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by making cabs too plentiful, too easy to use, and too clean. Neither did Uber primarily targetnonconsumers—people who found the existing alternatives so expensive or inconvenient that theytook public transit or drove themselves instead: Uber was launched in San Francisco (a well-servedtaxi market), and Uber’s customers were generally people already in the habit of hiring rides.Uber has quite arguably been increasing total demand—that’s what happens when you develop abetter, less-expensive solution to a widespread customer need. But disrupters startby appealing tolow-end or unserved consumers and then migrate to the mainstream market. Uber has gone in
6/13/2018What Is Disruptive Innovation?6/17exactly the opposite direction: building a position in the mainstream market first and subsequentlyappealing to historically overlooked segments.Disruptive innovations don’t catch on with mainstream customers until qualitycatches up to their standards.Disruption theory differentiates disruptive innovations from what are called “sustaininginnovations.” The latter make good products better in the eyes of an incumbent’s existingcustomers: the fifth blade in a razor, the clearer TV picture, better mobile phone reception. Theseimprovements can be incremental advances or major breakthroughs, but they all enable firms to sellmore products to their most profitable customers.Disruptive innovations, on the other hand, are initially considered inferior by most of anincumbent’s customers. Typically, customers are not willing to switch to the new offering merelybecause it is less expensive. Instead, they wait until its quality rises enough to satisfy them. Oncethat’s happened, they adopt the new product and happily accept its lower price. (This is howdisruption drives prices down in a market.)Most of the elements of Uber’s strategy seem to be sustaining innovations. Uber’s service has rarelybeen described as inferior to existing taxis; in fact, many would say it is better.Booking a riderequires just a few taps on a smartphone; payment is cashless and convenient; and passengers canrate their rides afterward, which helps ensure high standards. Furthermore, Uber delivers servicereliably and punctually, and its pricing is usually competitive with (or lower than) that of establishedtaxi services. And as is typical when incumbents face threats from sustaining innovations, many ofthe taxi companies are motivated to respond. They are deploying competitive technologies, such ashailing apps, and contesting the legality of some of Uber’s services.Why Getting It Right MattersReaders may still be wondering, Why does it matter what words we use to describe Uber? Thecompany has certainly thrown the taxi industry into disarray: Isn’t that “disruptive” enough? No.Applying the theory correctly is essential to realizing its benefits. For example, small competitorsthat nibble away at the periphery of your business very likely should be ignored—unless they are on
6/13/2018What Is Disruptive Innovation?7/17a disruptive trajectory, in which case they are a potentially mortal threat. And both of these