Let us look at some assumptions that customers have lived with at some point of time:
- We have to go to a bank to avail loans
- To access thousands of books you have to go to the library
- To listen to Prof. Clayton Christensen or Andrew Ng you have to be enrolled at Harvard or Stanford
- You have to pay hundreds of dollars to get the best Encyclopedia series
- You have to stay in a hotel when you go to some other city that is not your place of residence
- You can hail a cab that only passes you by
- If you want to make a documentary but have zero reputation that precedes you, it is unlikely you won’t get the funds to make it
- If you are building Oculus Rift, you have to pitch first to Sand Hill Road VCs
- You cannot customize and manufacture a single toy. It is going to cost a lot of money
Of course all the above have been challenged today and most of them very successfully.
Of course, all of those assumptions have been challenged with arrival of new technology enablers. Some of the enabling technologies can be Internet, Mobile, Cloud Computing, 3D Printing, Virtual Reality, Big Data etc.
Why does a new technology so successfully enable challenging entrenched assumptions of how a business is done?
This is because new technology enablers bring with them what I call ‘fundamental distortions’. Let us look at some technologies and the fundamental distortions they have brought about:
These fundamental distortions of technology are nothing but the fundamental distortions in the assumptions embedded in business activities before the arrival of the technology.
A brief history of Encyclopedias from 1980s to 2005 clearly illustrate fundamental distortions of technology. Britannica’s marginal cost of production per copy was $250 and the salesperson’s commission was rumored to be around $500 to $600. Enter digitization and CD-ROM. The marginal cost for a CD based Encarta was just $1.50. Encarta got a taste of its own medicine with Wikipedia with fundamental distortions of internet where you could strangely get people who owe you nothing to write, edit and update articles for free and keep it as accurate as Britannica or Encarta.
The fundamental distortions caused by technology give rise to the possibility of new business models by altering one of the nine elements in a business model.
Alexander Osterwalder’s Business Model Canvas
It is these fundamental distortions that place the incumbent business models on the path to sub-optimality and eventually to obsolescence. An incumbent manager and a new entrepreneur can identify threats and smack her lips respectively by looking at the fundamental distortions introduced by a new technology and the relevance of these distortions to the incumbent business model.
I will leave you with some basic assumptions. Contemplate if they can be challenged with fundamental distortions of new technologies!
Do these assumptions look too basic to be challenged? My guess (prediction) is that these will be challenged very effectively in the very near future.
High impact businesses are built by challenging such very basic assumptions! Who gain and who in society will be affected by these fundamental distortions is a post for another day.