Hi Jim. Because you have been kind to me with your positive comments, I will do my best to answer your question. However, I am no Answer Man and no expert on Clayton Christensen. I have read his book two or three times and a few of his papers, but I still could not make my living giving a decent spontaneous lecture on his work. I think that most of what I will write here is already either explicit or implicit in what I have written about Qualcomm.
I break your question into three parts and end with a despairing note and a plea for no more general questions.
1. In comparison to TDMA, is Qualcomm’s CDMA a disruptive innovation?
No.
Qualcomm’s innovation of the CDMA commercialization of spread spectrum was a discontinuous innovation, compared to first-generation AMPS, but it was not a disruptive one. The introduction of CDMA was a play on its advanced performance in comparison to 2G TDMA. You may recall that Dr. Jacob’s claim of 40 times greater spectral efficiency than AMPS was ridiculed as violating the laws of physics. However, his claim was based on sound scientific theory, and the successful commercialization of CDMA enabled a discontinuous advance in performance over time. “Discontinuous” is used to mean, at least, a 10 times improvement in performance, and Qualcomm’s CDMA2000 efficiency is rapidly approaching 40 times that of AMPS.
The heart of Clayton Christensen’s concept of disruptive technologies contrasts the normal trajectories of performance of a present-day technology with that of a new technology that initially has less advanced performance. However, this simpler, cheaper, less powerful innovation may possess a rapidly accelerating trajectory that can eventually become disruptive, causing great business to fail, when the market no longer needs the older companies continued advance along its normal trajectory, of, say, speed as measured by MIPs. The present-day technology’s advance eventually overshoots existing needs. Who needs more MIPs on their PCs, except the most demanding customers of games and the like, when the majority of customers simply want to surf the Internet. In time, you may be able to surf the net on a PDA or handset.
The vulnerability to disruption begins whenever the advance of a technology along its normal trajectories of performance begins to outstrip the present-day needs of its various tiers of customers. Existing firms become vulnerable to massive disruption when its normal technology trajectory, which is measured by a metric that assesses performance advances through time, starts to overshoot the needs of even its most-demanding customers. That is, although the established company’s business proposition has profited for many years from continued advances in performance and from tight integration within the system to meet the needs of their most demanding customers, they now find that, for their customers, the latest version was simply good enough. Think of Microsoft Word and whether its continuing advances are necessary to meet your needs for a writing application. Do you want more features or is it Word good enough now?
According to Christensen, a disruptive technology is usually cheaper, simpler, and more convenient for customers in a niche-market where a service or product meets a specific relevant need. For example, SONY found that a small battery-operated radio using transistors rather than vacuum tubes met the needs of teenagers who wanted to listen to pop music.
This niche-market is not necessarily competitive with the established firm, being too small and relatively insignificant or simply different from its present value proposition. However, the disruptive technologies normal trajectories of performance may advance rapidly until its performance begins to meet the needs of the least-demanding customers in the established firm’s markets. If so, disruption has begun.
For disruption to occur, the combination of (a) different rates of advance in performance between a present-day technology and a new cheaper, simpler, less developed technology that accelerates more rapidly through time and (b) the ability to segment the market and initially attack from below in what is becoming an over-served market seem to me to be decisive in producing a disruption.
If you want a variable to measure in hope of predicting where and when a disruption might occur, it would be the relative rates of advance in each technology along a shared normal (“normal” contrasts with “paradigm shifts” as in Thomas Kuhn’s “Structure of Scientific Revolutions”) trajectory of performance like increasing price to performance ratios over time. Christensen crosses these two rates of advance with a conception of what a mainstream market can absorb or knows how to use. This assumes that competing technologies meet similar needs in the market. In effect, this means that both technologies eventually become competing substitutes within a mass market.
Christensen discusses how demands for performance are replaced by needs for reliability, convenience, and cost reductions. But, although many markets show this progression over time, I am not sure that this idea is a necessary part of his disruptive thesis. It might just be a secondary outcome of an overshooting disruption in a primary function and that evokes the emergence of secondary needs as criteria in a competition. But, Christensen does the best job of explaining his ideas, and I represent no disruptive force here to his valuable ideas. I am not sure that I have my mind around all of his ideas, which is one reason that I do not want to play Answer Man.
Without meaning any disrespect to Christensen or to his seminal contribution, in my less than expert opinion, Christensen was exceptionally systematic in gathering empirical data to support his major ideas, and then he successively broadened the evidence for his thesis by analyzing several other industries to generalize the idea of his disruptive thesis. However, when I read his Newsletter, I do not believe that either he or his theory are precise when his concepts are applied to analyze contemporary competitions among real world companies. That is to say that, in my opinion, he is a better theorist than analyst. (Although, I must add that I would say the same for me, and I am in the bush leagues compared to Christensen’s renowned success. (gg) )
I believe that he tries to do too much with too few concepts, which are excellent in their domain, but are not a systematically inclusive set of concepts. For example, Carliss Baldwin and Kim Clark (2000) have developed a theory about the power of modularity that adds concepts stemming in part from John Holland’s ideas about complex adaptive systems that may offer a better set of analytic concepts for looking at changes within the computer industry to explain the dis-integration of the computer into horizontal companies. I find their approach to be more complete and incisive than the Christensen idea that the need for integration gives way to a market in modular components after overshooting the needs of customers. Some day I will write more about this.
