The Innovator's Dilemma
When New Technologies Cause Great Firms to Fail
By Clayton M. Christensen
Harvard Business School Press
(C) 1997President and Fellows of Harvard College
All rights reserved.
How Can Great Firms Fail? Insights from the Hard Disk Drive Industry
When I began my search for an answer to the puzzle of why
the best firms can fail, a friend offered some sage advice. "Those
who study genetics avoid studying humans," he noted. "Because
new generations come along only every thirty years or so, it takes a long
time to understand the cause and effect of any changes. Instead, they
study fruit flies, because they are conceived, born, mature, and die all
within a single day. If you want to understand why something happens
in business, study the disk drive industry. Those companies are the closest
things to fruit flies that the business world will ever see."
Indeed, nowhere in the history of business has there been an industry
like disk drives, where changes in technology, market structure, global
scope, and vertical integration have been so pervasive, rapid, and unrelenting.
While this pace and complexity might be a nightmare for managers,
my friend was right about its being fertile ground for research. Few
industries offer researchers the same opportunities for developing theories
about how different types of change cause certain types of firms to succeed
or fail or for testing those theories as the industry repeats its cycles of
This chapter summarizes the history of the disk drive industry in all
its complexity. Some readers will be interested in it for the sake of history
itself. But the value of understanding this history is that out of its
complexity emerge a few stunningly simple and consistent factors that have
repeatedly determined the success and failure of the industry's best firms.
Simplyput, when the best firms succeeded, they did so because they listened
responsively to their customers and invested aggressively in the technology,
products, and manufacturing capabilities that satisfied their customers'
next-generation needs. But, paradoxically, when the best firms subsequently
failed, it was for the same reasons--they listened responsively to
their customers and invested aggressively in the technology, products, and
manufacturing capabilities that satisfied their customers' next-generation
needs. This is one of the innovator's dilemmas: Blindly following the
maxim that good managers should keep close to their customers can
sometimes be a fatal mistake.
The history of the disk drive industry provides a framework for understanding
when "keeping close to your customers" is good advice--and
when it is not. The robustness of this framework could only be explored
by researching the industry's history in careful detail. Some of that detail
is recounted here, and elsewhere in this book, in the hope that readers
who are immersed in the detail of their own industries will be better able
to recognize how similar patterns have affected their own fortunes and
those of their competitors.
HOW DISK DRIVES WORK
Disk drives write and read information that computers use. They comprise
read-write heads mounted at the end of an arm that swings over the
surface of a rotating disk in much the same way that a phonograph needle
and arm reach over a record; aluminum or glass disks coated with magnetic
material; at least two electric motors, a spin motor that drives the rotation
of the disks and an actuator motor that moves the head to the desired
position over the disk; and a variety of electronic circuits that control the
drive's operation and its interface with the computer. See Figure 1.1 for
an illustration of a typical disk drive.
The read-write head is a tiny electromagnet whose polarity changes
whenever the direction of the electrical current running through it changes.
Because opposite magnetic poles attract, when the polarity of the head
becomes positive, the polarity of the area on the disk beneath the head
switches to negative, and vice versa. By rapidly changing the direction of
current flowing through the head's electromagnet as the disk spins beneath
the head, a sequence of positively and negatively oriented magnetic domains
are created in concentric tracks on the disk's surface. Disk drives
can use the positive and negative domains on the disk as a binary numeric
system--1 and 0--to "write" information onto disks. Drives read information
from disks in essentially the opposite process: Changes in the magnetic
flux fields on the disk surface induce changes in the micro current flowing
through the head.
EMERGENCE OF THE EARLIEST DISK DRIVES
A team of researchers at IBM's San Jose research laboratories developed
the first disk drive between 1952 and 1956. Named RAMAC (for Random
Access Method for Accounting and Control), this drive was the size of a
large refrigerator, incorporated fifty twenty-four-inch disks, and could
store 5 megabytes (MB) of information (see Figure 1.2). Most of the
fundamental architectural concepts and component technologies that defined
today's dominant disk drive design were also developed at IBM.
