Clayton Christensen, the Robert and Jane Cizik Professor of Business Administration at Harvard business school, describes in his oft discussed theory on disruptive innovation a cycle within businesses that causes incumbents within an industry to continually pursue the creation of higher performance products.  The idea is that incumbents generally focus their efforts on the high-end of the market where margins are the greatest.  They continue to pursue innovations that incrementally improve their product, “sustaining innovations” in the rhetoric of the theory, in order to satisfy their highest-end customers.  In this process, they create a situation where the low end of their market is highly over served.  This situation allows new entrants to compete for low-end customers who do not require the highest performance on the basis of convenience and price.   The incumbents see this competition in their lowest margin business as little threat to their core, which is the high performance, high margin segment.  As the disruptive entrant improves its product offering, the incumbent will pull out of the low end to focus even more on the high end.  This provides the new entrant greater market share, greater scale, and more opportunities to improve which eventually leads them to the next level of customers/market.  The rate of improvement for these disruptive companies is far greater than the incumbents allowing them to overtake the incumbent in the long run.

I believe we can apply this theory to identify how Facebook and other digital giants may falter if not careful.  While the focus on larger monetary margins does not apply to services that are free to users like Facebook, I do believe there is a different type of capital that these companies obsess over.  Credibility capital seems to be the driver for sustaining innovations at these digital media companies.  Because most credibility in the tech world comes from early adopters and tech geeks, Facebook feels obligated to continually add cutting edge features to capture this credibility.  This pursuit of the cutting edge satisfies their most discerning users but produces a performance surplus at the low end of their customer base.  This over serving is most obvious during the extreme customer backlash that Facebook experiences after any redesign or new feature release.  The over served portion of their customer base does not need more features and would rather maintain a cleaner, simpler experience.

This is exactly where I think Facebook and other major digital media products will have the most likelihood of being challenged.  Potential competitors will not be able to immediately produce a more feature filled product, they can however produce a simpler, more streamlined, narrowly focused product that serves the bottom of the market by competing on convenience and ease of use.  Once they are able to get this foothold they will be able to quickly pick up speed and innovate more nimbly than the incumbents.  I plan to test this theory by trying to disrupt Evite and Facebook with products that compete with a narrow portion of their market on the low end.  Look out for Invitesy.com and Groupary.com in the coming months to see how this hypothesis plays out.