2. Is wireless telephony disruptive of wireline telephony?
Yes.
It may well prove to be disruptive in the last mile where existing systems have not been built out. It is cheaper and more convenient to use. Wireless has advanced in performance until it meets the needs of the mass market of customers.
3. Is the handset disruptive of PCs?
Perhaps.
Think of how advanced PC performance now exceeds the needs of all customers who surf the net, but still satisfies the needs of its most demanding customers, say, game players. This signals the potential for a disruption in the lower tiers of its market. Also, you might also notice that the PC market has been somewhat disrupted by laptops, whose contemporary performance has been lagging behind the desktop computer. The handset lags the performance of PCs by a still larger margin than laptops, but the rate of progress in laptops and handsets tends to close that gap. This means that mobility, which shifts the nature of the game by introducing “either ‘toteable’ or ‘always with you’ functionality” produces a discontinuity in what need it satisfies, trading off more convenience for less advanced functionality. Given the possibility of always on connectivity, mobility becomes a valued and relevant need of most customers. Also, the advance along the normal miniaturization and mobility trajectories of performance has proven to be powerful across all consumer electronics from handsets to handheld game boys to MP3 music, cameras, and TVs.
I contend that in a country like India where the PC has not penetrated the mass market enough to reach critical mass that wireless terminals may prove to be disruptive, given the continuing development of useful mobile software applications. Mobile handsets may be the path to many useful data services or to the Internet in India or even China. Or, it might be PDAs or tablets with CDMA chipsets.
Mobility or miniaturization are discontinuous trajectories of performance in comparison to a desktop PC’s power and speed that could be disruptive, or these advances may simply be an entry point for a critical mass of laptops that replace the PC. It all depends on the rate of augmentation in user interfaces and data entry or the like. If voice recognition advances rapidly enough, it is the most convenient, but typing works and might continue to work as virtually projected keyboards.
No one really knows because these various rates in the trajectories of advance are too difficult to predict with any accuracy. Also, we never know when the next breakthrough idea will change the nature of the game.
The Despair. Although I have noticed that you sometimes ask general questions, Jim, which are intended, I assume, to stimulate discussions on the board, I also wonder if my thesis has been clear. Because, it is not a disruptive one. You say that you are getting behind and having difficulty absorbing things. Yes, I can understand that, and I am afraid that many readers may feel the same.
This is my despair:
My argument for Qualcomm is in no way predicated on a disruptive thesis. In a nutshell, the case I make is anchored in a series of three discontinuous innovations derived from breakthrough ideas that become strategic control points within the architecture of a mobile communication system. The competition is set in the context of two standards wars. The superior performance inherent in the architecture of spread spectrum provides a significant competitive advantage using the breakthrough idea of power control. In the 2G standards war, commercialization in the U.S. and particularly in Asia was strategically essential. What Qualcomm offered was a chance for Asia to profit from this telecommunication wave.
The optimization of spread spectrum for high data rates rather than voice adds to the earlier competitive advantage of Qualcomm, given the ongoing shift from digital voice to digital data.
The natural evolution to a 3G architecture along normal trajectories of performance was a massive advantage for Qualcomm compared to the swap-out required in moving from GSM to WCDMA spread spectrum. Also, it is demonstrating that Qualcomm had the necessary integrated learning base in spread spectrum, but Europe did not.
The harmonization of competing standards in world phones both enlarges the market and increases Qualcomm’s market share. It is a strategy that can create global preemption.
Augmenting the platform introduces the value chain’s power that stimulates replacement sales within the consumer electronics’ model. The value chain adds significant value, some of which lodges in the crucial architectural interface, spread spectrum RF, that Qualcomm controls.
The rollout of massive markets in Asia produce the economies of scale and demand for CDMA that ignites critical mass and a corresponding inflection point in sales. European mindshare and the argument that WCDMA will control 80% of the 3G-market collapses from this irrefutable evidence of the market’s choice.
A Plea. After leaving the Ivory Towers, I am happy sitting in my Sky Castle reading, learning, thinking and writing. I read and write whatever interests me at the moment. I am not the Answer Man. I prefer to write essays after I get my mind around a set of interesting ideas. I learned a great deal reading on this board and elsewhere about Qualcomm. I wrote a lot of what I learned down. Perhaps, more than anyone wants to read and in a way that not all can understand. I am excerpting it for you. I do not have all of the answers. I am not very impressed with myself as an investor. I simply hope that some of my ideas help.
Once, when I was receiving a (relatively minor) scientific award, one of my former students introduced and lauded me. I was pleased when she said, “Don is very generous with his ideas.” I try to be. Here I offer my ideas. Please don’t impose on my generosity. I seem always to want to answer with an essay. This keeps an aging man awake at night, thinking when he should be sleeping. I do not want to debate my ideas; it distresses me to do so. That costs me more sleep. The distress too often gives way to anger, which often leads me to humiliate myself.
I confess that I am a mess and find it difficult, as all doctors do, to heal myself. Please give me a break here. Just let my do my essay thing. This is a hobby, not my vocation. I am retired and have gladly left the fierce intellectual competitions behind. I want only to keep the parts of my intellectual life that I enjoy. If you like what I do, let me know, as Jim does. If you must be a critic, be gentle.
Nonetheless, I hope this helps.
Don |
