February 1, 2016
Companies like Amazon rushed onto the scene in the 90’s and rocked traditional retailers to their foundation. What traditionally had been the realm of brick -and-mortar stores could now be completed entirely online. The consumer felt empowered to compare multiple options from the comfort of their living room, and research products with the ease of a mouse-click.
The problem with innovating is the innovator’s dilemma. Clayton Christensen’s theory, put forth in the book titled after the theory is that an innovator is only going to start a natural course of events that will result in his needing to innovate again. Let’s take a look at how this affects a company like Amazon.
Jeff Bezos launched Amazon on July 5, 1995. At the time, he was one of the .com superstars that had set out to change the way the world did business. He figured out how to build a system of online marketing, ordering and order fulfillment that rivaled a military invasion in its complex systems and structure. Before long he was the king of retail.
Traditional retailers like Circuit City were knocked out of business as their customer’s began to complete more and more orders online instead of venturing into the store. Or worse, consumer began to “showroom”, using the demos and displays at traditional stores to look at the products they later purchased online.
This cannibalized the consumer retail space, hitting tech retailers very hard. Radio Shack and Best Buy were nearly wiped out by the products they sold. The mouse click had replaced the cha-ching of a register. The UPS box had replaced the shopping bag.
Best Buy and other brick and mortar stores launched their own websites. They looked at what Amazon had done by bringing customer reviews and multiple vendors into one space and attempted to copy it. Even more blatant copying occurred when other online retail sites launched.
To stay ahead of the copycats and the traditional retailers that were getting wise to how Amazon was eating them alive, Bezos continued to innovate. He introduced Amazon Prime, which made shipping items from his fulfillment centers significantly more cost effective for consumers. Recently he was even in the news for recommending that drones could be the solution for same-day delivery of items within an hour of an order being placed.
Natural Selection and Evolution Squashes Margins
While tweaking and improving will keep you marginally ahead of the competition, eventually the concept is copied so much that the competition drives down margins. As more players enter the market,
consumers have more choices and price becomes the biggest differentiator among similar service providers. In the end, the only option for a truly innovative inventor is to continue solving problems in new markets. After all, if there are too many players in one market, greener pastures become increasingly enticing as opportunities for striking gold twice become available.
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