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Chapter 3
Disruptive Product
Innovation Strategy:
The Case of Portable Digital Music Player

Nazrul Islam
Aberystwyth University, UK & Middlesex University, UK

Sercan Ozcan
Aberystwyth University, UK

ABSTRACT
In today’s business world, many companies are in search of an innovative strategy to move on to a market
where there is as yet no competition. In view of that, many academics and managers are trying to find
a systematic framework for a strategic innovative business model. One of the examples of a systematic
framework is Blue Ocean Strategy (BOS), which provides various tools for managers to find a gap in an
existing market or to create a new market where there is no competition. This chapter uses Apple’s iPod
product chain to illustrate how BOS tools can be used to create an innovative strategy for two reasons.
Firstly, there are few practical examples that illustrate the BOS, as it is a recent business model and
so this chapter can be a useful illustration for those audiences who are interested in strategic innova-
tions focusing on disruption. Secondly, the iPod is a great example of an innovative product where the
manufacturer benefits from low competition, high market share, and high profit return.

INTRODUCTION already in the market. They more than often target


new customers or low-end customers by lower-
Innovations resulting from disruptive technolo- ing the price or designing products/services for
gies usually offer change either in products or in a different set of consumers.
services that are typically simpler, more efficient, The general understanding of disruptive tech-
easy to use versions of existing products or services nologies, technology-based products, and business
models has been shaped by the pioneer works
DOI: 10.4018/978-1-4666-0134-5.ch003

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
Disruptive Product Innovation Strategy

of Clayton Christensen’s book The Innovator’s (BOS). BOS provides various tools for managers
Dilemma published in 1997. Disruptive technolo- in their innovative strategic decisions to find a gap
gies generate new innovations that unexpectedly in an existing market or to create a new market
bring an established market to an end (Christensen where there is no competition.
1997). In his book, an important distinction was This chapter attempts to explore the product
made between sustaining and disruptive innova- evolution and disruption trends in the case of
tions. Sustaining innovation, pioneered by estab- portable digital music players. The aim of this
lished companies, ensures their competitive status chapter is to clarify a debate on whether the iPod
in a market by enhancing and improving existing offers a disruptive product innovation or creates
products’ performance in an expected way that a new market space. BOS tools are adapted for
customers value (Christensen and Overdorf 2000). the iPod case in considering the gaps in this area
However, disruptive innovation usually originates and a market forecast is made for the case of this
from newcomers, upsets the market status by portable music player.
fundamentally altering the way customers think
about product performance because it exceeds their
expectations in an unexpected way. In comparing TRENDS OF PORTABLE MUSIC
both innovation types, it can be seen that sustain- PLAYER DISRUPTION
ing innovations are the type of technological
outcomes that can be outperformed outdone by In 1979, Sony released the first portable music
large and established competitors within a short player called the Walkman, which was a cassette
period of time, while disruptive innovations cannot player that replaced the bulky music players known
be imitated or outdone by other companies due as the boom box (Sony 2011). When the first
to the number of difficulties they face. Some of Walkman was introduced, many people claimed
these difficulties that established companies face it would not sell as it did not have a recording
are their flexibility in political, operational and function. However, consumers took to playing
cultural positions (Kim and Mauborgne 2005). their music through a portable device in the 80′s.
With disruptive innovation, the vital concern The term Walkman even entered English usage
is to make such a leap that the relevant offering as a portable cassette player. It was not long after
provides a better product/service than anything that, five years later in 1984, the first portable CD
that existed beforehand. It is almost impossible player was introduced by Sony and the portable
for established companies to cope with the change music player market was dominated by Sony for
as they are focusing on their sustained innovation a long time (Sony 2011). However, the portable
that helps to maximise profits and keep making music player market started losing its influence
their product(s) more desirable. However, estab- over consumers after the mp3 music format
lished companies can be disruptive by attracting became popular (Lasser et al 2006). Consumers
low end customers as in the case of the portable started using various online sites and P2P programs
digital music player. Many companies are in search illegally to download their favourite songs in mp3
of an innovative strategy to move on to a market format. Many manufacturers introduced mp3
where there is as yet no competition. In view of players but people were still downloading mp3
that, many academics and managers are trying songs in an illegal way (through P2P programs
to find a systematic framework for a strategic such as Napster) and the mp3 devices could not
innovative business model. One of the examples store a great number of songs.
of a systematic framework can be found in Kim In 2001, Apple introduced their first digital
and Mauborgne’s work on Blue Ocean Strategy music player called iPod and in 2003 introduced

