The Disruptive nature of digital technology

No Technology HasBeen More Disruptive…

Christian Sandström holds a PhD from ChalmersUniversity of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.

… Than Digital Technology…

… It has invaded industry…

… after industry…

…Television…

…Music…

…Video Surveillance.

This technological revolution has Destroyed ornearly Overthrown hundreds of industrial giants…

All these firms which suffered in thetransition to digital technology - Why?

They are so many, and thepattern is stunningly similar…

The first digital products are usually big, expensiveand appear as rather silly. They look like toys, and it’s hard to imagine that a disruption is going to happen…

Despite recognizing the technology,established firms are in the end often destroyed…

To understand this puzzle, we need to dig into the nature of digital technology and its economics.

The transistor is the building block of digital technology.

It is an electronic device which can switch between two modes.So, it is binary – ONE or ZERO, YES or NO

And what’s so special about that?

Very little information can be stored inone single transistor, so the technology is initially not capable of much.

The inferior performance of the transistor implied that the inventors were not encouraged to work further on it.Vacuum tubes was the dominant technology for computers back then, and it was hard to see how the transistor could possibly replace the tubes.

Ignoring the transistor is a mistakethat hundreds of industrial giants would make over the next decades, often resulting in bankruptcy.

William Shockley and the otherinventors left Bell Labs, moved to Silicon Valley and founded Shockley Semiconductor…

Many engineers left Shockley inorder to start Fairchild Semiconductor…

Fairchild was later disintegrated, Gordon Moore among others then founded Intel…

As Intel and other semiconductor firms developedcheaper and better transistors, putting them together into Integrated Circuits and Mikroprocessors, Gordon Moore recognized a fascinating pattern….

Over time, the amount of transistors that could be puton a circuit for the same price doubled every 18th month! So for the same price you can buy something whichcan store twice as much information, every 18th month! This is Moore’s Law.

The implications are enormous! If the price/performance ratio doubles in 18 months…And then doubles again in 18 months…And then doubles again in 18 months…Then the price/performance is 8 times higher in only 4,5 years! 16 times higher in 6 years!

Source: intel.com

This is a furious pace of technological development! It implies that as the price of a transistor goes down andthe performance of digital technology increases, virtually everything can sooner or later be expressed or represented with digital technology.

Let’s take a look at how Moore’s law has improved the graphics in computer games over time…

More and cheaper transistors makes Pacman look better than the Space Invader…

Mario looks better than Pacman…

Super Mario World looks better than Mario from 1985….

And today Link looks better than ever!

The graphics are stunning nowadays!Moore’s law has been working on this for many decades…

Moore’s law can help us to understand why digital technology has disrupted so many industries…

The price/performance ratio is initially much inferior to the dominant technology,so the technology usually attacks from below. This calculator cost 395 USD in 1972

The lower initial performance of the transistor was the main reason why Bell Labs thought Shockley should keep working on Vacuum tubes instead…

Vacuum tube technology was after all what the main customers demanded! Why work on digital technology which hadlower performance and is more expensive?

While established firms are busylistening to their customers, Moore’s law gets ready to disrupt the industry

Drawing upon their competence in the old technology, Olivetti tried to make better mechanical calculators instead of going into the digital technology.

The Swedish firm Facit encountered the same destiny…

The technology which looked like a silly and expensive toy only a few years ago, would with only a few more years of Moore’s law overthow the entire industry!

The Swiss watch industry wentinto the same trap as Olivetti and Facit…..

… And so did Polaroid. They listened to their customers, stayed in the oldtechnology and were then disrupted by Moore’s law…

The music industry is today painfully aware of Moore’s law and the digital revolution

Those who have dismissed the digital technologyas inferior and silly usually have one thing in common…

They’ve paid a terrible price.

Summing it up: Moore’s law – the rapid improvement of digital technology, has disrupted hundreds of firms and reshaped entire industries. The high pace of development combinedwith the fact that digital technology initially has an inferior performance has created great problems for great firms. Listening too carefully to current customers, established firms stay in the old technology for too long, and are then disrupted.

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Find out more:www.christiansandstrom.org

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The Disruptive nature of digital technology

by Chris Sandström

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