This post is Part II of A Brief History of Disruptive Innovation. Part I can be found here.
Clayton Christensen, in “The Innovator’s Dilemma,” points to disruptive innovations in a wide variety of fields. As I described in A Brief History of Disruptive Innovation, Part I, power brokers across space and time resisted disruptive innovations — most of which are now ubiquitous. In the second half of the 1900s, a high-tech revolution took place, heralding a new wave of rapid disruptive innovations. This second post will focus on a key few innovations, namely in high-tech, and the ongoing controversy which continues to pervade disruptive technologies.
Prior to the mid 20th century, mechanical excavators had been dominated by a cable based digging system. However, when hydraulic excavators showed up in the 1950s, they disrupted the legacy firms that focused on cables. Initially, hydraulics, lacking the raw power of cables, inhabited an entirely different niche. For example, for smaller projects, like landscaping or drainage, cheaper hydraulic excavators took precedent over their cable counterparts, which dominated large building projects. As a result, the companies which had succeeded most dramatically with cable excavators were not interested in investing in their hydraulic counterparts, largely because their most lucrative customers were not interested in what the earlier hydraulic excavators were capable of. By the time the superior hydraulic excavators had moved up into the mainstream, the legacy companies had spent their resources adapting the technology to pre-existing customer demands and market conditions, as opposed to recognizing that hydraulics would change the nature of market demand. In that sense, there was not a clear pushback against hydraulics by the established industry; they simply ignored or tried to reinvent the technology (but not maliciously) to suit their customers.
Home Video and Cable
Many disruptive innovations are even more closely connected to consumers’ lives. Over the course of the last fifty years, the television industry has endured dramatic disruptive competition. Although cable TV was originally created for mountainous areas unable to receive a clear broadcast signal, its early potential was recognized by opponents and proponents alike. Although early judicial decisions favored cable, its adversaries in the broadcast sector, more adept at Washington maneuvering, successfully pushed to enact numerous regulations in the early 1970s which dramatically impeded cable’s growth. However, when the FCC began rolling back the most intensive regulations in the 1980s, cable began to expand rapidly and NAB leapt into full gear. In addition, an ad campaign, “Save Free TV,” launched to cast cable as infringing upon Americans’ rights to free television. NAB made the case to the FCC that the lack of regulations imposed upon cable TV had upset the power balance in the industry, and that cable was threatening traditional broadcasts’ ability to attract advertising. Eventually, Congress passed The Cable Television Consumer Protection Act of 1992, which imposed stricter regulations on cable network, compelling them to carry broadcast signals.
In the 1970s, Sony developed Betamax technology, which allowed users to record television onto cassettes. Companies such as Disney and Universal were amongst the first to become aware of the supposed threat posed to them by Betamax technology. Unauthorized distribution of video cassettes, Universal claimed, would have severe economic consequences for the entertainment industry. The establishment industry actors were aware that Congress was in the final stages of major copyright overhaul legislation, and would be unlikely to include sufficient new protection for the video industry. Still, they took the fight to DC. Industry lobbyist Jack Valenti famously said that “The VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.” Given the unlikelihood of a legislative breakthrough, Universal sued Sony for copyright infringement, claiming that the fact that Betamax technology even allowed for unlawful distribution rendered Sony liable for any abuse that its consumers may commit. Although a circuit court sided with the incumbent film industries, ordering Sony to pay damages, the Supreme Court reversed the decision, stating that the distribution of pre-recorded television for certain purposes constituted fair use, and that Betamax was not inherently in violation of copyright law. The “legal safe haven” created for cassette-based recording technology ultimately gave Hollywood the edge it needed to compete with home television, immensely benefiting both industries.