[reposted from HBR Blogs]

To this day, Microsoft Office remains the dominant office software suite, a position it has held since the 1990s. While competitors have emerged to appeal to different customer niches (Google Docs with collaboration or iWork for Mac users), for many people the value of using Office lies in the fact that many others use it; it has stood the test of time. This illustrates one of the strategic benefits of platforms: Once established, they are hard to dislodge. Exit from a platform usually requires customers to leave in a coordinated fashion.

Among other things, a platform is a device for coordinating the choices of many individuals. By contrast, disruption, and particularly demand-side disruption of the type put forward by Clay Christensen, is a force that relies on a steady process of picking off one customer at a time. Kodak did not end up losing the film business because one day nobody wanted film. Instead, they lost the market one customer at a time as people found alternatives in the form of digital photography. And those customers did not have to think about whether their friends were willing to look at pictures taken digitally. They could make decisions of their own accord.

Given this, it might be tempting to conclude that platforms, once established, cannot be disrupted. Yes, there might be a niche group who are underserved, but as long as what ultimately matters is who else is on the same platform, no entrant who targets just that niche will be able to do any competitive damage.

A case in point is the continual forecasts of Facebook’s demise. The usual narrative goes like this: Facebook did well when it was just young people, but when parents joined, the future supply of youth (namely teenagers) dried up and went elsewhere. As a result, Facebook will slowly be disrupted as its active customer base ages.

While there is something to this baseline theory — Google+, a would-be disruptor, premised its entry on allowing users to segment their friends and family into circles — Facebook continues to go from strength to strength. Young people do avoid their parents, but they do this by moving some, though not all, of their social media interactions elsewhere. They remain active on Facebook even if their activity fluctuates in both intensity and nature as they grow.

Facebook appears to have been on alert for potential disruptive threats, which have come largely from other platforms. When Instagram demonstrated that sharing photos on mobile devices was a new social media platform, Facebook acquired it. When WhatsApp demonstrated that messaging was alive and well in a pure form, Facebook acquired it. In each case Facebook paid handsomely — but did little else. Both companies, while under a corporate umbrella, operate as independent brands with largely independent development teams. In effect, Facebook bought an option against possible disruption but did not want to touch or risk anything else about those companies.

Facebook’s tactic appears similar to that of other established companies: It controls possible disruptive events that appear to pick off customers based on initially niche cases by buying the competition.

But what of disruptive effects of a different nature? What if disruption comes instead — as I outline in the April 2016 issue of HBR — from the supply side?

Supply-side disruption arises when a new innovation or technology offers a better way of providing consumer value than the old technology does. For instance, the iPhone was an innovation to the architecture of mobile devices (specifically, how the user interacted with software and hardware) rather than offering any new components. That architecture permitted a rapid deployment of technologies to create the mobile internet, something that established handset makers simply were not in a position to match. Doing so would have completely upended their product development organization. Any capabilities they had were eroded quickly.

Can such a supply-side effect disrupt a platform? To do so, it would have to offer greater value not only to a niche of consumers but also to others so that the disadvantage of a network effect was short-lived. This is arguably what happened to Nintendo and then Sega in the 1990s as others developed better consoles. To meet that competition, Nintendo and Sega had to scuttle many of their existing capabilities.

Could this happen to Facebook? Conceivably. Indeed, Facebook has already dodged a potential supply-side bullet that came with mobile devices. After being slow to invest heavily in mobile, Facebook marshalled resources to do so. In a few short years it created enviable mobile products but also found out how to generate ad revenue on small screens. Its business is now primarily mobile.

How did it do this? With managerial foresight. Supply-side risks come when a firm’s development teams specialize so much that they forget how they are connected. Then when they have to act together, they find themselves in what Gillian Tett calls silos. Anticipating the need to move quickly, Facebook deliberately broke down its walls, going as far as having an initiation program that puts together people from different areas and makes rotation a part of the onboarding process for new engineers. The theory is that, like a social network, creating new social links can reduce long-term barriers. When Facebook had to realign for a new potential threat, the parts could work smoothly.

You don’t wait until the threat is at your door before you react. Instead, you need to know that a threat could arrive someday, and organize yourself accordingly.

 

5 Responses to What would it take to disrupt Facebook?

  1. […] What would it take to disrupt Facebook? […]

  2. […] March 27, 2016NielsIFTTT, reddit Leave a comment What would it take to disrupt Facebook? […]

  3. Admin says:

    I missed the bit where you answered the question posed in the headline.

  4. […] What would it take to disrupt Facebook? To this day, Microsoft Office remains the dominant office software suite, a position it has held since the 1990s. While competitors have emerged to appeal to different customer niches (Google Docs with collaboration or iWork for Mac users), for many people the value of using Office lies in the fact that many others use it. Joshua Gans (Digitopoly) […]

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