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Disruptive Product Innovation Strategy

their iTunes software, which, with the agreement dio players. In addition, it can be considered as
of five major music companies, enabled users to a low end disruption technology as they reduced
download music legally (Knight and Hormby the price of music sales by introducing the iTunes
2007). With iTunes’s user friendly design, con- store. Moreover, when considering Apple’s iPod
sumers could download legal, high quality songs product chain, it can be said that they introduced
in mp3 format at a reasonable price. In this way, products that cover low end disruption and are
customers had the possibility to buy the exact song also sustaining innovations.
they liked instead of buying the whole CD album. Historically, downloadable digital music media
Also, it was a one stop shop enabling customers and portable digital players disrupted many previ-
to find a great range of music of high quality. ous technologies such as music CDs and portable
There are two types of disruptive innovations; CD players (Lasser et. al 2006). In Table 1, the
these are low end disruption and new market history of disruptive technologies in portable mu-
disruption (Hang and Kohlbacher 2008). Low sic players is illustrated. Over the course of time,
end disruption occurs when a product or service it can be seen that iPod has become the leading
fulfils the low end of the market by providing technology which played the key role in disrupting
more value for money demanded by customers. the previous portable music player market with
New market disruption occurs when a product or their new innovative technology.
service offered by a company in a new or emerging According to Christensen (1997), successful
market segment which is unoccupied by existing leadership with a disruptive innovation results in
competitors. The introduction of iPod can be enormous value. For example, Apple currently
considered as both an example of new market leads the digital audio player (DAP) market suc-
disruption and a low end disruption technology. cessively with their iPod product chain and their
It can be classed as a new market disruption due iTunes music store. Even though there were many
to the unexpected high quality being offered to companies involved in the DAP market before
customers compared to other portable digital au- and after iPod was introduced, Apple still holds

Table 1. Trends of disruption – the case of portable music player

Period Disruptive Disrupted Technology Notes


Technology
1970s Sony Walkman Boom box (Ghetto In the late 1970s, the boom box was quite popular among the younger
Cassette Player Blaster) generation. Companies were competing on who could produce the
loudest product or the biggest product. In 1979, Sony introduced the
first portable cassette player and it became very popular in a short
time and disrupted boom box players
Late 1980s The Discman Sony Walkman Cas- In 1984, Sony introduced the world’s first portable CD player. This
and 1990s and Portable CD sette Player invention accelerated the spread of the CD usage. Following this in-
Players vention other large companies started producing portable CD players
which in time disrupted the cassette player market
1990s and iPod and Other Portable CD Players In the late 1990s, many companies started introducing flash memory
2000s on- Digital Players based digital audio players. However, most players were bulky in
wards size, had low storage capacity and low battery life. In 2001, Apple
introduced their first iPod model and in 2003 they introduced their
online music store iTunes. In a short time, iPod became very popular
as Apple was the first company who offered customers a legal whole
package product. The new way of online music purchase and the qual-
ity of iPods disrupted portable CD players and became the leader of
the digital audio player market

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Disruptive Product Innovation Strategy

more than 70% of the DAP market share and they and customers’ expected performance of a DAP
are the largest music store in major countries such over a certain time interval and therefore can be
as USA, Japan and Canada (Dalrymple et al 2009). considered as a disruptive innovation.
Therefore, it can be argued that the iPod is not a Having mentioned the value offered by and
sustaining technology but a disruptive technol- the high performance of the iPod regarding its
ogy. hardware, the performance in its software and
One of the reasons the iPod turned out to be online music market has to be considered too.
a disruptive technology can be seen by using Noticeably, iTunes did not only exceed the ex-
Christensen’s (1997) performance-time graph pectation of customers but it exceeded the expec-
for disruptive technology as shown in Figure tations of music production companies by taking
1. Accordingly, for a product or service to be a into account issues of legality too. iTunes was a
disruptive innovation, it has to exceed customers’ win-win situation for consumers and for music
performance expectation of a product or service production companies. Customers had a desire to
in the existing market. In other words, the new download mp3 songs and music companies
innovated value has to exceed what customers wanted to stop illegal music downloading and
normally demand. When considering the history broadcasting and to increase their profits. iTunes’s
of the portable music players mentioned earlier in success can be seen in the fact that it turned over
Table 1 and Christensen’s (1997) theory, iPod is a ten billion digital music sales by 2010 and as a
disruptive technology as it exceeded customers’ result it benefited not only Apple and their cus-
expected performance in terms of the key elements tomers but also music producers (Apple 2011).
of a DAP such as storage capacity, size and battery Overall, it can be seen that iPod is not just a
life. As illustrated in Figure 1, iPod exceeded the digital music player but it is a package that covers
first mover’s DAPs (such as Creative), CD players all the aspects of the digital music market from top

