I’ve previously thought of Jamie Zawinski not just as an excellent hacker but also as a marketing talent, creator of the original mozilla.org “brand.” (Imagined conversation: “You know, these open source and free software types are all radical anarchists or Marxist hippies; they’ll really go for a brand image that reminds them of trashing a WTO meeting” “Well, Jamie, you’re the expert. . . .”) Now based on his “groupware bad” rant it turns out that JWZ is also a leading-edge corporate competitive strategist; maybe the people getting Harvard Business School MBAs could take a break and hang out at the DNA Lounge instead.

In particular, JWZ’s comments are a textbook application of the “disruptive innovation” theory formulated by Clayton Christensen and his various collaborators and popularized in the books The Innovator’s Dilemma, The Innovator’s Solution, and Seeing What’s Next.

According to Christensen et.al., companies can try to seek market share, growth, and profits in two general ways:

  • develop and introduce “sustaining” innovations directed to demanding customers in an existing market, typically going up against established companies already in the market; or

  • develop and introduce “disruptive” innovations directed to

    • less demanding and more price-sensitive customers in an existing market (“low-cost disruption”) or

    • new customers or new uses by existing customers (“new market disruption”).

From Christensen’s point of view disruptive strategies are better—more potential upside in terms of long-term growth and attractive profits, less chance of getting crushed by Godzilla.

Applying this to Netscape, Netscape Navigator 1.0 was a disruptive innovation appealing to “non consumers”—people who wanted to access the resources of the Internet but who previously couldn’t due to their lack of skill. For business users Netscape Navigator 1.0 in conjunction with web server software was also a low-cost disruptive innovation, providing a “good enough” alternative to expensive publishing and document management systems; similarly for many business users the email capabilities of Netscape Navigator 2.0 were a low-cost “good enough” alternative to more full-featured proprietary email systems.

Incidentally, despite a widespread myth to the contrary, note that Netscape Navigator was not a free (as in “free beer”) product, at least as far as businesses were concerned. Although it was freely downloadable by anyone, and consumers could essentially use the product without charge under a very liberal trial license, businesses were required to pay a per-user license fee, typically from $10 to $50 per user depending on the number of users licensed.

This is an important point: As Christensen notes, a low-cost disruptive innovation requires an accompanying low-cost business model in order to support profit margins equivalent to (or even better than) companies selling to the higher end of the market. In Netscape’s case this low-cost business model was quite simple:

  1. Netscape offered up Netscape Navigator for download over the Internet (near-zero cost of distribution).

  2. Employees of businesses downloaded and installed Netscape Navigator after hearing about it from co-workers or friends or reading about it in the press (near-zero cost of marketing).

  3. Netscape salespeople (many of them lower-paid telesales workers) then simply (and typically successfully) called on businesses to ask them to buy a site license so that they could legally use the software that all their employees were already happily using (very low cost of sales).

The result: Rapid growth and healthy profits. However Microsoft killed the low-cost part of the strategy by “cutting off the air supply” (i.e., making Internet Explorer a true zero-cost product distributed with the operating system) and ruining Netscape’s previously-profitable business model, and Netscape itself killed the “compete against nonconsumption” part of the strategy by trying to compete head to head in the corporate groupware space against well-entrenched competition from Microsoft and others.

In essence Microsoft co-opted the disruptive innovation represented by the browser, instead turning it into a sustaining innovation for the Microsoft Windows operating system. According to Christensen this is a standard response strategy for incumbent vendors faced with new entrants employing a disruptive strategy; for example, the incumbent telephone companies (e.g., Verizon, BellSouth, and SBC) co-opted the disruptive innovation represented by cellular telephony, converting it into a incremental business opportunity supplementing their existing landline revenue.

As Christensen also points out, co-optation is made easier when the disruptive firm and the incumbent firms have overlapping “value networks,” defined to include “[a firm’s] upstream suppliers; its downstream customers, retailers, and distributors; and its partners and ancillary industry players.” This was very much the case with Netscape vs. Microsoft in the enterprise market: Netscape was selling to the same customers as Microsoft and trying to leverage distribution channels and ancillary providers already working with Microsoft, including PC vendors, VARs, systems integrators, and enterprise application developers.

