For the past two decades, companies have assumed that they know the disruption playbook. It’s an S curve of progress: a series of cumulative advances as a new value proposition progresses to outperform a given industry’s prevalent offers. A company introduces gradual improvements in a new, innovative value proposition. Initially, the offering is not attractive to mainstream users and established incumbents, but eventually it becomes good enough and then achieves market dominance. Disruption of the incumbent is complete.
This perspective on disruption provides a valuable guide with respect to how investment returns on innovative efforts may unfold over time. Progress during early efforts tends to be slow, followed by takeoff and a period of sustained growth.
The launch of Netflix’s DVD-by-mail service at the turn of the century represents a classic example. The service was initially targeted at movie enthusiasts who were early DVD adopters. These were consumers who agreed that the trade off of selecting films through online search was worth the wait (often several days) for the movies to arrive in red envelopes in the mail. At the time, this value proposition was not attractive compared with the mainstream video rental market. However, as Netflix improved its offer — via an unlimited subscription service, an online recommendation engine, a more efficient distribution network, and newer and original content — the company was able to disrupt video rental incumbents such as Blockbuster.