Figure 1. Portable music player disruption by iPod (modified from Christensen 1997)

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Disruptive Product Innovation Strategy

to bottom. Moreover, Apple follows a continuous BOS assists companies to move outside highly
innovation strategy to increase the value of their competitive markets by creating new markets.
products for customers so competitors are always BOS is not a strategy for competition; on the
playing catch-up. Therefore, as Christensen (1997) contrary it is a strategy to avoid high competition
described, competitors currently have to accept and to find a new market where competition is not
their position and do not have a major role in involved. In highly competitive markets, every
sharing the market. company has a market share and after new com-
panies join, the market share of other companies
will decrease (Hiebing and Cooper 2003, Gilligan
THEORETICAL AND and Wilson 2005, McDonald 2007). BOS offers a
CONCEPTUAL FRAMEWORK way to companies to have a significant percentage
of market share or even the whole market rather
The first analytical framework on innovation than having a limited market share.
management was described by Austrian econo- One of the cornerstones of the BOS strategy
mist Joseph Schumpeter in the 1930s (Sweezy is value innovation (Kim and Mauborgne 2005).
1943). J. Schumpeter’s idea of so-called creative New value innovation enables a company to en-
destruction defined innovation as being a trigger joy unoccupied sectors of a market or an entirely
to create a new market and to destroy the old new market. BOS can be applied by using its
one (Sweezy 1943). Schumpeter ‘s analysis on value innovation tools, for example, the Strategy
innovation management, from an economist’s Canvas, the Four Actions Framework and Buyer
perspective, is similar to Christensen’s disruptive Experience Cycle / Buyer Utility Map (Kim and
technology theory as both analyses consider the Mauborgne 2010).
previous market as being destroyed or disrupted by The Strategy Canvas is one of the central frame-
the market following the innovation. Schumpeter works of BOS for value innovation and to analyze
analyzed the innovation capability of companies what the current values offered to customers are
and related it to their size. He argued that large (see Figure 2). The competition level and invest-
companies have an advantage due to their monopo- ment of companies are identified on the horizontal
listic power as defined by resource based theory axis of the framework. The various offerings that
but small companies have an advantage due to customers receive on a specific product by con-
their higher level of flexibility (Sweezy 1943). sidering competing factors are identified on the
Nowadays, Schumpeter’s pioneering idea on vertical axis. There are two benefits of the Strat-
innovative management is catching the attention egy Canvas. The first of them is that it describes
of many academics and managers as the strategic where competitors currently challenge each other
management of innovation plays a greater role in a specific market by considering the key values
in the global and local market. Currently, there that are offered to customers. Secondly, it helps
are various studies on innovation management companies to define the gap where they can take
but there are few analytical frameworks for an action to gain a presence in a non-competitive
integrated approach on how a new innovation can area to move on to a blue market.
be created or how a new market can be created Another key tool for BOS is the Four Actions
from an innovative management perspective. Framework which assists forming a new value
One of the theoretical frameworks that provide curve by considering differentiation and low cost
analytical tools for strategic innovation is Kim and criteria. There are four strategic questions that
Mauborgne’s (2005) Blue Ocean Strategy (BOS). need to be asked in this framework to break from

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Disruptive Product Innovation Strategy

