Technology evolution or revolution

10 May 2016

The business world is after disruptive business innovations. While there is debate as to the definition of disruptive innovations (see HBR article), the definition is not so relevant in practice. The more relevant question is whether a new innovation opens opportunities for new companies and is a fatal threat to old business.

We can also phrase the question as; is an innovation an evolution or a revolution? Startups typically have a dream of a change that is a revolution, and incumbents want it to be only an evolution. How about Apple, Google and Tesla, have they started a revolution?

We can say Apple and Google changed the handset business. Google changed the online advertising business. Amazon changed the bookstore business. We can say they have been revolutions. But 3G and 4G have been more like evolution for the carrier business. How we can really tell a difference between those?

Let’s think Tesla. It makes electric cars. But is a new type of engine a revolution, or is it just an evolution for the car industry? We have seen evolution in the engine technology for 100 years. Is a self-driving car an evolution or a revolution? Maybe combining self-driving cars and an Uber type service, car-as-a-service, is the real revolution?

How can we better understand when a new innovation really changes the business, and represents a revolution and threat to incumbent companies? I have written earlier about about Digital competence and API ecosystems. They are about technology, but the reason why they are a revolution is that they are not only technology, they change the business models and business logic of entire industries.

For example, in fintech it is just an evolution to get a new technology platform for online banking services, but a revolution changes the role of banks and more generally the value chain within the very roles in it. Depending on their own position, companies see new technologies in different way. Banks want to utilize blockchain to have better database solutions, and startups want to use blockchain to destroy the positions of banks with new business models.

Apple didn’t just make a better phone than Nokia, they created the App Store and content business for third parties. Google created a new model to sell and price online ads in its search engine with key words, clicks and auctions. Amazon cut the middle-men from the book sales value chain and offered a new customer experience.

When a new innovation emerges, incumbent companies often see it is just a new piece of technology, and they can utilize it with their old business model. I worked for Nokia in the late 1990’s and I had to make a strategy for new technology that was emerging to our business area. It was almost forbidden to say that it could change the business and its fundamentals. I tried to be smart and named the strategy “Evolution to revolution,” because to speak only of the revolution and a threat would have been politically incorrect internally.

Let’s go back to Tesla. The company has done excellent work with marketing and created hype in the early adopter communities. Now it is getting a lot of pre-orders for a new model that just comes out after a couple of years. And it is probably a great car. But the much bigger thing that is happening in transportation is self-driving cars and car-as-a-service. We can definitely see a real revolution in transportation. I won’t order anything that I will only receive after two years at the moment, when the industry can change totally in a few years. Tesla leads the evolution, but who will win the revolution?

Maybe we can say startups want to over-estimate the impact of a new innovation and incumbent players want to under-estimate it. But we can conclude that both are making a mistake if they think a new technology alone changes anything significantly. New big things also include new customers, new customer experience, new business model, changes in the value chain and new division of commodity and value-added components. Those who want to make a revolution must change fundamentals, not just improve things.

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