These include its removable packs of rigid disks (introduced in 1961);
the floppy disk drive (1971); and the Winchester architecture (1973). All
had a powerful, defining influence on the way engineers in the rest of the
industry defined what disk drives were and what they could do.
As IBM produced drives to meet its own needs, an independent disk
drive industry emerged serving two distinct markets. A few firms developed
the plug-compatible market (PCM) in the 1960s, selling souped-up
copies of IBM drives directly to IBM customers at discount prices. Although
most of IBM's competitors in computers (for example, Control
Data, Burroughs, and Univac) were integrated vertically into the manufacture
of their own disk drives, the emergence in the 1970s of smaller,
nonintegrated computer makers such as Nixdorf, Wang, and Prime
spawned an original equipment market (OEM) for disk drives as well.
By 1976 about $1 billion worth of disk drives were produced, of which
captive production accounted for 50 percent and PCM and OEM for
about 25 percent each.
The next dozen years unfolded a remarkable story of rapid growth,
market turbulence, and technology-driven performance improvements.
The value of drives produced rose to about $18 billion by 1995. By the
mid-1980s the PCM market had become insignificant, while OEM output
grew to represent about three-fourths of world production. Of the seventeen
firms populating the industry in 1976--all of which were relatively
large, diversified corporations such as Diablo, Ampex, Memorex, EMM,
and Control Data--all except IBM's disk drive operation had failed or
had been acquired by 1995. During this period an additional 129 firms
entered the industry, and 109 of those also failed. Aside from IBM, Fujitsu,
Hitachi, and NEC, all of the producers remaining by 1996 had entered
the industry as start-ups after 1976.
Some have attributed the high mortality rate among the integrated firms
that created the industry to its nearly unfathomable pace of technological
change. Indeed, the pace of change has been breathtaking. The number
of megabits (Mb) of information that the industry's engineers have been
able to pack into a square inch of disk surface has increased by 35 percent
per year, on average, from 50 Kb in 1967 to 1.7 Mb in 1973, 12 Mb in
1981, and 1100 Mb by 1995. The physical size of the drives was reduced
at a similar pace: The smallest available 20 MB drive shrank from 800
cubic inches ([in..sup.3]) in 1978 to 1.4 [in..sup.3] by 1993--a 35 percent
annual rate of reduction.
Figure 1.3 shows that the slope of the industry's experience curve (which
correlates the cumulative number of terabytes (one thousand gigabytes)
of disk storage capacity shipped in the industry's history to the constant-dollar
price per megabyte of memory) was 53 percent--meaning that with
each doubling of cumulative terabytes shipped, cost per megabyte fell to
53 percent of its former level. This is a much steeper rate of price decline
than the 70 percent slope observed in the markets for most other microelectronics
products. The price per megabyte has declined at about 5 percent
per quarter for more than twenty years.
THE IMPACT OF TECHNOLOGICAL CHANGE
My investigation into why leading firms found it so difficult to stay
atop the disk drive industry led me to develop the "technology mudslide
hypothesis": Coping with the relentless onslaught of technology change
was akin to trying to climb a mudslide raging down a hill. You have to
scramble with everything you've got to stay on top of it, and if you ever
once stop to catch your breath, you get buried.
To test this hypothesis, I assembled and analyzed a database consisting
of the technical and performance specifications of every model of disk
drive introduced by every company in the world disk drive industry for
each of the years between 1975 and 1994. This database enabled me to
identify the firms that led in introducing each new technology; to trace
how new technologies were diffused through the industry over time; to
see which firms led and which lagged; and to measure the impact each
technological innovation had on capacity, speed, and other parameters
of disk drive performance. By carefully reconstructing the history of each
technological change in the industry, the changes that catapulted entrants
to success or that precipitated the failure of established leaders could be
This study led me to a very different view of technology change than the
work of prior scholars on this question had led me to expect. Essentially, it
revealed that neither the pace nor the difficulty of technological change
lay at the root of the leading firms' failures. The technology mudslide
hypothesis was wrong.
