- Today we're gonna talk
about the hottest subject out there, ChatGPT and AI,
but from a disruption point of view.
We're gonna talk about The Innovator's Dilemma
because we might see that in action right now.
Is Google finally being disrupted?
Will ChatGPT be the new king of search?
All that and more in this video.
This is Raw Startup.
I'm the founder of Vivino,
the world's biggest wine app and wine community
with over 60 million users all over the world.
I've seen the innovators dilemma throughout my career
mostly from the outside looking in
because the innovators dilemma
is what creates opportunities for startups.
I'll explain exactly what the innovators dilemma is
and show some examples.
Finally, we talk about a few companies
that have made good choices
and broke the curse of the innovators dilemma.
And also, how any company can avoid the innovators dilemma.
With that, let's get started.
So what is The Innovator's Dilemma?
The Innovators Dilemma was invented by Clayton Christensen,
a Harvard Business School professor
in his book of the same name from 1997.
Let's go straight to the core.
Let me explain what it is in a simple way.
Basically, there are two kinds of innovation,
sustaining innovation and disruptive innovation.
Every company has to make a choice to invest
in sustaining innovation or disruptive innovation.
In most cases, a bit of a mix of both.
Sustaining innovation refers to the ongoing improvements
and incremental advancements that we do to existing products
or services in order to stay competitive.
So, basically, invest in what we already do
and do that even better.
You listen to your customers, do market research
on where we can improve, make our product or service better.
That is sustaining innovation.
On the other side, we have destructive innovation.
This means investing in the introduction
of new and destructive technologies or business models
that fundamentally changed the way
our products, services are created, delivered or consumed.
Classic example here, Blockbuster probably invested too much
in sustaining innovation.
More locations, better selection, better checkout.
Netflix, on the other hand
believed in disruptive innovation,
specifically something called streaming, and here we are.
Basically, everything startups do is disruptive innovation.
Startups don't really have a current business,
so they can't do sustaining innovation.
There's really nothing to sustain.
For big corporations, it's different.
They actually have a choice.
Do we invest in sustaining innovation
or disruptive innovation?
That is the innovators dilemma.
We're startup founders, so we laugh in the face
of all these companies that choose sustaining innovation.
In reality, sustaining innovation
can be a very rational choice for these companies.
Let me explain in a few examples.
Take Eastman Kodak that was massively disrupted
by the digital camera although they actually invented
the digital camera.
Sure, that's a great story,
but what should they have done?
Their business was to sell cameras at a low price
and then make their profits from selling film, chemicals,
and other accessories needed to use the cameras.
The digital camera just killed their business model.
There were no films, there were no chemicals.
Their business model was dead.
They tried to do some disruptive innovation,
but it was too little, too late.
It was hard because their business model just disappeared.
I'm not sure there was any place for them to go.
Maybe they just needed to die.
My point is I don't think they had a lot of options.
Should they have bet on digital cameras?
Maybe, but there was no business model for them,
and they really couldn't compete.
This was not what they were good at.
I guess some companies just get killed by technology.
So, the CEOs that ran all these big companies,
Blackberry, Blockbuster, and Sears,
were they really dumb people?
No, obviously not.
We get the smartest people to run our big companies
and this is the core of dilemma.
Very often, sustaining innovation looks like the best idea
although it might kill you in the long run
and the CEO would obviously ask the people around them.
Now, what would they say?
What's the best for them?
Investors, what's best for them?
They're only interested in the next quarter or two,
so no doubt they would say sustaining.
Disruptive won't pay off till years from now.
What about the team?
What's best for them?
This is what we know how to do.
We would prefer sustaining,
or else you have to hire a new team, maybe fire us,
so definitely sustaining.
What about the customers?
What would the customers say they want?
In general, customers don't understand destruction.
They will understand the product in front of them
and how to improve that,
so I guess that's sustaining innovation too.
This is also well illustrated in a quote that is attributed
to the famous car maker, Henry Ford.
He said, "If I had asked people what they wanted,
they would say faster horses."
Again, that is sustaining innovation.
Finally, what's best for the CEO?
Well, I do get my bonus based on quarters.
Not something that happens 10 years from now.
I guess sustaining, too.
So, yes, the entire system is wired
for sustaining innovation.
And that's why it happens all the time.
These CEOs were not dumb people.
Okay, now let's talk about the case at hand.
ChatGPT versus Google.
ChatGPT is a service from OpenAI.
Basically, a computer that you can chat with
and understands what you're saying.
Not only does it understand what you're saying,
it also knows the entire internet
and can basically answer any questions in seconds.
It's pretty wild.
You can ask about anything
and it comes across as really smart.
It's really mind blowing how it has all this knowledge.
It can sort of combine it.
Also, not perfect yet.
Gets most things right, but sometimes just makes up stuff,
so be careful with that.
Oh, there's a book too.
I didn't know that.
There's no book, ChatGPT just made that up.
So, not perfect yet.
It's like having a person you can chat with
that knows the entire internet.
So, a lot of things we use Google for today
might be done better with ChatGPT.
So, yes, this could really disrupt search.
Something Google basically has had a monopoly on
in the past 20 years.
To make things worse for Google,
OpenAI is working with Microsoft.
Microsoft owns Bing,
and Bing is the only real competitor to Google.
They've now integrated ChatGPT into being search.
For the first time ever,
Google's monopoly on search is under real threat.
Google has a real Kodak like moment
and it's truly innovators dilemma.
Google could choose to disrupt search,
but that would break their business model.
Let me explain.
Google makes a living of people searching.
Google serving a lot of answers with a lot of ads on it.
