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My current experiment in making 50 amazon site niches. If you have not been following this challenge, best place to start is this resource page for the amazon challenge, that lists all the articles that I have written so far.

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Saturday, 30 May 2009

Path to disruption: from centralisation to decentralisation

If you are familiar with Clayton Christensen's disruption theory, one of the useful way to think about disruption is to identify institutions or technologies that are centralised. As technology progresses, we often see decentralisation replacing what was once centralised. The most common example is computers. When computing started out as mainframes, they were expensive and had to be centralised to maximise economics of scale. People who want to use the computers had to travel to where the mainframes are. However, technologies and innovations soon came that decentralised computing. Mainframes become desktop, desktops become laptops and very soon, laptops might become mobiles.

Disruption will come from new entrants
From centralisation to decentralisation, there are two points to note. First, disruption will seldom come from existing players. One of the reasons is that the emerging new market often appears to be small. Hence, using their internal ROI metrics, these new markets will often failed the company's market viability tests. As a company becomes bigger and bigger, their internal ROI for new markets become higher and higher, resulting in ignorance of new markets and the threat of new players.

Beyond that, emerging innovations are often messy. Compared that with the structured processes that incumbents typically possess, and it is not difficult to see why they typically dismissed such innovations as trivial. Incumbents are locked in by their current interaction rules that prevent them from experimenting and living with messiness.

Disruption will unlock bigger markets
The second point to note about the move to decentralisation is that it will unlock much bigger markets. Again, going back to the computing example, we can see that the market for desktop dwarfs the market for mainframes. Similarly, laptops will outpace desktops. Hence, disruption not only replaces the incumbents but also creates a much bigger market for everyone else.

This is not difficult to appreciate as decentralisation often bring more convenience and lower price points to the market. This in turn attracts new users who, otherwise would not have the incentives to use these products/services. So, in a sense, decentralisation focuses on non-customers, rather than current users.

Using this framework of thinking, we can see opportunities in many institutions/technologies that are currently centralised. Take healthcare for example. Hospitals are currently centralised instutitions for patients seeking their services. Hence, the path to disrupting healthcare is decentralising either the services or health equipments that are being housed within hospitals (See Mayo Clinic, Hello Health for examples) This is why I am so interested in mobile healthcare (see related posts here and here) because it is a powerful decentralised form of healthcare delivery.

Overall, this framework provides a powerful shortcut for me to evaluate projects. It allows me to see how centralisation-based industries like education, energy, manufacturing, legal etc can be disrupted.