Whenever you hear or read about innovation, it usually refers to some technical development that results in a product that is usually cheaper, faster or better than the incumbent. Disruptive innovation occurs when something much cheaper and usually initially lower quality, comes into the low end of the market as an alternative to more capable, but more expensive options. When MP3s first hit the market, everyone scoffed because the sound quality was inferior to CDs. But over time, the advantages in portability, distribution, size and increases in quality have turned MP3 into the new standard for music. In a similar vein, digital photography was once the poor cousin to its analog predecessors, but within a few years, digital imaging progressed to a point where it is superior in every way that matters. So it’s clear how disruptive innovation works for products. But what about services?
I’ve been thinking about how outsourcing has been in place for technical work and there’s no doubt it’ll move up the value chain. One place I didn’t expect to see it happening though, was in the field of finance. In particular, equity analysis. A recent crop of bloggers and independent analysts have been making the news for their coverage of Apple. Over the past several quarters, this new breed of analysts using their own tools and methodologies, have more accurately predicted Apple’s earnings than nearly every professional equity analyst on Wall Street. By building a following through social media, blogs, Twitter and other means, it’s just a matter of time before they displace their incumbents whether or not they intend to do so. They are leveling the playing field and bringing democracy to a highly closed and exclusive business.