Contrast this with a company like Google, which employed (and continues to employ) a disruptive strategy based on competing against nonconsumption in three senses: First, Google provided ordinary users a simple and easy way to search for exactly the information they were looking for, something that previously had required the assistance of “search specialists” (e.g., reference librarians, commercial search services such as Nexis, and so on). Second, Google provided small and medium-size businesses an easy and simple way to do precisely-targeted national and even international advertising, without having to hire expensive ad agencies or direct marketing firms. Finally, Google also enabled small specialty publishers, including individuals, to become sellers of advertising space, competing against major newspapers, magazines, and television networks.

For the most part Google’s value network doesn’t intersect with Microsoft’s: Google doesn’t sell to IT managers and depend on VARs and systems integrators, it sells to ad buyers (and their representatives) and those with advertising space to sell. The only major point of intersection is that (like everyone else) Google depends on access to users’ desktops, a “choke point” (as Christensen puts it) that is predominantly (though not completely) controlled by Microsoft.

Now let’s go back to JWZ’s post and translate his recommendations into Christensen’s terms:

  • “Build software that people want to use instead of software that managers want to buy.” Christensen describes this as looking at the “jobs” that people “hire” products to do, as opposed to thinking in terms of selling a predefined type of product (“groupware”) to a predefined market segment (“medium to large enterprises”).(Incidentally, in this connection Christensen thinks that conventional market research—including doing focus group studies, making estimates of market sizes, soliciting the opinions of industry analysts, and so on—is basically a waste of time and money when it comes to creating disruptive innovations.)

  • “Narrow the focus. Your ‘use case’ should be, there’s a 22 year old college student living in the dorms. How will this software get him laid?” In Christensen’s terms this is “competing against nonconsumption”: unlike corporate users, for the most part college students and others outside the corporate world are “nonconsumers” of calendar capabilities and other functions associated with traditional groupware systems.Christensen also notes that a major benefit of competing against nonconsumption is that such customers will gladly use a product that is less feature-rich, high-performance, industrial-strength, and so on, because it’s better than what they had before, namely nothing. On the other hand an existing firm will typically be more focused on improving its products’ functionality, performance, reliability, etc., to meet the needs and desires of its existing customers, lessening the firm’s motivation and ability to seek out new customers unlike its current ones.

  • “‘Groupware’ is all about things like ‘workflow.’ . . . Nobody cares about that shit. Nobody you’d want to talk to, anyway.” From Christensen’s point of view a firm pursuing a disruptive strategy has a greater chance of success if it can build a value network distinct from those of existing firms, not only in terms of who the customers are (which I think was mainly JWZ’s point) but also in terms of distribution channels and suppliers of related goods and services.A good example of this is the way that Linux-based operating systems and open source applications infiltrated the enterprise market: With Linux and open source the perceived customers were different (developers and system administrators as opposed to IT managers), the distribution channel was different (direct download off the Internet as opposed to direct and indirect sales organizations going through the corporate procurement folks), and the ancillary providers were different (e.g., free support via Internet-based volunteer communities as opposed to for-fee support from ISVs and third-parties). The net result was that Microsoft had limited leverage over the Linux/open source value network.

What does all this have to do with Mozilla? I hope to blog more about this in the future, but for now I’ll just conclude with the following interesting questions, focusing on Firefox:

  • Is Firefox more of a sustaining innovation or a disruptive innovation?

  • In what sense is the Mozilla project pursuing (or could pursue) disruptive strategies, whether based on low cost or competing against nonconsumption?

  • What might “competing against nonconsumption” entail in the context of Firefox and the Mozilla project?

  • What is the value network for Firefox and the Mozilla project, and how does it overlap with the value network for IE and Microsoft?

  • Are the Mozilla project and Firefox potentially vulnerable to a co-optation strategy by Microsoft, as Netscape was?

More on all this in the coming weeks as I have time.

UPDATE: Subsequent posts in this series discuss whether Firefox is a disruptive innovation in the sense Christensen uses, the value network for Firefox, and potential “asymmetric competition” between the Mozilla project and Microsoft.