7. A company exploits changing technologies to invent a new category. EBay Inc. created the online auction category by envisioning a service impossible until the advent of the World Wide Web — a national (and subsequently global) real-time auction market for myriad types of goods, from used guitars to new houses. Although imitators have cropped up, they have had difficulty positioning themselves as acceptable alternatives because of eBay’s operational performance, its critical mass of users, and its authenticity as the original category leader. TiVo Inc. created a new category for home television viewing by combining the personal video player, a computer hard drive, and an electronic program guide, changing the way people watch television. Any new entrant has to define itself with respect to TiVo.
How a firm responds to emerging categories and subcategories in its field of endeavor can be the difference among market dominance, continuing viability, and slow death. Experience and logic indicate that, when it comes to brand disruption, firms come in three flavors: trend neglecters, trend drivers, and trend responders.
Trend neglecters fall into three categories. “Stick to your knitting” firms are not motivated to stay informed about market trends. They are committed to and focused on their own model and believe that operational excellence will overcome market dynamics — or they lack the resources to change strategies. They also feel, sometimes with justification, that chasing apparent trends will waste resources. The “any color as long as it’s black” Ford strategy of the 1920s — which allowed General Motors to overtake permanently the pioneering automaker — is a legendary case. Tunnel vision may be defensible and may even result in superior performance for certain firms in specific markets, but it is risky. Trends tend eventually to overwhelm the static, inflexible firm. Such firms must make sure that they do what they do well, and that disappointing growth and financial strains do not lead to cost cutting that affects the customer experience, undercutting their position with the customer base for which they are still relevant.
The second type of trend neglecter mistakes trends for fads. In 1977, Ken Olson, founder and CEO of the Digital Equipment Corporation, then the leading maker of minicomputers, said, famously, “There is no reason anyone would want a computer in their home.” As PCs caught on, Digital rapidly went from market leader to struggling also-ran; eventually, it was acquired by Compaq. In addition to needing a periodic arrogance check, this type of company usually needs to improve its ability to understand competitor capabilities.
The final type of trend neglecter is the firm that wants to identify, evaluate, and respond to market dynamics, but is not very good at it. Such a firm is usually characterized by an inadequate external sensing system, executives who are not customer-driven, and an inflexible organization. Many corporate disaster stories can be traced to these organizational limitations. This sort of trend neglecter will benefit from investing in the missing capabilities.
Trend drivers participate in the creation of new product categories or subcategories — a terrific capability that, unfortunately, few firms have. Even companies that possess the requisite skills to drive trends have only occasional windows of opportunity. A premature effort to create a category can fail because the underlying technology is not ready or the potential market has not reached the tipping point. Witness Apple Computer Inc.’s failure to create the PDA category with its Newton organizer, only to see Palm Inc. succeed a few years later. (See “The Innovator's Prescription: The Art of Scale,” Summer 2004.)
To succeed as a trend driver, a company must have real ammunition; a breakthrough product wouldn’t hurt. Further, the firm needs to be capable of turning a first-mover advantage into a sustainable position by actively managing customers’ perceptions of the new category or subcategory and asserting a dominant brand position in the new arena. That requires not only resources and recognition of the expanded brand-building task, but also competence in brand building.