Lesson 3. Disruption is the New Norm

In his influential bestseller The Innovator’s Dilemma, Clayton Christensen (may he rest in peace) pointed out that disruptive innovation rarely comes from the status quo. That is, established industry players are rarely structured or prepared to counter disruption when eventually it appears. The newspaper industry is a perfect example. 

Today, the outsider has all the advantages. With no legacy systems to worry about, as well as the ability to enjoy low overhead and take advantage of the democratization of information and—more important—technology, the newcomer can move quickly and with a minimum of expense. Thus, new actors and entrants are well-equipped to attack almost any market and profit margin, including yours.

Indeed, change happens so fast these days that you now must assume that someone will disrupt you, and often from a direction you least expect. As Steve Forbes sees it, “You have to disrupt yourself or others will do it for you.” This applies to every market, geography, and industry.

This pattern will take longer to impact older, capital-intensive industries such as oil and gas, mining, and construction. But have no doubt: disruption is coming. Consider that solar energy, which is powered by information technology, has been doubling in its price performance every 22 months (and has been doing so for 40 years!). In 2016, it reached grid parity in the US. In 2020, it became cheaper to build and operate a solar farm than to continue operating a comparable fossil-fuel facility.

Think about that: the capital and operating expenses of solar are now cheaper than the operating expenses alone of fossil fuels. The market share of solar and wind in global electricity generation grew at a compound average annual growth rate of 15% from 2015 to 2020. If exponential growth continues at this rate, solar and wind bills reach 45% of electricity generation by 2030 and 100% by 2033.

Here’s a concrete example of the exponential growth of solar as a percentage of energy generated in the Netherlands:

• in 2012: 0.2% 

• in 2014: 0.7% 

• in 2016: 1.4% 

• in 2018: 3.3% 

• in 2020: 7% 

• in 2022: 14% → A doubling every two years

Meanwhile, other traditional industries, including real estate, automotive, and manufacturing, are already succumbing to this new zeitgeist. Who would ever have predicted that, in just three years, a Silicon Valley team of mostly electrical and software engineers at Tesla would have created what is arguably the safest car ever built? That car would, within ten years, turn founder Elon Musk into one of the world’s wealthiest (if not the wealthiest) individuals.

We see six sequential steps around disruptive innovation:

1. The domain, product, or service becomes partially or fully digitized (information-enabled)—for example, Teslas are updated by wireless software upgrades.

2. Marginal cost of supply drops exponentially—for example, the price of taking and uploading digital photos—and the product/service is demonetized.

3. Access to the product/service—for example, Bard and ChatGPT—is democratized.

4. Hobbyists form an open-source community, as we’ve seen with the massive generative AI community.

5. Technologies converge in new combinations, and new business models are birthed—for example, Web3/Metaverse combining blockchain, AI, and VR.

6. New products/services and business models—for example, the Khan Academy (with KhanAmigo)—that are orders of magnitude better and cheaper than their predecessors disrupt the status quo.

We are seeing this set of steps play out in drones, DNA sequencing, 3D printing, sensors, robotics, and, certainly, bitcoin. In each domain, an open-source, networked community has sprung up, delivering an accelerated stream of innovation exactly in line with the steps above.

Further, while a dozen technologies are accelerating on their own in doubling patterns, their intersections add a whole other multiplier to this phenomenon. Take cryptography and computation: individually, each is accelerating. Put them together, and entire categories of blockchain, cryptocurrencies, and NFTs emerge.  

Democratized, accelerating technologies, combined with the power of community and engagement techniques like cryptoeconomics, are converting Christensen’s Innovator’s Dilemma into an unstoppable force.

As a final example: in 2002, the BMW M5 E39 was the fastest sedan ever built. Twenty years later, the Lucid Air (Dream edition) is faster than the 2002 BMW, uses one-eighth of the energy, and generates three times the power for roughly the same cost. That’s a 24x price-performance increase in two decades.