to their own. But it improves over time, gaining strength and scale, and eventually kills them anyway, as it expands from adjacencies to core.
  • The Prisoner’s Dilemma: This is a famous thought-experiment applying “game theory” to collaboration and cooperation. Do two prisoners remain silent & complicit – both receiving short sentences – or does one frame the other, going free while the other languishes in jail? Or, if both try to betray each other, they both get long sentences. (Edit: Martin Geddes has pointed out the different game if you change the apostophe to prisoners’ dilemma)