Disruptive Technologies

I love comments on my blog, even the ones i don’t agree with.

Last month, i wrote a post about Venture Fratricide that generated some of the best comments on my blog. Taken together, they were much better than my original post. In one of them, Giordano suggested i read Clayton Christensen’s The Innovator’s Dillema.

I bet that many of you have read this book. I had not. I am reading it now and it is fantastic. It crystalizes so much of what i have experienced over the years in the venture business. There’s nothing new in this book that i did not already intuitively understand, but it gives me a way of talking about these things that have happened to me and my companies (both good and bad) that i didn’t have before. That is a great thing.

Clayton describes “Disruptive Technologies” in the following way. Most technologies are “sustaining” in that they incrementally improve the price/performance of a particular product/service over time. But some technologies dramatically reduce the price/performance of a particular product/service and create a new path. These are the disruptive technologies. They start a new upward moving path and become sustaining technologies, but off a new base. And what is so pernicious about these disruptive technologies is that most companies that are sustaining their products/services cannot immediately adopt the new path because it changes their whole economic model and because their customers have no desire for the lower performance that initially comes with the new technology.

Paid search is a classic disruptive technology. Advertising and direct marketing, even online advertising and direct marketing, was moving nicely along its sustaining path providing ever more performance to marketers for a given price. Then along came Bill Gross and GoTo.com and we had a new path. In the beginning, the price/performance was too low to be interesting to most marketers. So everyone ignored it. But now, paid search is a $2 billion business and is slowly eating away at the margins in the traditional advertising and direct marketing business. It’s just a much better way to reach customers. It’s a new path. And it’s become a sustaining technology that will get better and better.

I haven’t finished this book yet and there may be more posts before i am done. If you haven’t read it and you are in the technology business, i suggest you go get it.

#VC & Technology