The manufacturers of most products have established a trajectory of
performance improvement over time. Intel, for example, pushed the speed
of its microprocessors ahead by about 20 percent per year, from its 8
megahertz (MHz) 8088 processor in 1979 to its 133 MHz Pentium chip
in 1994. Eli Lilly and Company improved the purity of its insulin from
50,000 impure parts per million (ppm) in 1925 to 10 ppm in 1980, a 14
percent annual rate of improvement. When a measurable trajectory of
improvement has been established, determining whether a new technology
is likely to improve a product's performance relative to earlier products
is an unambiguous question.
But in other cases, the impact of technological change is quite different.
For instance, is a notebook computer better than a mainframe? This is
an ambiguous question because the notebook computer established a
completely new performance trajectory, with a definition of performance
that differs substantially from the way mainframe performance is measured.
Notebooks, as a consequence, are generally sold for very different
This study of technological change over the history of the disk drive
industry revealed two types of technology change, each with very different
effects on the industry's leaders. Technologies of the first sort sustained
the industry's rate of improvement in product performance (total capacity
and recording density were the two most common measures) and ranged
in difficulty from incremental to radical. The industry's dominant firms
always led in developing and adopting these technologies. By contrast,
innovations of the second sort disrupted or redefined performance
trajectories--and consistently resulted in the failure of the industry's
The remainder of this chapter illustrates the distinction between sustaining
and disruptive technologies by describing prominent examples of
each and summarizing the role these played in the industry's development.
This discussion focuses on differences in how established firms came to
lead or lag in developing and adopting new technologies, compared with
entrant firms. To arrive at these examples, each new technology in the
industry was examined. In analyzing which firms led and lagged at each
of these points of change, I defined established firms to be those
that had been established in the industry prior to the advent of the technology
in question, practicing the prior technology. I defined entrant firms as
those that were new to the industry at that point of technology change. Hence,
a given firm would be considered an entrant at one specific point in the
industry's history, for example, at the emergence of the 8-inch drive. Yet
the same firm would be considered an established firm when technologies
that emerged subsequent to the firm's entry were studied.
SUSTAINING TECHNOLOGICAL CHANGES
In the history of the disk drive industry, most technology changes have
sustained or reinforced established trajectories of product performance
improvement. Figure 1.4, which compares the average recording density of
drives that employed successive generations of head and disk technologies,
maps an example of this. The first curve plots the density of drives that used
conventional particulate oxide disk technology and ferrite head technology;
the second charts the average density of drives that used new-technology
thin-film heads and disks; the third marks the improvements in density
achievable with the latest head technology, magneto-resistive heads.
The way such new technologies as these emerge to surpass the performance
of the old resembles a series of intersecting technology S-curves.
Movement along a given S-curve is generally the result of incremental
improvements within an existing technological approach, whereas jumping
onto the next technology curve implies adopting a radically new
technology. In the cases measured in Figure 1.4, incremental advances,
such as grinding the ferrite heads to finer, more precise dimensions and
using smaller and more finely dispersed oxide particles on the disk's
surface, led to the improvements in density from 1 to 20 megabits per
square inch (Mbpsi) between 1976 and 1989. As S-curve theory would
predict, the improvement in recording density obtainable with ferrite/
oxide technology began to level off toward the end of the period, suggesting
a maturing technology. The thin-film head and disk technologies'
effect on the industry sustained performance improvement at its historical
rate. Thin-film heads were barely established in the early 1990s, when
even more advanced magneto-resistive head technology emerged. The
impact of magneto-resistive technology sustained, or even accelerated, the
rate of performance improvement.
Figure 1.5 describes a sustaining technological change of a very different
character: an innovation in product architecture, in which the 14-inch
Winchester drive is substituted for removable disk packs, which had been
the dominant design between 1962 and 1978. Just as in the thin-film for
ferrite/oxide substitution, the impact of Winchester technology sustained
the historically established rate of performance improvement. Similar
graphs could be constructed for most other technological innovations in
the industry, such as embedded servo systems, RLL and PRML recording
codes, higher RPM motors, and embedded interfaces. Some of these were
straightforward technology improvements; others were radical departures.
But all had a similar impact on the industry: They helped manufacturers
to sustain the rate of historical performance improvement that their customers
had come to expect.
