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4 Competitive Lifecycle: Common Patterns

We see common patterns in industries, as new technologies and businesses emerge.

In the beginning we have this era of ferment when new ideas are being tried out. There's a lot of
experimentation here. Innovation, during this time period, typically focuses on new product
features. Trying different ways to bring that new product or technology to market. It's largely
exploratory here. Again, experimentation, trying new things. Interestingly, this phase is often lead by
small entrepreneurial firms.

Example: During this phase, profits are often made through differentiation and niche placement. You
think about electric vehicles as an emerging market segment right now. It is interesting to note that
Tesla has had probably some of the most success at this point. But they positioned themselves
originally as a sports car manufacturer at a very high end. Now they've moved on to sedans, but once
again, more differentiated, higher end placement here. They are not going after the mass market, at
this point, at the very least. This is very common in the early stages of a new technology.

The idea of a dominant design again emerges, coalescing what the product or service looks like.
And then we see imitation and other competitors start to emerge. Interestingly enough, innovation
during this phase begins to shift from what was before a product and the features of those products
often to other features, such as, the process for manufacturing, delivery, service.

Example: History is littered with interesting examples of companies who weren't necessarily the
pioneer innovators within their industry but were the ones who were eventually able to take those
products to scale. The CT scanner business, EPI was the original, Emerson was the original entrant
into CAT scanners. These are digital imaging technology for health purposes. But eventually, it was
General Electric, who really was the one who was able to scale and succeed in that business. And in
part, it was because they had a lot of the subsequent infrastructure, in terms of, delivery and service
that was necessary to be successful in that market.

Eventually a disruption is likely to occur. Perhaps a new technology or business model is going to
emerge. And we once again begin the whole competitive life cycle again.

Now how do we know, and why do these disruptions emerge? Two different ways.

 Technology push. This is an idea of what we might say, exogenous technological change.
Exogenous meaning, kind of outside maybe the normal marketplace here. This can be driven
by R&D, basic research being done and maybe in universities and the like, that push the
technology frontier and eventually get the market moving in a new direction.
 The second way to think about it is that actually the market, in terms of demand, changes,
that consumers shift their preferences. And this is what we would call a demand pull story
here. Something has shifted in what consumers want, and then that changes the mix of
technology.

Perhaps a technology push and demand pull, interacting with one another to drive market forward
and ultimately, lead to the emergence of these new technologies or business models.
In the graph, you see one way to conceive of this. It's another S-curve here, a different S-curve than
our cumulative revenue S-curve. This one refers to simply the underlying performance of a
technology. What's interesting to note, is that as we apply effort, as we study and research a new
technology, we eventually see this huge learning curve piece of this. This is the upward swinging part
of the S-curve. But eventually we begin to tap out our ability to continue to innovate in that area.

Example: Take the internal combustion engine, the gasoline powered internal combustion
engine. We've had over 100 years of research advancing that technology. Arguably, the
effort needed to even get a marginal improvement in the efficiency in the internal
combustion engine is quite high. We've basically tapped out all the easy innovations, the
low-hanging fruit, that could emerge out of that technology.

Compare and contrast that with a more emergent technology like electric vehicles. Now
electric vehicles are interesting since they have been around for over 100 years. However,
very little effort had been put into electric vehicles over the last 80, 90 years, until more
recently. So as that effort's increased, there's been improvement in the technology.

They come in, they might be inferior to existing technologies, but they might eventually supplant
them. Now, it's important to recognize that not all new technologies succeed.

Important to emphasize here that one of the interesting things we observe in these competitive life
cycle is that it's often the older firms that are having difficulty to adapt and are often driven from the
market.