Seeing a replacement when there's none

When it comes to really novel products, we all have a tendency to see them replacing the incumbent solutions right away. For instance, the concept of the paperless office was predicting the computer screen would replace paper in the workplace. The Web was supposed to replace the whole economy with a so-called "new economy" (remember Sun's "the dot is coming and it's going to destroy you" ads?). Oracle's Network Computer was supposed to replace the PC. Linux was supposed to replace Windows. Several e-books were supposed to replace traditional books. We all know how it went.

In reality, successful novel products are, at least initially, targeting only a subset of the current market - users frustrated by the current offering. Those products are also targeting non-consumers - people who do not use the current solutions because they are either too expensive or too inconvenient. And when the novel products do replace incumbent solutions it takes a long time. If microcomputers ended up seriously competing with Unix servers and workstations, it took them 20 years to be a serious threat.

There are several reasons for these grand - but wrong - predictions. For one, experts and journalists alike have an incentive to talk about so-called "revolutions" because it gets more attention. Some companies also have a vested interest. Sun, for example, was playing on the fear of the "new economy" because that was a way to sell its servers. Last but not least, we, the readers, also have a shared responsibility because we fall for the "revolution" trap too easily.

But beyond predictions, the companies launching those new products often TRY to replace the incumbent solutions and position themselves directly in competition with the "old" solution. This often proves fateful.

Here again, several reasons are at play. For one, the incumbent market is the juiciest and sexiest market. A lot of customers who would really welcome a new solution are overshot customers. In business terms "overshot" means "the lowest paying customers". As far as non-consumers go, they are just a big uncertainty because, well, they're not currently consuming so their reaction is up to pure speculation. So a company ran by industry insiders is more likely to target the incumbent market. That's what the insiders know and deem being with going after. That's why Oracle tried to position its Network Computer against the PC. Oracle didn't want to target non-consumers, it wanted to overthrow Microsoft and Intel in order to be considered the dominant force in the IT industry.

A lot of time too the advocates of the new solutions are blindsided. They focus on the one criteria where the new product shines but forget all the other aspects where the incumbent solution fares much better. Reducing paper consumption is good, but a piece of paper is more convenient to read than a screen, you can fold it in your pocket, etc. Likewise, no matter how much Windows users dislike Microsoft, a lot of time a Windows-less solution is considered even less desirable than switching.

This blindside is sometimes fueled by political motives. Consider the energy market. Renewable energy products have too many times been positioned against incumbent solutions for the sole reason they are more environmentally friendly. But incumbent products are far cheaper, more efficient and often more convenient. Not surprisingly renewable energies have mostly survived thanks to public subsidies. There are several niche markets where renewable energies could prosper though. The U.S. Army could be one of them, as it has deep pockets and is always interested in a source of energy in the middle of the desert. But those niche markers are seldom targeted because the promoters of renewable energies don't have the patience to let them grow in their niche market until they reach a stage where they can compete with incumbent solutions.

But it doesn't mean that novel products will never replace incumbent products. It just takes some time and seldom take the expected road. If the paperless office was a bust, the Internet has helped decreasing paper consumption in some unexpected areas: corporate document are still often printed, but people use email instead of sending letters or fax. They also read more and more material on the Web such as newspapers. Last but not least, they read Wikipedia instead of buying a whole encyclopedia. Likewise, Linux didn't replace Windows, but it gave it a run for its money as it turned out to be a very serious competition on the server side. And it is also competing in other markets such as the embeddable operating system market - a market that one day might seriously endanger Microsoft dominance on the desktop (notice the "one day").

In other words, we're often right on the outcome but wrong on the path it takes as well as the timing.