Disruptive technologies: investors and entrepreneurs should look for the source, not the technology itself

By Bipin Parmar

When people talk about disruptive technologies, they often attempt to identify the upcoming technologies that constitute disruptive technology. However, by the time it has been singled out as disruptive, it is already having an influence on our businesses or our lives. A recent panel organised by the National Microelectronics Institute, and held at the IEE in London, held an interesting debate about what constitutes disruptive technology and what its main attributes are. We present a summary of the key issues identified and present The Chilli's perspective on this from the point of view of entrepreneurs, investors and advisors.

Ian Phillips, principle staff engineer at ARM, used the definition from a book on the same subject written by Clayton Christensen. It states that disruptive technology (DT) is not readily identifiable by traditional market analysis or business models. DT emerges without notice, sometimes from a different source than one would expect, and displaces existing players and market leaders. Phillips added that DT also highlights the limitation imposed by existing business models. Companies are vulnerable to DT when the capacity of their products exceeds market need. The availability of one billion transistors on a chip currently far exceeds market needs.

Professor John McCanny of the Queens University Belfast, and CTO of Amphion, a semiconductor IP (intellectual property) company located in Belfast, Northern Ireland, used the examples of the tremendous jump in computing power required when one switches from MPEG2 (current moving picture standards) to the next generation standard H.264. This requires a 10x increase in compute power, while at the same time reducing power and costs; another example cited was the move from 2G to 3G wireless, which requires 100x the computing power.

Professor Steve Furber of the University of Manchester stated that DT is more likely to come from unforeseen circumstances and that is the reason, why he encourages looking at technology for its own sake rather than looking at ways of making immediate money from it. His work in cognitive systems involves looking at ways of providing companionship for an ageing population using artificial intelligence.

Steve Neil of Infineon Technologies UK used the example of nanomaterials, especially carbon tubes, which could potentially prove to be quite disruptive, once advances in harnessing, growing and isolating carbon tubes are made.

The Chilli Perspective on DT

It would be too easy to get lost in the impact of DT if one tried to come out with a scientific definition and attributes. Instead, it would be more useful, if one can establish a broad set of guidelines and historical attributes which can help determine whether a technology is truly disruptive or not. One of the dilemmas faced by many technology VCs, angels, government policy makers and entrepreneurs is knowing what is going to be disruptive and what is just an evolving technology.

DT is like light: by observing photons, we change its characteristics and behaviour, and we only know its impact after the fact, not before. Consider the example of Gugliemo Marconi, who invented the radio. The radio could be considered as a true DT, as it generated a whole set of new industries like radio communications, entertainment (radio, TV), wireless radios and mobile phones. But one major observation was that Marconi was turned down by the Italian Government, as his initial radio would only transmit a few metres, compared to wireline technology. He later moved to the UK, whose government had a better use and need of his technology for communicating with its vast navy.

So the motto of going where the market is, is not very new. Had the Italian government known what we know now, they would have been very naive not to back Marconi. In other words most DT are not exploited and successful until a long time after its first invention and I doubt that there are many investors, who would have the patience to wait for 30 or more years to see a return on their investment. That is the time it took for Marconi's invention to become mainstream.

Examples that may or may not be DT are DRAMs and disk drives in their early days. DRAMs replaced bulky magnetic memory and opened up a whole new era of computing from mainframes and minis to the ubiquitous PC. It certainly created a whole new set of players from Fairchild, TI, Intel, AMD, Phillips, National, Mostek, Micron, to Fujitsu, NEC, Toshiba, Hitachi, Inmos, Infineon and Samsung. The fact that it has spanned so many years and absorbed so much human and financial capital doesn't mean it is not a DT. A new leader was born at every generation until very recently and whole new sets of players entered the market for graphics chip sets, storage, and network interfaces, not to mention a whole set of software OS and applications players running on the PC, which only became affordable due to DRAMs rather than processing power alone. The same argument applies to disk drives.

A mention of cellphones is also in order, without which companies like Orange, Vodafone, DoCoMo, Nokia (which used to be a rubber tyres and paper company), Ericsson and ARM would have had difficulties surviving.

So the question we should be asking is not what the next DT is, but where would it most likely to come from. It's more likely to come from a source not readily connected with existing research labs or market. One thing for sure is that we will only know something is disruptive well after it has happened - by which time it would too late to invest in it and get a massive return. So investors are advised to start looking at evolving technology which is more likely to give a reasonable return over a five to seven year horizon, and let public funds and government agencies invest in long term science and technology projects.

[Editor's note: panellists were speaking on their own behalf, and not representing their company views]

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© Chilli Publishing Ltd 2004

23JUNE2004