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Disruptive Innovation: Low Cost or FREE

Posted by Joe Antle on August 20, 2018 4:00 PM EDT
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One of the key classic elements of disruptive innovation is that the innovation is often very low cost compared to the established.....

...and dominant product or service.  This is often why the disruptive innovation at first appears to be not good enough and of inferior quality when compared to the incumbent provider's products or services.  Low cost or FREE almost always communicates something that is not worth much and inherently isn't attractive to key customers of the dominant provider who typically want better and better quality and are willing to pay higher prices for a more sophisticated version as long as those higher prices are justified by the better quality, more sophisticated set of features that accompany the upgraded, new and improved product or service.

Then once the "good enough" versus nothing at all option among the nonconsumers of the dominant product or service begin to adopt the low cost or FREE solution, product or service, there begins a constant movement upstream in terms of product features and capabilities.  And all the while the "not good enough" solution for the higher end, more demanding customers keeps growing and adding features while maintaining a distinct price advantage all along the way.  Examples of this abound throughout the business and organizational change history.  PCs' are a classic example.  Smartphones weren't originally better cameras, computers, email devices, clocks, calculators or app players.  Yet, in time the smartphone's ability to do so many things easier and more than good enough made it a tremendous value, in most cases replacing consumers' need to have separate devices.

So many use technology platforms that are now free to users.  Thanks to advertising revenue and micro-payments, Google, Facebook, Twitter, eBay and countless other specialized web-based technologies are now free to users.  Even opensource software such as Linux, Postgre SQL and others are supported by services revenue, whereby the software is free but users pay for services to enhance it, integrate it, train users on how to use it, customize it etc.

So, the old adage that cheap represents the products and services of inferior quality and utility is not always the case.  In fact, more often than not, the low price makes it easier for nonconsumers to give the product or service a meaningful try and thus open up new markets enabled by the low-cost or free price point.

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