In literally every case of sustaining technology change in the disk drive
industry, established firms led in development and commercialization. The
emergence of new disk and head technologies illustrates this.
In the 1970s, some manufacturers sensed that they were reaching the
limit on the number of bits of information they could pack onto oxide
disks. In response, disk drive manufacturers began studying ways of
applying super-thin films of magnetic metal on aluminum to sustain the
historical rate of improvements in recording density. The use of thin-film
coatings was then highly developed in the integrated circuit industry, but
its application to magnetic disks still presented substantial challenges.
Experts estimate that the pioneers of thin-film disk technology--IBM,
Control Data, Digital Equipment, Storage Technology, and Ampex--each
took more than eight years and spent more than $50 million in that effort.
Between 1984 and 1986, about two-thirds of the producers active in 1984
introduced drives with thin-film disks. The overwhelming majority of
these were established industry incumbents. Only a few entrant firms
attempted to use thin-film disks in their initial products, and most of
those folded shortly after entry.
The same pattern was apparent in the emergence of thin-film heads.
Manufacturers of ferrite heads saw as early as 1965 the approaching limit
to improvements in this technology; by 1981 many believed that the
limits of precision would soon be reached. Researchers turned to thin-film
technology, produced by sputtering thin films of metal on the
recording head and then using photolithography to etch much finer electromagnets
than could be attained with ferrite technology. Again, this
proved extraordinarily difficult. Burroughs in 1976, IBM in 1979, and
other established firms first successfully incorporated thin-film heads in
disk drives. In the period between 1982 and 1986, during which some
sixty firms entered the rigid disk drive industry, only four (all commercial
failures) attempted to do so using thin-film heads in their initial products
as a source of performance advantage. All other entrant firms--even
aggressively performance-oriented firms such as Maxtor and Conner Peripherals--found
it preferable to learn their way using conventional ferrite
heads first, before tackling thin-film technology.
As was the case with thin-film disks, the introduction of thin-film heads
entailed the sort of sustained investment that only established firms could
handle. IBM and its rivals each spent more than $100 million developing
thin-film heads. The pattern was repeated in the next-generation magneto--resistive
head technology: The industry's largest firms--IBM, Seagate, and
Quantum--led the race.
The established firms were the leading innovators not just in developing
risky, complex, and expensive component technologies such as thin-film
heads and disks, but in literally every other one of the sustaining innovations
in the industry's history. Even in relatively simple innovations, such
as RLL recording codes (which took the industry from double- to triple-density
disks), established firms were the successful pioneers, and entrant
firms were the technology followers. This was also true for those architectural
innovations--for example, 14-inch and 2.5-inch Winchester drives--whose
impact was to sustain established improvement trajectories.
Established firms beat out the entrants.
Figure 1.6 summarizes this pattern of technology leadership among
established and entrant firms offering products based on new sustaining
technologies during the years when those technologies were emerging.
The pattern is stunningly consistent. Whether the technology was radical
or incremental, expensive or cheap, software or hardware, component or
architecture, competence-enhancing or competence-destroying, the pattern
was the same. When faced with sustaining technology change that
gave existing customers something more and better in what they wanted,
the leading practitioners of the prior technology led the industry in the
development and adoption of the new. Clearly, the leaders in this industry
did not fail because they became passive, arrogant, or risk-averse or
because they couldn't keep up with the stunning rate of technological
change. My technology mudslide hypothesis wasn't correct.
FAILURE IN THE FACE OF DISRUPTIVE
Most technological change in the disk drive industry has consisted of
sustaining innovations of the sort described above. In contrast, there have
been only a few of the other sort of technological change, called disruptive
technologies. These were the changes that toppled the industry's leaders.
The most important disruptive technologies were the architectural innovations
that shrunk the size of the drives--from 14-inch diameter disks
to diameters of 8, 5.25, and 3.5-inches and then from 2.5 to 1.8 inches.
Table 1.1 illustrates the ways these innovations were disruptive. Based
on 1981 data, it compares the attributes of a typical 5.25-inch drive, a
new architecture that had been in the market for less than a year, with
those of a typical 8-inch drive, which at that time was the standard drive
used by minicomputer manufacturers. Along the dimensions of performance
important to established minicomputer manufacturers--capacity,
cost per megabyte, and access time--the 8-inch product was vastly superior.