Figure 2. The strategy canvas (Source: Kim and Mauborgne 2010)

the current competitive curve as shown in Figure PORTABLE DIGITAL MUSIC


3. PLAYER (iPod): A CASE OF
The Buyer Experience Cycle / Buyer Utility DISRUPTIVE INNOVATION
Map framework helps to create a BOS. The
Buyer Utility Map is a unique utility for a new Previous sections identified in general terms
product or service. It can be used for re-innovat- Apple’s achievement with their iPod product chain
ing existing products and services to differentiate and their current market position. Undoubtedly,
them from competing ones. It covers the six the iPod is an innovative product that disrupted
stages of the buyer experience cycle, which are previous technologies in a way that it became one
purchase, delivery, use, supplements, maintenance of the most competitive products of the portable
and disposal. In addition, it combines these six music player market. The aim of BOS is to create
stages with six different utility levers, which are a unique strategy to move on to an unexploited
customer productivity, simplicity, convenience, market as was created by Apple with their iPod
risk, fun and image, and environmental friendli- product chain. Therefore, it would be useful to use
ness. Combining these different stages it results the iPod as a case study for BOS frameworks. In
a comprehensive framework which shows the six the following sections, the different BOS frame-
different utilities that can be offered at six differ- works will be applied to the iPod and other DAPs.
ent stages of the Buyer Experience Cycle. By
using this tool, it is possible to locate the existing iPod’s Strategy Canvas
product or service, analyse the market and locate
or position the new product (see Figure 4). Figure 5 shows where the iPod Nano breaks
These BOS tools are applied to the iPod prod- off from competing products and how it is dif-
uct chain in the following sections to see how the ferentiated by various unique offerings. In the
various frameworks work on an innovative prod- following strategy canvas, it can be argued that
uct and to analyse its possible competitors in the the iPod is differentiated from its competitors
portable music player market. by various factors. It is clear that the iPod offers

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Disruptive Product Innovation Strategy

Figure 3. Four actions framework (Source: Kim and Mauborgne 2010)

high quality in terms of the basic characteristics its competitors, but Zune almost matches the iPod
of an mp3 player that its competitors offer but it Touch’s quality and exceeds the iPod Nano in
is also differentiated from competing products some factors. It is clear that the iPod is still the
by providing unique offers. When considering only product that offers unique values to its cus-
the product characteristics and offer of online tomers whereby it may be thought these factors
music service, the closest direct competitor is are the ones that differentiate the product They
Microsoft’s portable player Zune and therefore include compatibility with various devices and
it is vital to show in this analysis where Zune is accessories, the iTunes music market, iPod’s in-
a separate product to other portable digital play- tegration with Nike sport kit, iPod connectivity
ers. HPP in Figure 5 means high profile portable between the number of automakers and airlines,
music players such as Sony Ericsson Walkman, iPod Touch’s camera, Apple’s app store (for the
SanDisk and Samsung. LPP means low profile iPod Touch version) and iPod’s accessibility for
portable music players such as unbranded digital disabled people. By looking at these unique of-
players and imitation digital players. ferings, it is clear that the iPod is differentiated
According to Figure 5, it can be said that when by expanding its network with compatible features.
considering the hardware capability and quality, In addition to this, Apple targets key markets of
the iPod offers really high standards compared to portable music players with those extra offerings.

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Disruptive Product Innovation Strategy

Figure 4. Buyer experience cycle map (Source: Kim and Mauborgne 2010)

For example, nowadays people have a great pas- iPod is the possible effects on the perception of
sion to go to the gym as life styles are currently customers and brand value. Looking at this agree-
changing. Recent research shows that listening ment from a possible gym user’s viewpoint, it can
to music whilst working out can help people’s be assumed that it makes the iPod even more
workout (Harmon and Kravitz 2007). Customers desirable for them.
want to exercise at the gym whilst listening to It is worth noting that according to the chart
their favourite songs and they are looking for a there is another factor where all the competitors
small, lightweight and simple device. Apple with including Apple can focus on and differentiate their
their iPod Nano product chain miniaturized their products to innovate and produce even more value.
product and added a new built-in clip to target This factor is personalization of products and can
those customers. Even more, Apple added a pe- be seen in Figure 5 that none of the products of-
dometer and made an agreement with Nike to fer high personalization for their customers. The
enable them to use a special Nike application on only product that offers limited personalization
their device with a special Nike sports kit which is Apple’s iPod Nano as they offer their custom-
makes their product even more unique. One of ers a free service to write a personal message at
the most important aspects that need to be con- the back of their products using laser engraving.
sidered with the agreement between Nike and Considering iPod’s competitors, Apple is still

