Innovation Challenge: Your Market is Never Stable

Earlier this year I ran across a couple of striking charts from Horace Dediu’s fantastic Asymco blog.  He regularly puts together very compelling stats on the state of the technology industry, and this post looked at the market share for various operating systems over time.

The first chart shows the the market share of various systems, and you can see the rise and then slip of Microsoft here:


operating systems

 

You can see how Texas Instruments dominated things around 1977, only to be replaced by first Atari, then Commodore, before it disappeared entirely.  Atari and Commodore held on until the early 90s, then they disappeared as well.

The tipping point from the Apple OS to Windows happened early too, followed by a long period of domination for Microsoft right up until about 2007.  Currently Android + iOS have about 55% of the personal computing OS market, and Windows has about 45%.

However, if you look at the data another way, looking at the total number of OS sales, you can see a slightly different story.  Here’s  Dediu’s original chart:operating systems 2

 

This chart shows a slightly different story.  The market share for Windows isn’t falling because its sales are dropping – it is falling because with the advent of smartphones and tablets, the overall size of the personal computing market has doubled.

There are several important innovation lessons here:

  • When a market is forming, the race is for the best business model.  If you look at the market shares around 1982, Atari, Commodore, Apple and Microsoft all had significant market shares.  Microsoft won because it developed a robust business model the fastest.  As Greg Satell points out, they won because they developed modular architecture first.  Furthermore, while their code wasn’t open, their API was – and openness is a big innovation advantage as well.
  • In a mature market, the threats come from outside.  Microsoft still dominates the desktop.  The problem right now is that the desktop is being rapidly overtaken by more portable computers.  Even as Apple revived a bit on the desktop with the introduction of the iMacs in the early 2000s, their market share in this market still didn’t go up that much.  It only took off with the iPhone and then the iPad.  The threats to Microsoft’s position came from segments outside of their core market.  They knew this was coming for a while, but it wasn’t until the introduction of Windows 8 that they really attacked this issue head-on.
  • Your market is never stable.  One dangerous assumption that organisations make is that they know what market they are in, and that this will remain stable.  Information technology is wreaking havoc on traditional industry boundaries.  John and I visited a research lab for an engineering company last week, and it was very clear from the projects that they are working on that the firms that will win in this traditionally very conservative industry will be the first ones to become fully knowledge-based.  As projects get more complex and more expensive, managing the flow of data becomes increasingly important.
  • Nothing ever stays the same.  The Justice Department didn’t need to break up Microsoft.  The evolution of the market has taken care of their dominant position.  It’s always tempting to think that today’s winners will also be front-runners tomorrow.  This is very rarely true.  That’s why we have to innovate.

Richard N. Foster has looked at this problem in a couple of outstanding books.  He outlines the key issue in this interview:

Let me tell you how I got to the term “creative destruction.” In the 80’s, I was in a search for “the excellent company” – the all-seeing, all-knowing, all-wise company that made all the right moves in advance, and that made more money for its shareholders than any of its competitors. This was the permanent outperformer stock – the really good deal. I looked at 4,000 companies over 40 years, and what I found stunned me. There was no such company, and there never had been such a company!

I thought something had to be wrong. Was I looking at the problem in the right way? No company had been able to outperform the market for any substantial length of time. (GE came as close as any, but didn’t do any better than the overall index). Somehow the market – managed by nobody – was performing better than all the brains on the planet. But why? Then I realized that the reason markets outperform companies was closely tied to what Joseph Schumpeter called “creative destruction.” This was actually a phrase that came from the Hindu religion, dealing with the transformation of an individual throughout their life, from creation, onto death, and ultimately rebirth.

My friend Geoff sent me this quote from Joseph Campbell last week:

The interior of man has been essentially the same for 40,000 years, since the first emergence of Homo Sapiens Sapiens. Myth has to do with the spiritual potentialities of this constant, this human being. But the images of myth must be derived from the environment of today and in this place. There is therefore a constant transformation of the image, but not of the reference.

This is probably true – it explains why so many of the stories that we respond to as humans have such similar structures, and similar points.

But another constant is that in business, things change.  If you’re running a business, that’s a very good argument for innovating.  As innovators, our job is to invent the future.

 

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Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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4 thoughts on “Innovation Challenge: Your Market is Never Stable

  1. Great post Tim.

    I think another important point is that while all of the other companies either failed or had near death experiences, Microsoft has always been a strong company. Even today, with many warning of their demise, they still throw off $20 billion and double digit growth while plowing $9 billion into R&D.

    The reason why Microsoft has remained so strong is an important one – They’ve never made a major mistake. They’ve missed some twists and turns, but never made anything like a company hubris driven, company threatening error.

    So that’s another innovation challenge: When you make it big, keep your head.

    - Greg