The 5.25-inch architecture did not address the perceived needs of
minicomputer manufacturers at that time. On the other hand, the 5.25-inch
drive had features that appealed to the desktop personal computer
market segment just emerging in the period between 1980 and 1982. It
was small and lightweight, and, priced at around $2,000, it could be
incorporated into desktop machines economically.
Generally disruptive innovations were technologically straightforward,
consisting of off-the-shelf components put together in a product architecture
that was often simpler than prior approaches. They offered less of
what customers in established markets wanted and so could rarely be
initially employed there. They offered a different package of attributes
valued only in emerging markets remote from, and unimportant to, the
The trajectory map in Figure 1.7 shows how this series of simple but
disruptive technologies proved to be the undoing of some very aggressive,
astutely managed disk drive companies. Until the mid-1970s, 14-inch
drives with removable packs of disks accounted for nearly all disk drive
sales. The 14-inch Winchester architecture then emerged to sustain the
trajectory of recording density improvement. Nearly all of these drives
(removable disks and Winchesters) were sold to mainframe computer
manufacturers, and the same companies that led the market in disk pack
drives led the industry's transition to the Winchester technology.
|Table 1.1A Disruptive Technology Change: The 5.25-inch Winchester Disk Drive(1981)
(Desktop Computer Market)
|Physical volume (cubicinches)||566||150
|Access time (milliseconds)||30||160
|Cost per megabyte||$50||$200
|Source: Data are from various issues of Disk/Trend Report.
The trajectory map shows that the hard disk capacity provided in the
median priced, typically configured mainframe computer system in 1974
was about 130 MB per computer. This increased at a 15 percent annual
rate over the next fifteen years--a trajectory representing the disk capacity
demanded by the typical users of new mainframe computers. At the same
time, the capacity of the average 14-inch drive introduced for sale each
year increased at a faster, 22 percent rate, reaching beyond the mainframe
market to the large scientific and supercomputer markets.
Between 1978 and 1980, several entrant firms--Shugart Associates,
Micropolis, Priam, and Quantum--developed smaller 8-inch drives with
10, 20, 30, and 40 MB capacity. These drives were of no interest to
mainframe computer manufacturers, which at that time were demanding
drives with 300 to 400 MB capacity. These 8-inch entrants therefore
sold their disruptive drives into a new application--minicomputers. The
customers--Wang, DEC, Data General, Prime, and Hewlett-Packard--did
not manufacture mainframes, and their customers often used software
substantially different from that used in mainframes. These firms hitherto
had been unable to offer disk drives in their small, desk-side minicomputers
because 14-inch models were too big and expensive. Although initially
the cost per megabyte of capacity of 8-inch drives was higher than that
of 14-inch drives, these new customers were willing to pay a premium
for other attributes that were important to them--especially smaller size.
Smallness had little value to mainframe users.
Once the use of 8-inch drives became established in minicomputers,
the hard disk capacity shipped with the median-priced minicomputer grew
about 25 percent per year: a trajectory determined by the ways in which
minicomputer owners learned to use their machines. At the same time,
however, the 8-inch drive makers found that, by aggressively adopting
sustaining innovations, they could increase the capacity of their products
at a rate of more than 40 percent per year--nearly double the rate of
increase demanded by their original "home" minicomputer market. In
consequence, by the mid-1980s, 8-inch drive makers were able to provide
the capacities required for lower-end mainframe computers. Unit volumes
had grown significantly so that the cost per megabyte of 8-inch drives
had declined below that of 14-inch drives, and other advantages became
apparent: For example, the same percentage mechanical vibration in an
8-inch drive, as opposed to a 14-inch drive, caused much less variance in
the absolute position of the head over the disk. Within a three-to-four-year
period, therefore, 8-inch drives began to invade the market above
them, substituting for 14-inch drives in the lower-end mainframe computer
As the 8-inch products penetrated the mainframe market, the established
manufacturers of 14-inch drives began to fail. Two-thirds of them never
introduced an 8-inch model. The one-third that introduced 8-inch models
did so about two years behind the 8-inch entrant manufacturers. Ultimately,
every 14-inch drive maker was driven from the industry.
