The OP, however, is quite good. In a nutshell, it argues that (1) disruption theory assumes rational actors and (2) consumers are much less rational than businesses.
ISTM that the author is not so much saying or arguing people are not rational, but that the economic definition of "rational" is missing the modeling of consumer behavior in this area. (i am not an economist.)
I think the economic notion of "rationality" actually gets a lot less credit than it deserves. While there are definitely situations in which consumers do not behave rationally (in the economic sense), they are relatively few and far between.
There are lots of situations in which consumers do not behave according to an observer's (non-economic) notion of "rationally". This is rarely a failure of economic rationality, and much more often a failure of the observer to understand the consumer's notion of utility or cost (or both).
My GF is an economist, and she takes great exception at any phraseology that describes people as irrational. As far as she's concerned, everybody is rational. See this for more details: http://mises.org/library/what-do-austrians-mean-rational
in other fora, Ben argues that the main failing of Christiansen's theory is that it was formed in an era where most tech (either by number of products or total spend) was not purchased by the end users. Now that consumers buy their own stuff, success is determined on a different set of metrics including look and feel / UX, which means that "good enough" (disruption by low end) may not ever happen.
That's a very interesting theory, but it's supported by very few examples, and the examples are pretty weak.
In the example of clothing and fashion - the consumer really buys buys psychological value(status, attention, etc), not user experience with his extra money, and i'm not sure those goods can be "good enough", because some have arms-race logic build internally(for example status).
In a sense, the same applies for the BMW - you could probably get as great car as the BMW , for much less , but the BMW holds important psychological advantages.
And as for consoles - i'm not sure we've reached "good enough" level of graphics for true gamers. When we'll reach that - it would be interesting too look at that market.
So yes, consumers aren't rational and for some thing you can never satisfy them, but i'm not certain user experience is one of those things.
> the consumer really buys buys psychological value
I think that's what the author is saying - businesses don't buy printers thinking about how the printer will make their staff feel, whereas when people buy iPhones, how they feel is a big part of the decision. The idea that I can afford to buy an excellent user experience for myself is very much part of that status value. Apple has exploited those feelings so that its design value outweighs the economies of scale that can be achieved by modularisation.
I think the important point is not that it just outweighs what can be achieved by modularisation, but that it is fundamentally more difficult to achieve using modularisation. Had that not been the case, you would expect companies that emulated the psychological value _and_ used the modularisation path to make more money than Apple would.
I think Apple's uniqueness is that it used the fact that it invented the iPhone and for quite a long time had the best user experience in it, to create a very strong brand, and even if android achieves similar user experience(some say it did in kitkat/lollipop, other say with large screen phones) ,Apple's brand advantage will still offer a huge protective moat around some segment of the population.
BTW, modularization is also supposed to offer faster time to market, and we've seen that with large screen phones and Apple's slow response to them(probably because it system was integrated ,hence harder to adopt to a different module).
The author missed that we are actually seeing significant movement towards modularization in video games -- PC gaming is/has been growing at the expense of consoles the last few years.
> the consumer really buys buys psychological value(status, attention, etc), not user experience
please explain the difference, other than what seems to be your pejorative value placed on psychology. Why would it be bad to want to feel good when using a piece of tech and prefer it over another piece of tech that is better on other metrics? Psychology (broadly stated) is the user experience.
I have no ill will towards psychology, but to my understanding ,user experience(as in "the way the product is designed") is a different thing from status, etc.
iPhone and iPod are very interesting and unique case studies in that they combine high-end differentiation (the devices, or at least the brilliant marketing-fueled perception of the devices) with low-end disruption, and with network-effect ecosystems (music, apps).
The low-end disruption is cheaper music (iPod) and cheaper computer (iPhone). Computer in that many consumers initially saw iPhone as a way to do email, web and apps without paying for separate computer and Internet.
I doubt very much that businesses are as rational as he makes them out to be. Many businesses buy extremely expensive software for completely irrational reasons or pay business consultants for obviously meaningless fluff.
The difference between consumers and businesses is that businesses that act too irrationally for too long are more likely to fail and get replaced by more rational businesses. I suspect that the statistics on rational businesses often suffer from survivor bias.
I get a little bothered when people expect pundits like CC to be right 100% of the time. If they get nit-picked too much, then people stop making predictions. And CC may indeed be correct on the iPod - it had a great run, but sales are falling through the floor. Similarly, Apple is looking great in the iPhone, but it is still under attack on the low end.