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Disruptive Product Innovation Strategy

Figure 5. iPod’s strategy canvas

one step ahead but this gap could be filled by an products and created a different value curve on
extensive innovative strategy. the Strategy Canvas.
iTunes is still a unique market for those cus-
tomers who prefer purchasing their songs online. iPod’s Four Actions Framework
Microsoft is trying to capture online music sales
with their Zune music players that are compatible As indicated by the previous analysis on the
with Zune online music sales and they are trying Strategy Canvas, it is clear that the iPod is not
to combine their products with their windows
phones and Xbox as does Apple’s iTunes. How-
Table 2. iPod’s market share
ever, Zune’s market share was 1% by 2010 and the
market share of iPod is still increasing (72%) even Year iPod Market iPod Market Mp3
though the general portable mp3 player market is Share (units) Share Spending
(Volume) per Year
shrinking (see Table 2).
2004 56% 71% -
In the following part, the iPod product chain
2005 72% 83% 131%
will be analyzed with the help of the Four Actions
2006 72% 85% 17%
Framework to see how they differentiated their
2007 70% 84% - 4%
(Source: Eimer-DeWitt 2008)

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Disruptive Product Innovation Strategy

an ordinary mp3 player but has unique offer- be acknowledged that iPod does not only pursue
ings compared to other portable music players. technology-driven innovation but also design-
However, by looking at only the strategy canvas driven innovation (Zachry 2005, Verganti 2008).
until now, it is difficult to see the progress of Accordingly, Apple does not only focus on
iPod’s strategic innovation. In the Four Actions how they design their product but they are also
Framework, the four strategic questions are asked concerned about how they present their products
for iPod to see how it is differentiated and what as a whole unit. The iPod’s success in its design
innovative value it has. The result of this analysis is that it is a product that has complex functions
is illustrated in Figure 6. but in a simple way. Maeda (2006) denoted the
According to the “reduce” section in Figure laws of simplicity that describes the iPod and
6, it can be seen that miniaturizing the hardware Google as the epitome of simplicity in their design.
with nanotechnology applications and simplifying To provide a complex product or service with a
the usage of the device by improving the software simple interface nowadays is likely to attract a
added a significant value to the product. For that larger number of users in consumer electronics
reason, it may be important to find out where as it will probably appeal to both technical and
Apple minimizes their advanced technology and non-technical groups of people.
continuously develop and miniaturize their prod- Another reason why the iPod retains its sus-
ucts further as this information can be a key point tainable competitive advantage is because of its
for competition. Therefore, the manufacturer of continuously extended comprehensive network.
iPod will be analyzed in the next chapter in detail. The more network externalities that are involved
Also, iTunes added an extra value to the product in a product or service, the more value is provided
by reducing the price of music purchases. In the to customers (Katz and Shapiro 1994), which is
“eliminate” part of Figure 6, it shows that by the so- called network effect. The iPod has be-
eliminating cassettes, CDs, the requirement of come more and more difficult to compete against
separate batteries and illegality of the mp3 music as more consumers have become involved in the
sector, Apple actually offered a great bundle in a market place and consequently more attractive
one-single product solution to the portable music for consumers and other companies who would
player market. Bundling an existing product with like to link their products or services to iPod as
a new or existing product/service can be perceived well. In considering the continuous development
by customers as a unique value and that may lead of the offered value, it is clear why the iPod has
to an unexploited market. become such a dominant product in the market.
The “raise” part of Figure 6 demonstrates that As shown in Figure 7, the iPod is unique in the
if a product or service can be improved upon way that it is linked to Apple’s online music store
regarding its key elements, it may lead to greater (iTunes store), home based music products and
success. In the case of portable music players, other industries such as the car industry. Apple
the key elements could be stated as size, storage has a value innovating strategy in their market
capacity, battery life and sound quality. All these externalities by extending their network with the
key elements were raised well above the market key players of other important industries such as
level when Apple introduced the iPod. Most im- BMW, Nike and Air France.
portantly, these elements improved continuously
every time they introduced a newer version of the Manufacturers of the iPod
iPod and are still continuing to improve which
makes it difficult for their competitors to follow The iPod, similar to the production systems of
their improvements. In the last part “create”, it can other large global companies’ products, is made in