The 14-inch drive makers were not toppled by the 8-inch entrants
because of technology. The 8-inch products generally incorporated standard
off-the-shelf components, and when those 14-inch drive makers that
did introduce 8-inch models got around to doing so, their products were
very performance-competitive in capacity, areal density, access time, and
price per megabyte. The 8-inch models introduced by the established firms
in 1981 were nearly identical in performance to the average of those
introduced that year by the entrant firms. In addition, the rates of improvement
in key attributes (measured between 1979 and 1983) were stunningly
similar between established and entrant firms.
Held Captive by Their Customers
Why were the leading drive makers unable to launch 8-inch drives until
it was too late? Clearly, they were technologically capable of producing
these drives. Their failure resulted from delay in making the strategic
commitment to enter the emerging market in which the 8-inch drives
initially could be sold. Interviews with marketing and engineering executives
close to these companies suggest that the established 14-inch drive
manufacturers were held captive by customers. Mainframe computer manufacturers
did not need an 8-inch drive. In fact, they explicitly did not
want it: they wanted drives with increased capacity at a lower cost per
megabyte. The 14-inch drive manufacturers were listening and responding
to their established customers. And their customers--in a way that was
not apparent to either the disk drive manufacturers or their computer-making
customers--were pulling them along a trajectory of 22 percent
capacity growth in a 14-inch platform that would ultimately prove fatal.
Figure 1.7 maps the disparate trajectories of performance improvement
demanded in the computer product segments that emerged later, compared
to the capacity that changes in component technology and refinements
in system design made available within each successive architecture. The
solid lines emanating from points A, B, C, D, and E measure the disk
drive capacity provided with the median-priced computer in each category,
while the dotted lines from the same points measure the average capacity
of all disk drives introduced for sale in each architecture, for each year.
These transitions are briefly described below.
The Advent of the 5.25-inch Drive
In 1980, Seagate Technology introduced 5.25-inch disk drives. Their capacities
of 5 and 10 MB were of no interest to minicomputer manufacturers,
who were demanding drives of 40 and 60 MB from their suppliers.
Seagate and other firms that entered with 5.25-inch drives in the period
1980 to 1983 (for example, Miniscribe, Computer Memories, and International
Memories) had to pioneer new applications for their products and
turned primarily to desktop personal computer makers. By 1990, the use
of hard drives in desktop computers was an obvious application for
magnetic recording. It was not at all clear in 1980, however, when the
market was just emerging, that many people could ever afford or use a
hard drive on the desktop. The early 5.25-inch drive makers found this
application (one might even say that they enabled it) by trial and error,
selling drives to whomever would buy them.
Once the use of hard drives was established in desktop PCs, the disk
capacity shipped with the median-priced machine (that is, the capacity
demanded by the general PC user) increased about 25 percent per year.
Again, the technology improved at nearly twice the rate demanded in the
new market: The capacity of new 5.25-inch drives increased about 50
percent per year-between 1980 and 1990. As in the 8-inch for 14-inch
substitution, the first firms to produce 5.25-inch drives were entrants; on
average, established firms lagged behind entrants by two years. By 1985,
only half of the firms producing 8-inch drives had introduced 5.25-inch
models. The other half never did.
Growth in the use of 5.25-inch drives occurred in two waves. The first
followed creation of a new application for rigid disk drives: desktop
computing, in which product attributes such as physical size, relatively
unimportant in established applications, were highly valued. The second
wave followed substitution of 5.25-inch disks for larger drives in established
minicomputer and mainframe computer markets, as the rapidly
increasing capacity of 5.25-inch drives intersected the more slowly growing
trajectories of capacity demanded in these markets. Of the four leading
8-inch drive makers--Shugart Associates, Micropolis, Priam, and Quantum--only
Micropolis survived to become a significant manufacturer
of 5.25-inch drives, and that was accomplished only with Herculean
managerial effort, as described in chapter 5.
