Return to Archive Runtime - The Software Outsourcing Newsletter for Executives and Investors from Accelerance and Steve Mezak Are You Being Disruptive? Large profits are often made by taking advantage of disruptive technology. But using disruptive technology is also risky. You may set out to create a product but wind up with only a successful science project. I define use of a disruptive technology (like the Internet) as a disruptive innovation. Last Friday, Accelerance sponsored the Founder's Circle event in Mountain View, California. The event was a forum for founders of emerging IT companies to identify key success factors and openly discuss what they believe is important in today's high-tech marketplace. The topic of disruptive technology was brought up by the venture capitalists appearing on the first panel. The term "disruptive technology" was first defined by Clayton Christensen in his book The Innovator's Dilemma (discussed in the Sidebar below). Christensen defines it as technology that may not be better than what is already on the market, but it is so much more widely available and cheaper, it overtakes superior products already being sold. The panel used a different definition. They said disruptive technology changes the rules of the game in a fundamental way. They offered these examples: railroads, electricity, telephone, radio, TV, computers, personal computers, the Internet, and wireless networking. The inventor of such a technology does not always enjoy financial success. In the September 9th issue of "Runtime - Removing Technical Risk", I mentioned that VCs think of each startup as being in one of two categories: "Better, Faster, Cheaper" or "Brave New World". In other words, "Better, Faster, Cheaper" means an evolutionary and beneficial improvement to what your prospective customers are doing now. A "Brave New World" startup wants their customers to do things in a completely different, revolutionary and better way. Clearly the panel was talking about "Brave New World" companies creating disruptive technology. Sometimes, these companies succeed by inventing a new technology. More often, they invent ways of using a new technology in some innovative way. Therefore, I consider these companies as the inventors of a "Disruptive Innovation." Lets consider for a moment that the Internet is the latest major disruptive technology. There are some obvious Brave New World companies whose disruptive innovation could only have come about because of the Internet: Netscape, Ebay, Yahoo, Google, and many more. The "Brave New World" (BNW) and "Better, Faster, Cheaper" (BFC) categories sometimes seems similar. After all, isn't Ebay just a better, faster way of participating in auctions and Google a better, faster way of finding information? Perhaps. But these BNW companies deliver benefits to a much larger and wider audience than was ever possible before. They created a world with many brave new users of their products. BFC examples include Skype, Friendster, and one of my old startups, Digital Market. These companies created products that use the Internet dramatically improve what people were doing before. They do not enable significantly new behavior or activities. Lets look at each one. Skype is the free new VOIP phone service created by the programmers that created the peer-to-peer music swapping software KaZaA. Skype enables you to make free voice calls to anyone else that is also using the Skype software. Skype is a BFC company because it takes something we already do, voice communication, and makes it cheaper. Perhaps there will be new innovative behaviors and benefits to come of this in future. For now, I do not believe people will significantly change their behavior because this form of voice communication is free. Will Skype's free users stay in constant communication with each other making Skype a BNW company? I don't think so. However, Skype is potentially a disruptive technology as Christensen defines it. If phone service becomes free, or near free, it may severely disrupt the infrastructure of switched telephone networks we have used for many years. Friendster is BFC because it helps people meet each other more efficiently for dating. I do not think it will fundamentally change the courtship and dating process. It will also not disrupt current technologies. Digital Market created the first on-line marketplace for electronic parts (in 1995). We used automation to improve the process of getting quotes of price and availability of the parts and then creating the order. We made an existing process much more efficient. It was not a disruptive technology nor did we disrupt existing distribution channels and business models in the electronic part industry. Does inexpensive offshore software development enable or enhance the success of either BNW or BFC companies or both? Could a BNW company like Netscape or Google have gained a significant benefit if they used offshore software development? I believe BNW companies gain little from offshore outsourcing when they are starting. There is too much experimentation going on to clearly specify tasks to an offshore team. In addition, there may be no clear business model or clearly defined way to generate revenue. In this case, it is hard to justify spending any money, even small amounts, for low-cost offshore development. BFC companies can gain significantly from offshore outsourcing. BFC companies with a simple product, relying on the network effect to build value may not benefit. Friendster and Skype fall into this category. In this case, it is often more work to document the solution than it is to just write the code. However, most BFC companies take an existing process and make it better. A significant amount of time is spent documenting the need and describing the problem and solution. This documentation can be in the form of a demo, prototype and/or written specifications. This is a terrific starting point for using offshore outsourcing for creating the product. Offshore Outsourcing is a disruptive innovation. It uses the Internet to help software companies develop products cheaper, and faster when you use an experienced offshore firm. So you need to decide if the disruptive innovation of offshore software development is right for you. Just because it is an innovation does not mean you have to use it. As innovative as Skype and Friendster are, you may not need them if your current telephone serves your needs and you are not interested in meeting new people to date or make new friends. Vision Resources Are you wondering how you will select an expert offshore team to develop your software? Use the Accelerance Vision Resources(sm) outsourced vendor selection service and cut the time of your vendor selection process by as much as 90%. Vision Resources leverages members of the Accelerance's 17 teams in 14 countries around the world. Click here to learn more about Vision Resources Accelerance, Inc. delivers impartial & expert strategies and services for risk-free outsourcing of your software development. Visit our web site at www.Accelerance.com   Until next time, Steve Mezak Accelerance, Inc. Risk-Free Outsourcing www.Accelerance.com 213 Garcia Avenue Half Moon Bay, CA 94019 1-650-712-8990 Contact me by email (c) 2005 Accelerance, Inc. All rights reserved. You are free to use material from the "Runtime" eZine in whole or in part, as long as you include complete attribution, including live web site link. Please also notify me where the material will appear. The attribution should read: "By Steve Mezak, CEO of Accelerance, Inc. Please visit the Accelerance web site at http://www.Accelerance.com for more information and resources on outsourcing and creating great software products."