So, what if a new chatbot gives you one answer
not a hundred different links and ads,
so no need to roam through
a bunch of search results and ads.
That is better for the user.
But Google's ad model doesn't work with that.
This is how Google makes their money.
This would improve the search for the user,
but Google really doesn't have a way to make money of that.
Interesting thing is that Google probably
has the best AI technology,
so they did invest in disruptive innovation.
But when it came to actually releasing something
they went to sustaining innovation.
They were afraid they will lose their big money maker.
You can do that until somebody else launches
a better product and disrupts you.
That's what's happening right now with ChatGPT.
Google is now scrambling has now released
their own chatbot bard AI.
Also not working perfectly, makes mistakes too.
So, what's happening here was Google just a victim
of the innovators dilemma and will disappear in a few years?
Probably not, and here's why.
Let's go back in history a bit.
Before Google, the king of search was AltaVista.
They were just the best until a new kid came along, Google.
Their search was just considerably better.
In a very short time, Google just took over the market
with a better product.
I think the founders of Google
Sergey and Larry saw this,
and as much as they liked winning quickly,
they were also spooked.
Back then, going from AltaVista
to Google was easy for a user.
You just change the URL in your browser
and the switching cost was almost zero for the user.
If AltaVista could go from king
to nobody in such a short time,
could the same happen to them?
I think Larry and Sergey said to themselves
after they won the bottle,
we're gonna do everything we can to make sure the same thing
that happened to AltaVista does not happen to Google.
Since then, they've tried to build a defense
around the most lucrative business in tech, search.
And they've basically had a monopoly ever since.
Sergey and Larry wanted to build products outside search
that could support search and lock users in
and they've done an incredible job.
They don't all do search,
but they lock in billions of users.
Here are the biggest ones.
YouTube the biggest video platform in the world
with 2 billion monthly active users.
I guess where you're looking right now.
Android, the biggest mobile operating system
with 2.5 billion active users.
Google Maps, the most popular map service
with 1 billion monthly active users.
Google Chrome, the most popular web browser.
Gmail, the free email service
with 1.5 billion active monthly users.
On top of that, they have the digital advertising business,
which is basically a duopoly run by Google and Meta.
Sure, they might make their money on search,
but they have other products that are loved
by billions of users.
The point here is that Google
will not just disappear like AltaVista.
No chance.
If user moves to a new type of search,
the lucrative search businesses dead forever.
All these services that Google owns will delay
a move to a new platform,
but Google has to build a better search product
that can compete with others.
Otherwise, it's just a slow death for Google.
As long as Google doesn't have the best product,
users will slowly move.
The new and better product
might not have the same lucrative business model
and that's a major problem for Google.
The current very lucrative search business
might be gone forever.
You might disagree here,
please let me know in the comments.
Now, back to the innovator's dilemma.
How do we avoid being disrupted by the innovator's dilemma?
First of all, it's about doing a little bit of both.
Some sustaining, some disruptive,
you can't just do one.
I think the key here is really long-term thinking.
If your time horizon is one to two years
you should really do sustaining innovation.
However if your truly thinking long term,
say five to 10 years,
you should really do disruptive innovation.
Let's look at two examples companies
that have not been disrupted in many, many years
and how they did that.
Obviously, Apple,
Apple, especially under the leadership of co-founders,
Steve Jobs kept showing that they were willing
to do disruptive innovation.
One of the most famous stories
about disruption is about Apple
and when they were about to release the first iPhone.
Steve Jobs was asked if he wasn't worried
that the iPhone wasn't gonna cannibalize the iPod
that was selling really well.
Steve Jobs famously said,
"If you don't cannibalize yourself, someone else will."
And this is so, so true.
And this is exactly the error Google's making right now.
They're letting someone else cannibalize instead
of doing it themselves.
Or maybe they were just waiting,
trying to make as much money as long as they could.
Very few companies have leaders like Steve Jobs,
but if you let a leader think truly long-term
you can escape the innovators dilemma.
I believe that one of those leaders
is Microsoft's Satya Nadella.
Let's talk Microsoft.
Where Steve Jobs led Apple by being an integrated part
of the invasion at Apple,
my impression is that Satya has done the exact opposite.
He has let others think long term.
He has done some incredibly smart acquisitions.
Specifically acquiring LinkedIn and GitHub
and now also a big investment
in strategic alliance with OpenAI that owns ChatGPT.
Then Microsoft left them alone.
Left them alone to do disruptive innovation.
This has put Microsoft's in an incredible position
where they can integrate ChatGPT into Bing.
And for the first time ever,
challenge Google's dominance on search.
I mean, this is truly impressive.
I just don't think it's that common
that an older company leads disruption.
Usually, it's a startup or some new technologies
that pushes forward for disruption.
And a bit of historic note here too,
I think the reason why Microsoft's doing so well now
is because they failed miserably
on every single acquisition during the Steve Bomber years.
Companies like Skype, Yammer and Nokia's device business
were considered bad, bad failures.
They were smart, learned from the past and then killed it
with the acquisitions of GitHub and LinkedIn.
I think the Apple and Microsoft examples show
that there are different ways to escape
the innovators dilemma.
You have to diversify
and then you have to think long term, say five to 10 years.
Most companies don't do that and they get disrupted.
Finally, so why is this important?
You may say, I love Google.
Google is great, good for you, but I don't agree.
Google search is not as good as it should be.
If we had had more competition in the last 20 years,
we would've had a better search engine in 2023.
Now, it looks like we've got a competition
and a better search product.
We all win from competition.
We get better products.
You might disagree, put it in the comments.
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