The Pattern Is Repeated: The Emergence of the 3.5-inch Drive
The 3.5-inch drive was first developed in 1984 by Rodime, a Scottish
entrant. Sales of this architecture were not significant, however, until
Conner Peripherals, a spinoff of 5.25-inch drive makers Seagate and
Miniscribe, started shipping product in 1987. Conner had developed a
small, lightweight drive architecture that was much more rugged than its
5.25-inch ancestors. It handled electronically functions that had previously
been managed with mechanical parts, and it used microcode to replace
functions that had previously been addressed electronically. Nearly all of
Conner's first year revenues of $113 million came from Compaq Computer,
which had aided Conner's start-up with a $30 million investment.
The Conner drives were used primarily in a new application--portable and
laptop machines, in addition to "small footprint" desktop models--where
customers were willing to accept lower capacities and higher costs per
megabyte to get lighter weight, greater ruggedness, and lower power
Seagate engineers were not oblivious to the coming of the 3.5-inch
architecture. Indeed, in early 1985, less than one year after Rodime introduced
the first 3.5-inch drive and two years before Conner Peripherals
started shipping its product, Seagate personnel showed working 3.5-inch
prototype drives to customers for evaluation. The initiative for the new
drives came from Seagate's engineering organization. Opposition to the
program came primarily from the marketing organization and Seagate's
executive team; they argued that the market wanted higher capacity drives
at a lower cost per megabyte and that 3.5-inch drives could never be built
at a lower cost per megabyte than 5.25-inch drives.
Seagate's marketers tested the 3.5-inch prototypes with customers in
the desktop computing market it already served--manufacturers like IBM,
and value-added resellers of full-sized desktop computer systems. Not
surprisingly, they indicated little interest in the smaller drive. They were
looking for capacities of 40 and 60 megabytes for their next-generation
machines, while the 3.5-inch architecture could provide only 20 MB--and
at higher costs.
In response to lukewarm reviews from customers, Seagate's program
manager lowered his 3.5-inch sales estimates, and the firm's executives
canceled the program. Their reasoning? The markets for 5.25-inch products
were larger, and the sales generated by spending the engineering effort
on new 5.25-inch products would create greater revenues for the company
than would efforts targeted at new 3.5-inch products.
In retrospect, it appears that Seagate executives read the market--at
least their own market--very accurately. With established applications
and product architectures of their own, such as the IBM XT and AT, these
customers saw no value in the improved ruggedness or the reduced size,
weight, and power consumption of 3.5-inch products.
Seagate finally began shipping 3.5-inch drives in early 1988--the same
year in which the performance trajectory of 3.5-inch drives (shown in
Figure 1.7) intersected the trajectory of capacity demanded in desktop
computers. By that time, the industry had shipped, cumulatively, nearly
$750 million in 3.5-inch products. Interestingly, according to industry
observers, as of 1991 almost none of Seagate's 3.5-inch products had
been sold to manufacturers of portable/laptop/notebook computers. In
other words, Seagate's primary customers were still desktop computer
manufacturers, and many of its 3.5-inch drives were shipped with frames
for mounting them in computers designed for 5.25-inch drives.
The fear of cannibalizing sales of existing products is often cited as a
reason why established firms delay the introduction of new technologies.
As the Seagate-Conner experience illustrates, however, if new technologies
enable new market applications to emerge, the introduction of new technology
may not be inherently cannibalistic. But when established firms
wait until a new technology has become commercially mature in its new
applications and launch their own version of the technology only in
response to an attack on their home markets, the fear of cannibalization
can become a self-fulfilling prophecy.
Although we have been looking at Seagate's response to the development
of the 3.5-inch drive architecture, its behavior was not atypical; by 1988,
only 35 percent of the drive manufacturers that had established themselves
making 5.25-inch products for the desktop PC market had introduced
3.5-inch drives. Similar to earlier product architecture transitions, the
barrier to development of a competitive 3.5-inch product does not appear
to have been engineering-based. As in the 14- to 8-inch transition, the
new-architecture drives introduced by the incumbent, established firms
during the transitions from 8 to 5.25 inches and from 5.25 to 3.5 inches
were fully performance-competitive with those of entrant drives. Rather,
the 5.25-inch drive manufacturers seem to have been misled by their
customers, notably IBM and its direct competitors and resellers, who
themselves seemed as oblivious as Seagate to the potential benefits and
possibilities of portable computing and the new disk drive architecture
that might facilitate it.