I see my kid's teen friends running around with android phones.
Also, there's something to be said for competitors catching up in terms of design. Several are catching up and forcing apple to complete on their terms - see phablets starting with samsung galaxy note.
Oddly I saw the opposite: my nephew and his friends using iOS only.
Yesterday he bought an iPad mini with his savings,
I suggested him to get an Android tablet "hey, an android will cost you 1/3", but he declined, because all his friends had invested a LOT of time on their (iOS) games.
That's exactly what you would expect if a "low end disruption" is just getting started. The low-cost disruptor picks off some but not all of the market, and doesn't immediately compete for the most attractive customers (because that fight's too hard for them at the moment).
That's what puts the incumbent in an "innovator's dilemma": do you chase the high end and high margins, and if so which high-end niches do you chase (gamers who want graphics performance, design-lovers who want a precision machined marvel of industrial design) or do you go lower cost and high volume? The latter is a race to the bottom, so the incumbents tend to pick the former and retreat up-market. It's not unusual for the incumbent's profits to increase temporarily when this happens because of their focus on the most profitable customers.
The problem is it doesn't last: the low-cost producers who are already good enough for the low end of the market continue to improve, until they become good enough for the middle of the market too, and grab more and more market share and more and more profit share. And then, looking for even more growth, they head for the top end of the market (or get disrupted themselves).
Ironically, if there wasn't an up-market to retreat to, there would be no dilemma. Android and iOS would have to compete head to head for the same customers with the same requirements (rather than one taking all the budget consumers and the other taking the gamers and others with higher requirements).
As it is, we could be seeing a low-end disruption, and the high-end consumers will be the last to notice.
The thing you’ve gotten wrong with wrong the “design lovers” you mentioned is that Apple’s customer base are entirely those quote-unquote design lovers who happen to be just normal consumers.
The entire point of the article is that competing on user experience pretty much side-steps the whole theory of low-end disruption.
I understood the article, thanks. I'm just not convinced.
The debate hinges on this: is UX a special basis of competition that can't be disrupted? Will consumers pay a premium for better UX forever? Will the cheaper alternative never be "good enough"? Won't people put up with a few minor annoyances? What if it saves them money?
I think UX is a hygiene factor: when it's bad it annoys you to the point where you do something about it, but when UX is good enough, most people start worrying about other things.
That's different from design: I think some people will continue to pay a premium because they love Jony Ive designs and they can afford it. And some will pay for a status symbol. And some will need the performance. But none of that is the mass market.
Android has been "good enough" for millions of people.
From their ugly start to Lollipop, they have been good enough for many people to choose Android as their primary platform.
This is similar to many of Christensen examples, such as the mini mills disrupting "Big Steel" companies by providing "good enough" cheap steel, and slowly but steadily getting better and better.
Android right now is in that phase, getting better and better, and now is as good, if not better, than iOS.
Samsung had an awful 2014. They have had some real set backs.
I read recently that Apple had a 5 inch prototype built in the iphone4 but it was not a compelling product at the time. Nothing is as clear cut as "Samsung forced apple into competing on screen size".
He was absolutely right about the iPod, except that the company that disrupted Apple was Apple. Jobs ostensibly was "deeply influenced" by "The Innovator's Dilemma," so it's not inconceivable that he learned from it and cultivated disruptive projects within Apple.
...and it helped that Apple made 'iPods' (i.e. iPhones) that were compatible with Spotify, instead of just blocking them. That's exactly what the OP is saying - the way Apple constructed the App Store ending up obsoleting the iPod.
Ben Thompson is mostly wrong: Customers don't 'buy' iPhones, Carriers do i.e. iPhones are protected from low end disruption by carriers subsidizing and obscuring the price with plans/contracts. In markets where carrier subsidy isn't as popular (e.g. Europe) iPhone market share is very low. Likewise, iPad market share is dropping quickly becausr there are few subsidies for that product.
NB Apple was always careful to sell low end iPods like the nano and shuffle so they continuously disrupted themselves in that product market and kept other companies from doing so.
I've got an android phone that costs the same (within 10%) of an iphone of the same screen size. You can usually get a step up in storage space in the same price bracket as an iphone, but they are on par with each other from what I've seen.
This model is changing due to disruption from T-Mobile. With AT&T you either buy a phone up front or pay for it in full over 18-24 months.
Not sure why, but they do still have a subsidized 2-year plan, but the monthly rate is higher and you end up paying more than the cost of the phone over 2 years.