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Disruptive Product Innovation Strategy

Figure 6. iPod’s four actions framework

several countries through outsourcing to different By taking into account the supply chain of
companies, and some of the key manufacturers the iPod, it can be seen that mainly Asian based
or assembly companies are Foxconn, Toshiba, suppliers manufacture many core elements of
Asustek and Inventec Appliances (Varian 2007). the iPod and have a great share in iPod produc-
Foxconn International Holdings Ltd is the com- tion and profits. However, Apple still preserves
pany which assembles iPods. They are the largest the core elements of iPod at their own base. It is
circuit assembly company in the world and the top noteworthy that the suppliers of the iPod or their
exporter in China (Buetow 2010). The manufac- product knowledge is not a secret but overall,
turer of the hard drive and display modules of the it cannot be denied that the success of Apple is
fifth generation model of the iPod is Toshiba. The not built on only their hardware or supply chain
supplier of Video/Multimedia processors of fifth capability but their marketing strategy, design and
generation iPods is Broadcom. For the same type product innovation. Competitors are struggling to
of iPod, the supplier of mobile SDRAM memory challenge Apple’s iPod product chain with their
is Samsung. However, Apple keeps marketing, hardware capability as the key factor is not only
product design, software development, and prod- based on the offered hardware value.
uct management and innovation strategies at their
base in the United States (Linden et al 2008).

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Disruptive Product Innovation Strategy

Figure 7. iPod’s network externalities – authors’ own illustration

The iPod’s Buyer Experience Customer Productivity


Cycle / Buyer Utility Map
In the customer productivity part, it can be seen that
By using the BEC/BUM framework on the iPod the iPod covers purchase, use and the supplements
case, it is possible to analyse the iPod’s utility sections. The ‘purchase’ section is marked because
propositions that Apple is capable of offering Apple allows consumers to buy its products from
to their consumers. This analysis covers the six its own online site and high street shops and also
stages of the buyer experience by combining six it is possible to buy them from other online and
different utility levers. As a result of this analysis, high street companies. iTunes enables consum-
the iPod’s current offerings in thirty six different ers to find the right album or song quicker than
areas were examined as shown in Figure 8. by shopping in the high street and therefore the
productivity of the purchase stage is offered to

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Disruptive Product Innovation Strategy

Figure 8. The iPod buyers’ experience cycle/buyer utility map

customers as iTunes is a single market place for based screen reader. It also enables customers to
extensive online music sales. change the display to white on black or vice versa.
The next section, ‘use’, is selected because iPod Additionally, the sixth generation of the iPod Nano
owners can synchronize their products with other offers a mono audio feature where customers can
iTunes compatible products so they do not have play both stereo left and right audio channels in
to buy and set their album list for each product. each ear bud. Apple offers accessibility options
In addition, the integration of the iPod with other for iTunes as well. As a whole, Apple is trying to
products and industries increase its productivity make their products and services simple to use
in its usage. Lastly the ‘supplements’ section is for all of their customers.
selected because iPod owners can buy iPod inte-
grated products and accessories from their online Convenience
or high street store quickly as their contact, ad-
dress and bank details are all stored in one single The importance of innovation in the convenience
account so this stage can be chosen as productive. part is that the new product or service should
consist of an offering that performs the work in an
Simplicity easier and more convenient way. Apple offers a fea-
ture called the Genius Mixes for their iPod, iPhone
This is one of the areas that Apple is quite success- and iTunes users. The Genius Mixes search the
ful in generally with most of their products as they iTunes library to make a list of songs that matches
present their products in a simple way, which is customers’ music preferences automatically with
one of their successful marketing strategies. The one single click. iTunes creates a number of lists
iPod is simple to use and Apple adds accessibility for customers so that they can pick the list they
options in the settings to make it even simpler. like best and let them rename and save the new
According to the accessibility options, customers playlist. This is a great feature when considering
who are visually impaired can select songs without the convenience section for iPod users because it
looking at the screen with the Voiceover gesture is time consuming to make a playlist and people

