Earlier this month I’ve stumbled upon the company „LivingPackets“. I’ve already assessed their creative financing scheme – which is based on funding with money from people with limited knowledge in finance. You can learn more about the scheme here in German and here in French. In this article I want to explore weather the „The Box“ has the potential to become a disruptive innovation as they claim. In a future article next week, I will dig deeper into the rest of the company’s claims. Stay tuned.
Basis for a disruptive innovation after CM Christensen
In the book „The Innovator’s Dilemma“ by Clayton M. Christensen, the question is discussed why some innovations tend to be disruptive, meaning that well established companies in a branch are not able to go along a changing market situation and leaving niche which is growing to become a full scaled marked open for young competitors which will create and then live up to the demand. Christensen highlights two main factors as important for any disruptive technology. Keep in mind that these two factors are only necessary conditions, not sufficient conditions. The first condition is the simplicity of the product. The simplicity allows a company with low expertise on a certain field to create a low-cost product. Products of well-established companies have often gone through extensive supportive innovation cycles in which they have been optimized and fine-tuned and it would be impossible for new comers to compete with products of this order of sophistication. The second factor is the requirement of the product to be a worse product in some aspects compared to the products of the well established companies. This ensures, that the established company will not try to compete with the product of the newcomer in its early stage, since the customers of the company would not accept a product of lower standards and if they would, the product would cannibalize the high-end products of the established company.
Examples of disruptive innovations
There are many examples for this process. The flash drive that replaced the normal hard disks by being very „simple“ (purely electronic opposed to the magnetic mechanical and electronic conventional hard disks) but they were initially only used in a very small set of low-end applications, fulfilling both criteria.
The iPad is a second example, a personal computer, that uses long established easy technology (the capacitive touchscreen was invented 1973 and has been used since then, source: CERNCourier) but removes essential parts of a normal personal computer experience like a mouse keyboard and slots to connect external devices, being a simple and „worse“ product that many of the established companies did not want to copy until it was to late.
A more recent example for a disruptive technology is Tesla*. It is a worse product as for the inconvenience of low range, the hassle of charging, etc. and it uses very simple technology that has been around for a long time. Even now that established car manufacturers have started to compete with Tesla, Tesla remains disruptive, as it can allow itself to delivery very poor build quality of the car to a high-end customer (e.g. the gap dimensions in the coachwork are huge, poor air-sealing, closing the door sounds like kicking a plastic trash can, instead of the nice dull bump of a mid-range to high range conventional car (they have sound engineers just for that) and general bad plastic haptic) and thus have more money to cram a lot of expensive batteries, thus having the longest drive range, that other car manufacturers cannot afford with their high build quality. This is not to say, that Tesla will be successful on the long run or that in general the shift to electric cars is desirable for society. But which is a whole different topic for another time.
* = The author holds stakes in a financial product that is affected by the development of the Tesla share.
Analysis of disruptiveness of „The Box“
The Box fails the first of Christensen’s main criteria for a disruptive technology: The simplicity of the product. It is the complete opposite of the criterion: having a build-in scale, a E-Ink display, a camera on the inside, humidity sensor, temperature sensor, GPS, a 4G module. In short lot’s and lot’s of fancy technology. It is much more complex than the current established product (cardboard) meaning that a well established company with more resources and expertise could do a way better job to create a more competitive version of it.
Being a worse product
This criteria is definitely met by „The Box“: from the viewpoint of the average customer that receives a lot more packages than they send off in return, the box is the worse product. For the time being most receivers do not have to pay – or at least they are not aware of it – for the extra amount of trash that they produce through cardboard packaging. Meaning that it is very convenient for the customer to dispose the cardboard. LivingPackets on the other hand means that the receiver of a package would have to store the package in his home. Even though the package is foldable and takes up little space, it still has to be stored some place and the receiver has to get rid of it by carrying it to a store or handing it to the postmen whenever they bring a new package. Source, archive of source. On top of that, an end consumer would never use the Box during the establishment of the product because even though they have the box in their possession (not in their ownership) they would need to pay 2 euros on top of the postage in order to use it and thus much rather use an old cardboard box from a preceding other shipping.
Measured with the conditions of the inventor’s dilemma by Christensen, The Box by LivingPackets will probably not be a disruptive innovation. But the company might be successful even though or set some impulses for supportive innovations in established companies or pave the way for future disruptive technologies.