The model is changing slowly but keep in mind that TMobile, Verizon, Sprint, AT&T are still incentivised to heavily push the iPhone due to multimillion units they've essentially preordered when partnering with Apple
I disagree. I think people shop for a phone the way many people (unfortunately) shop for a new car: On the monthly payment, not the sticker price. All that matters is that the carriers finance the phone, subsidies are dying. Every major US carrier now has installment options.
> Likewise, iPad market share is dropping quickly becausr there are few subsidies for that product.
You don't think it's because they essentially invented the market, starting out at 90% market share?
> You don't think it's because they essentially invented the market, starting out at 90% market share?
Apple essentially invented the harddrive digital music player with iPod+iTunes and maintained a +80% marketshare for the lifespan of that product
> I disagree. I think people shop for a phone the way many people (unfortunately) shop for a new car: On the monthly payment, not the sticker price. All that matters is that the carriers finance the phone, subsidies are dying. Every major US carrier now has installment options.
The monthly payments for cars vary widely with the differences measuring in hundreds of dollars per month. The monthly payments for contract cellphones in USA are mostly the same for a $0 low end phone or a $0 iPhone. Indeed for many years AT&T/Verizon/Sprint wouldn't give a discount on the monthly plan even if the consumer brought their own phone which made it slightly irrational to not sign a contract. It's impossible for the low end to disrupt when the high end is the practically the same price.
I guess this is a 2013 article, but I'm surprised that what hasn't been mentioned in the comments yet are the platform/network effects of iOS apps and the App store.
I think it's interesting to identify a consumer focus on status/UX/psychological benefits, but I actually think it's wrong to say that the consumer isn't paying for more functionality because I think the iOS app ecosystem actually provides pretty compelling additional functionality in addition to the incremental, but still relatively meaty, upgrades between phone models and nominally nicer UX.
I mean, the App Store is still much better curated than its open Android counterpart. The iOS development seems to have more robust developer tools, offer better return, have a more or less standard device structure for testing, etc etc.
(http://thinkapps.com/blog/development/platform-build-first-i...)
The iOS ecosystem isn't just the handsets. It's the App store, the developer tools, etc. This allows developers to better create functionality on top of all these Apple devices and enables Apple to surface those quality apps/functionality better and faster. That's a significant benefit.
which comes first, a good consumer product or a healthy ecosystem around it? it's a positive feedback loop thing in later stage but product always comes first. it's not a big secret but only few nailed it occasionally in a decade.
that's a good point, but Apple's bet on this ecosystem continues to pay off with each of their new consumer product reaping pretty sizeable dividends from that ecosystem.
Were Steve Jobs, John Ive, Tim Cook and other Apple guys crystal clear about the theory when they started iPod/iPhone? I don't think so. Apple has a unique weapon called design and is willing to pay whatever it costs to enhance it. Its business is to use the weapon wherever there is a chance: mp3 player, tivo, mobile phone, watch and more to come. The rest is upon professors in business schools to figure out.
I think their secret weapon is design expertise, not design itself. I have a 2014 moto X, and I like it. I switched from IOS due to bugs I was experiencing with IOS 8, and I liked the idea of a more open environment.
I can say with a high degree of confidence (but not 100%) that I'll switch back to iphone next year.
The reason centers on two things: Google's baffling lack of design sense (google's own apps look bad), and google's inability to filter out sham reviews on their app store.
The google app store and the apps are just awful. There are some diamonds in the rough, but they are few and far between and hard to find because nearly all the apps (good or bad) have 4+ stars.
There are tons of crap apps on the apple store too, but the good ones are easier to find because the ratings still have meaning on the apple store.
There is something seriously wrong with google's store. The AT&T app, which is a marginal semi web app, has 25,000 5 star reviews on google's store. It averages somewhere above 4, I can't remember the exact number. I'm sorry, there is just no way 25,000 honest people gave that app 5/5 stars. It's ridiculous to even consider.
It's barely a 3 star app on apple's store and that sounds about right. I'd give it 3 just because it is functional.
I think the real problem behind it is the concept of freemium apps. Apple has it too, but I think because of scale android/google are head of the game in terms of the damage caused by fremium apps.
I think the best way for either company to fix it would be to not allow in-app purchases on free apps. The reason I think it would fix it is that both app stores require you to have the app to vote on it, but with free apps it's no big deal to download-vote-delete an app. This opens you up to mechanical-turk type exploitation.
If it costs a buck to download, you've raised the cost of buying a vote, you've raised expectations of buyers. It has a side benefit of destroying the freemium market which in my opinion can only be a good thing.
