Thursday, July 16, 2009

The New York Times is NOT Being Disrupted by Innovation

Clayton Christensen coined the phrase "disruptive innovation" to describe a recurring pattern of incumbent technology companies being unable to maintain their market leadership through a particular type of technology transition. If you have not read the book, or watched one of his lectures, you should take two minutes right now to watch his video, or else stop reading this post NOW.

It really bugs me when people who have not read the book or have not taken the time to understand Christensen's insights steal the phrase "disruptive innovation" or "disruptive technology" and plaster it onto something that doesn't fit Christensen's model. For example, one characteristic of disruptive technology is that incumbent companies fail to adopt a new technology because it doesn't meet the needs of the market, i.e. their existing customers. This characteristic gets twisted by some entrepreneurs and technologists so that a technology's failure to address customers' needs (or to have customers in the first place) is cited as evidence of the technology's disruptive nature!

Another common misunderstanding of "disruptive innovation" is to assume that a technology is disruptive just because it poses a threat to an incumbent technology. Here's an easy way to tell if a "threatening" technology is a good fit to the disruptive innovation model: ask yourself "is the new technology a threat because it delivers higher performance, with a hope that its cost will be driven down to challenge current technology? Or is the technology a threat because it's really cheap, and has a hope to increase performance to be able to challenge current technology?" The high-performance technology is what Christensen labels a "sustaining technology"; the low-cost technology is what Christensen label a "disruptive technology".

In a previous post on whether scientific publishing is about to be disrupted, I argued that the problems of newspaper industry were not germane to the future of the scholarly publishing industry. In this post, I want to examine whether the newspaper industry fits the Christensenian model of incumbents facing disruptive innovation. Michael Nielsen's article argues in favor of disruption, suggesting that a blogs like Techcrunch, by adopting low-cost technical infrastructure, are disruptive innovators. I agree that the low cost infrastructure fits the disruptive model- there are no printing companies that have attempted to develop blogging infrastructure, for example. But that doesn't make Techcrunch a disruptive innovator, or newspapers a disrupted industry. The reason is that both Techcrunch and newspapers are really in the business of selling advertising. The advertising that Techcrunch sells is actually at the high-performance, highly targeted, expensive end of the market compared to the advertising that the New York Times sells.

In Christensen's model, incumbent companies abandon low-margin market segments to the disruptors because they want to focus on the most profitable parts of their business. But this is the opposite of what has happened in newspapers. Real estate listings and other classified ads have huge margins. Internet sites such as Zillow and Craiglist exploited these huge margins to make businesses out of delivery of high-performing ads.

I find it much more useful to think of the newspaper industry not as one being disrupted by innovation, but rather as one being fragmented by innovation. The internet allows information services to be profitable at much smaller sizes than previously possible. The result is that many markets previously served by newspapers became vulnerable to competition from smaller, more focused services.

I can think of a number of industries afflicted by fragmentation, and the outlook for incumbent companies is not nearly so dire as for industries afflicted by disruption. The television broadcasting and semiconductor industries are good current examples. Although many companies fail to adapt to a fragmented market and disappear, many survive and remain vital. There are a number of strategies for survival- the "roll-up", the "smaller but focused company", and of course the "climb up the food chain" and "move down the food chain" strategies. There are also strategies for failure, most prominently, the "pretend nothing's wrong" strategy.

The bottom line here is that I think there's hope for companies in the newspaper industry. Unless the New York Times shrinks its typeface and crossword puzzle so loyal readers like me can't read it anymore, it might not go bust.


  1. Just, FYI: The New Yorker just had an interesting take-down of Christensen. I have no opinion about it yet, but it's a good read...

    1. I thought Lepore failed to engage meaningfully with the ideas. Like most "innovators" who use "disruptive innovation" as an intellectual shorthand buzzword, has mapped Christensen's very useful phenomenology onto an imaginary grand framework, which she then rips to shreds, allowing readers of the New Yorker to feel Gladwellian smugness about not having read Christensen.

      But don't mind me, I'm an Idiot. instead read Will Oremus' snarkily thoughtful takedown of Lepore's article.