Prairietek, Conner, and the 2.5-inch Drive
In 1989 an industry entrant in Longmont, Colorado, Prairietek, upstaged
the industry by announcing a 2.5-inch drive, capturing nearly all $30
million of this nascent market. But Conner Peripherals announced its own
2.5-inch product in early 1990 and by the end of that year had claimed
95 percent of the 2.5-inch drive market. Prairietek declared bankruptcy
in late 1991, by which time each of the other 3.5-inch drivemakers--Quantum,
Seagate, Western Digital, and Maxtor--had introduced 2.5-inch
drives of their own.
What had changed? Had the incumbent leading firms finally learned
the lessons of history? Not really. Although Figure 1.7 shows the 2.5-inch
drive had significantly less capacity than the 3.5-inch drives, the
portable computing markets into which the smaller drives were sold valued
other attributes: weight, ruggedness, low power consumption, small physical
size, and so on. Along these dimensions, the 2.5-inch drive offered
improved performance over that of the 3.5-inch product: It was a sustaining
technology. In fact, the computer makers who bought Conner's
3.5-inch drive--laptop computer manufacturers such as Toshiba, Zenith,
and Sharp--were the leading makers of notebook computers, and these
firms needed the smaller 2.5-inch drive architecture. Hence, Conner and
its competitors in the 3.5-inch market followed their customers seamlessly
across the transition to 2.5-inch drives.
In 1992, however, the 1.8-inch drive emerged, with a distinctly disruptive
character. Although its story will be recounted in detail later, it suffices
to state here that by 1995, it was entrant firms that controlled 98 percent
of the $130 million 1.8-inch drive market. Moreover, the largest initial
market for 1.8-inch drives wasn't in computing at all. It was in portable
heart monitoring devices!
Figure 1.8 summarizes this pattern of entrant firms' leadership in disruptive
technology. It shows, for example, that two years after the 8-inch
drive was introduced, two-thirds of the firms producing it (four of six),
were entrants. And, two years after the first 5.25-inch drive was introduced,
80 percent of the firms producing these disruptive drives were
There are several patterns in the history of innovation in the disk drive
industry. The first is that the disruptive innovations were technologically
straightforward. They generally packaged known technologies in a unique
architecture and enabled the use of these products in applications where
magnetic data storage and retrieval previously had not been technologically
or economically feasible.
The second pattern is that the purpose of advanced technology development
in the industry was always to sustain established trajectories of
performance improvement: to reach the higher-performance, higher-margin
domain of the upper right of the trajectory map. Many of these
technologies were radically new and difficult, but they were not disruptive.
The customers of the leading disk drive suppliers led them toward these
achievements. Sustaining technologies, as a result, did not precipitate
The third pattern shows that, despite the established firms' technological
prowess in leading sustaining innovations, from the simplest to the most
radical, the firms that led the industry in every instance of developing
and adopting disruptive technologies were entrants to the industry, not
its incumbent leaders.
This book began by posing a puzzle: Why was it that firms that could
be esteemed as aggressive, innovative, customer-sensitive organizations
could ignore or attend belatedly to technological innovations with enormous
strategic importance? In the context of the preceding analysis of
the disk drive industry, this question can be sharpened considerably. The
established firms were, in fact, aggressive, innovative, and customer-sensitive
in their approaches to sustaining innovations of every sort. But the
problem established firms seem unable to confront successfully is that of
downward vision and mobility, in terms of the trajectory map. Finding
new applications and markets for these new products seems to be a
capability that each of these firms exhibited once, upon entry, and then
apparently lost. It was as if the leading firms were held captive by their
customers, enabling attacking entrant firms to topple the incumbent industry
leaders each time a disruptive technology emerged. Why this happened,
and is still happening, is the subject of the next chapter.
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