My gut tells me that google could filter out sham reviews if they wanted to. I'm sure they can detect the download-vote-delete pattern easily, and if 25000 come in over the course of week or something, well, it just seems like it'd be obvious if the spent time mining the data.
I don't relate to this at all, but accept that I'm an outlier in the marketplace. I have a cheap android phone on a cheap month-to-month plan. Other than the apps it came with, I have installed very little from Google Play. I use the phone for texting, phone calls, mobile email, maps, occasionally mobile browsing, and that's about it. I don't play games with it, I don't listen to music with it, I don't take pictures with it. Even this cheap phone does way more than I need. I would never consider an iPhone.
49 comments
[ 1.6 ms ] story [ 93.8 ms ] threadThe OP, however, is quite good. In a nutshell, it argues that (1) disruption theory assumes rational actors and (2) consumers are much less rational than businesses.
There are lots of situations in which consumers do not behave according to an observer's (non-economic) notion of "rationally". This is rarely a failure of economic rationality, and much more often a failure of the observer to understand the consumer's notion of utility or cost (or both).
In the example of clothing and fashion - the consumer really buys buys psychological value(status, attention, etc), not user experience with his extra money, and i'm not sure those goods can be "good enough", because some have arms-race logic build internally(for example status).
In a sense, the same applies for the BMW - you could probably get as great car as the BMW , for much less , but the BMW holds important psychological advantages.
And as for consoles - i'm not sure we've reached "good enough" level of graphics for true gamers. When we'll reach that - it would be interesting too look at that market.
So yes, consumers aren't rational and for some thing you can never satisfy them, but i'm not certain user experience is one of those things.
I think that's what the author is saying - businesses don't buy printers thinking about how the printer will make their staff feel, whereas when people buy iPhones, how they feel is a big part of the decision. The idea that I can afford to buy an excellent user experience for myself is very much part of that status value. Apple has exploited those feelings so that its design value outweighs the economies of scale that can be achieved by modularisation.
BTW, modularization is also supposed to offer faster time to market, and we've seen that with large screen phones and Apple's slow response to them(probably because it system was integrated ,hence harder to adopt to a different module).
please explain the difference, other than what seems to be your pejorative value placed on psychology. Why would it be bad to want to feel good when using a piece of tech and prefer it over another piece of tech that is better on other metrics? Psychology (broadly stated) is the user experience.
The low-end disruption is cheaper music (iPod) and cheaper computer (iPhone). Computer in that many consumers initially saw iPhone as a way to do email, web and apps without paying for separate computer and Internet.
The difference between consumers and businesses is that businesses that act too irrationally for too long are more likely to fail and get replaced by more rational businesses. I suspect that the statistics on rational businesses often suffer from survivor bias.
Yesterday he bought an iPad mini with his savings, I suggested him to get an Android tablet "hey, an android will cost you 1/3", but he declined, because all his friends had invested a LOT of time on their (iOS) games.
That's what puts the incumbent in an "innovator's dilemma": do you chase the high end and high margins, and if so which high-end niches do you chase (gamers who want graphics performance, design-lovers who want a precision machined marvel of industrial design) or do you go lower cost and high volume? The latter is a race to the bottom, so the incumbents tend to pick the former and retreat up-market. It's not unusual for the incumbent's profits to increase temporarily when this happens because of their focus on the most profitable customers.
The problem is it doesn't last: the low-cost producers who are already good enough for the low end of the market continue to improve, until they become good enough for the middle of the market too, and grab more and more market share and more and more profit share. And then, looking for even more growth, they head for the top end of the market (or get disrupted themselves).
Ironically, if there wasn't an up-market to retreat to, there would be no dilemma. Android and iOS would have to compete head to head for the same customers with the same requirements (rather than one taking all the budget consumers and the other taking the gamers and others with higher requirements).
As it is, we could be seeing a low-end disruption, and the high-end consumers will be the last to notice.
The entire point of the article is that competing on user experience pretty much side-steps the whole theory of low-end disruption.
The debate hinges on this: is UX a special basis of competition that can't be disrupted? Will consumers pay a premium for better UX forever? Will the cheaper alternative never be "good enough"? Won't people put up with a few minor annoyances? What if it saves them money?
I think UX is a hygiene factor: when it's bad it annoys you to the point where you do something about it, but when UX is good enough, most people start worrying about other things.