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Disruptive Product Innovation Strategy

are likely to get bored listening to the same songs Apple’s retail stores then customers receive a 10%
frequently. The Genius Mixes feature is a creative discount off their next purchase of a new iPod.
and quick way of solving this problem. Furthermore, the use of iPod’s are environmental
friendly because according to the environmental
Risk status report (Apple 2011), iPods are produced
with arsenic-free display glass, BFR-free mate-
Customers have great confidence when they rial, mercury-free material, PVC-free material,
purchase their products from Apple’s online recyclable aluminium enclosure and they are
store and their retail store. When the customer supplied with smaller, more compact packaging
makes an in-store purchase, Apple offers help (45% smaller, 46% lighter).
with set up, shows their customers some of the
key features of the product and teaches them how SWOT Analysis for the iPod
to download new apps, which assures customers
that there is great customer service to help them In this section, a SWOT analysis is used to evalu-
whenever they need it. It also reduces the risk of ate iPod’s strengths, weaknesses, opportunities,
the customer walking away and having limited and threats in the case of the portable music
knowledge of how the product works. Also, there player market, as shown in Figure 9. A SWOT
is not any perceived risk at Apple online stores as analysis is significant for identifying the internal
they offer great security with online purchases. (strengths and weakness) and external (opportu-
nities and threats) factors for the iPod. It can be
Fun and Image said that even though the iPod has great strengths
and opportunities such as its brand value and
The fun and image factor is one of the key char- its innovation strength in design, there are still
acteristics in the design of a product or service. some threats, as the interest of other established
iPod’s are generally perceived as trendy prod- players in the portable music market is so high
ucts by their users. The brand management of and other devices such as Smartphones contain
Apple products is well planned and according a music player function. Also, online music lis-
to Bloomberg’s latest report, Apple is now the tening culture has the possibility of affecting the
most valuable brand in 2011 (Culpan 2011). It is portable music market.
an amazing and surprising result how Apple has
pushed such a great brand as Google to second
place after a significant 84% increase that led to PREDICTIONS FOR THE PORTABLE
their new $153 billion brand value. This shows MUSIC MARKET
that the iPod is really valued by Apple customers.
Presently, Apple is the leader in the portable music
Environmental Friendliness market with over 70% of the global market share
and they are the leaders of the online music in-
Apple offers its customers the opportunity to dustry as they have the highest online music sales
recycle their iPod’s with “Apple Recycling Pro- in major economies. However, new technological
gram” (Apple 2011). Accordingly, customers have movements in the music market may affect Apple’s
two options to recycle their products. They can position in the music industry or they could affect
either recycle at an Apple retail store or they can the portable music player market as a whole in
recycle via mail where postage is free of charge. the near future.
If customers recycle their products at one of

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Disruptive Product Innovation Strategy

One of the current trends in the portable music for Apple’s iPod or iTunes that may affect their
market is consumers’ tendency to use their mobile market share in the future. According to the cur-
phones as a portable music player, as they prefer rent online music market and recent forecasts, the
to carry one single device that can perform both main competitors for Apple can be considered to
functions. This is one of the reasons why Apple’s be Microsoft’s Zune, AmazonMP3 and Google’s
iPhone rapidly became so popular in the smart- forecast music service. Google entered the digital
phone market because the iPhone was not just a music market with integration of their Android
smartphone but it also had iPod functionality as system linking it to the next generation of portable
well. Therefore, the iPhone was a great option for listening devices by letting consumers upload and
those consumers who wanted to buy an iPod and a store their music on the Internet (Plunkett 2011).
smartphone at the same time, as the iPhone offers However, this service is currently limited to an
their customers the ability to synchronize all of online streaming service and consumers cannot
their music data as easily as they can on an iPod. purchase any of the songs, but can only use their
Taking the iPhone as an example, miniaturization previously purchased songs. The increase in
in smartphone devices has a significant impact sales of smartphones based on the Android OS
on many portable devices such as music players, are predicted to increase AmazonMP3 sales as
handheld gaming devices and portable computers. Android users cannot use the synchronize option
The key argument that can be raised regarding on iTunes and those consumers may use an online
this point is: can mobile phones or smartphones music download service other than iTunes, such
disrupt portable music players, as consumers may as AmazonMP3 (Weintraub 2010). As shown in
no longer require two devices that are capable of table 3 below, it can be seen that from 2008 until
playing digital media? By looking at the current 2010 iTunes’ market share stayed almost the same
statistics of the portable music market mentioned but AmazonMP3’s market share increased from
previously in Table 2, the portable music market is 4% to 11.6%. Accordingly, it can be concluded
shrinking but Apple’s market share is still increas- that AmazonMP3 is currently capturing market
ing, so when will the market share of Apple reach share from other companies or AmazonMP3 is
saturation point, or will it be possible to expand expanding the online music market borders with
market boundaries in ways mentioned by Kim the help of Android OS based devices. It shows
and Mauborgne (2005)? that AmazonMP3 may be a great threat in the
Having mentioned the possible effects of direct future when considering their online music sales.
competitive products on portable music players, Seeing competitors’ threats in the online mu-
it is vital to analyse possible direct incumbents sic market and the new online music trend, the so