That's different from design: I think some people will continue to pay a premium because they love Jony Ive designs and they can afford it. And some will pay for a status symbol. And some will need the performance. But none of that is the mass market.
Android has been "good enough" for millions of people. From their ugly start to Lollipop, they have been good enough for many people to choose Android as their primary platform.
This is similar to many of Christensen examples, such as the mini mills disrupting "Big Steel" companies by providing "good enough" cheap steel, and slowly but steadily getting better and better.
Android right now is in that phase, getting better and better, and now is as good, if not better, than iOS.
Interesting times.
edit: I can't deny they're doing great in sales :)
I read recently that Apple had a 5 inch prototype built in the iphone4 but it was not a compelling product at the time. Nothing is as clear cut as "Samsung forced apple into competing on screen size".
NB Apple was always careful to sell low end iPods like the nano and shuffle so they continuously disrupted themselves in that product market and kept other companies from doing so.
Not sure why, but they do still have a subsidized 2-year plan, but the monthly rate is higher and you end up paying more than the cost of the phone over 2 years.
http://www.businessinsider.com/apple-verizon-iphone-2013-7 (NB the numbers were wrong, and iPhone demand and growth keeps increasing, but the underlying business relationship is as described)
> Likewise, iPad market share is dropping quickly becausr there are few subsidies for that product.
You don't think it's because they essentially invented the market, starting out at 90% market share?
Apple essentially invented the harddrive digital music player with iPod+iTunes and maintained a +80% marketshare for the lifespan of that product
> I disagree. I think people shop for a phone the way many people (unfortunately) shop for a new car: On the monthly payment, not the sticker price. All that matters is that the carriers finance the phone, subsidies are dying. Every major US carrier now has installment options.
The monthly payments for cars vary widely with the differences measuring in hundreds of dollars per month. The monthly payments for contract cellphones in USA are mostly the same for a $0 low end phone or a $0 iPhone. Indeed for many years AT&T/Verizon/Sprint wouldn't give a discount on the monthly plan even if the consumer brought their own phone which made it slightly irrational to not sign a contract. It's impossible for the low end to disrupt when the high end is the practically the same price.
I think it's interesting to identify a consumer focus on status/UX/psychological benefits, but I actually think it's wrong to say that the consumer isn't paying for more functionality because I think the iOS app ecosystem actually provides pretty compelling additional functionality in addition to the incremental, but still relatively meaty, upgrades between phone models and nominally nicer UX.
I mean, the App Store is still much better curated than its open Android counterpart. The iOS development seems to have more robust developer tools, offer better return, have a more or less standard device structure for testing, etc etc. (http://thinkapps.com/blog/development/platform-build-first-i...)
The iOS ecosystem isn't just the handsets. It's the App store, the developer tools, etc. This allows developers to better create functionality on top of all these Apple devices and enables Apple to surface those quality apps/functionality better and faster. That's a significant benefit.
I can say with a high degree of confidence (but not 100%) that I'll switch back to iphone next year.
The reason centers on two things: Google's baffling lack of design sense (google's own apps look bad), and google's inability to filter out sham reviews on their app store.
The google app store and the apps are just awful. There are some diamonds in the rough, but they are few and far between and hard to find because nearly all the apps (good or bad) have 4+ stars.
There are tons of crap apps on the apple store too, but the good ones are easier to find because the ratings still have meaning on the apple store.
There is something seriously wrong with google's store. The AT&T app, which is a marginal semi web app, has 25,000 5 star reviews on google's store. It averages somewhere above 4, I can't remember the exact number. I'm sorry, there is just no way 25,000 honest people gave that app 5/5 stars. It's ridiculous to even consider.
It's barely a 3 star app on apple's store and that sounds about right. I'd give it 3 just because it is functional.
I think the real problem behind it is the concept of freemium apps. Apple has it too, but I think because of scale android/google are head of the game in terms of the damage caused by fremium apps.
I think the best way for either company to fix it would be to not allow in-app purchases on free apps. The reason I think it would fix it is that both app stores require you to have the app to vote on it, but with free apps it's no big deal to download-vote-delete an app. This opens you up to mechanical-turk type exploitation.
If it costs a buck to download, you've raised the cost of buying a vote, you've raised expectations of buyers. It has a side benefit of destroying the freemium market which in my opinion can only be a good thing.
My gut tells me that google could filter out sham reviews if they wanted to. I'm sure they can detect the download-vote-delete pattern easily, and if 25000 come in over the course of week or something, well, it just seems like it'd be obvious if the spent time mining the data.