Table 3. Online music sales market share

Source: Kafka 2010

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Disruptive Product Innovation Strategy

Figure 9. The iPod’s SWOT analysis

called “cloud”, Apple introduced their own online may change the importance of hard drive space
streaming and storage service, which they called on music players as the stored data will be avail-
iCloud. One of the first movers in the cloud service able to customers with a fast download and upload
was Amazon’s cloud service and Google’s new speed.
music streaming service. With the iCloud service,
Apple customers will now be able to access all
of their digital content wirelessly from all of their CONCLUSION
Apple products such as iPod, iPhone, Mac and
iPad. This service allows customers to have a Drawing on the analysis using different BOS
larger storage capacity and have the same data in frameworks, it can be seen that the iPod is a
all their Apple devices. This increases the integra- disruptive technology which had a significant ef-
tion between Apple’s products and now Apple fect on the global market by destroying previous
customers may be tied even more to Apple prod- technologies and capturing and expanding the
ucts. This service with the new 4G technology portable music player market. One of the most

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Disruptive Product Innovation Strategy

noteworthy results is how established companies industry to strengthen its position in the market.
such as Sony, the inventor of the Walkman, could Accordingly, this factor can be shown to be one
not compete with Apple’s iPod even taking into of the reasons why the iPod is still the market
account its resource-based and knowledge-based leader and as yet remains unchallenged by its
competencies. competitors such as Microsoft’s Zune.
This chapter has explained the effect of strate- The final finding that can be deduced from this
gic innovation in the portable music player market research is the possibility of the sustainability of
using the BOS tools. With the help of various a disruptive technology in a shrinking market. As
BOS frameworks, the iPod’s current achievement shown in the analysis in Table 2, even though the
was analyzed and as a result it supported the dis- portable music market was shrinking, iPod sales
ruptive innovation’s new market disruption and were still, surprisingly, increasing. This can be an
low end disruption view. As for iPod’s offering, illustration of long-lasting success of a disruptive
it was a combination of the iPod providing new technology compared to the success level of a
market disruption while iTunes provided low sustainable technology.
end disruption technology. Also, it shows that
it is not necessary to be the inventor of a certain
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KEY TERMS AND DEFINITIONS is not willing to pay a premium price for enhance-
ments in product functionality.
4G: 4G refers to the fourth generation of cel- Miniaturizing: To make a product to a greatly
lular wireless standards. It is the successor to 3G reduced scale than before.
and 2G families of standards. Monopolistic Power: The ability of a busi-
Blue Ocean Strategy: Blue Ocean Strategy ness to determine the price of the goods/services
is a way of making the competition irrelevant by produced (to some extent).
creating a leap in value for both the company and Nanotechnology: The branch of technology
its customers. that deals with dimensions and tolerances of less
Creative Destruction: The process of trans- than 100 nanometers, esp. the manipulation of
formation that accompanies radical innovation. individual atoms and molecules.
Disruption: The term is used in business and P2P: Peer-to-peer; denoting a network or data
technology literature to describe innovations that communication in which no dedicated server is
improve a product or service in ways that the mar- involved.
ket does not expect, typically by lowering price Resource Based Theory: The theory that
or designing for a different set of consumers and focuses on firms’ resources and capabilities to
disrupting previous products or services. create a competitive advantage that ultimately
Disruptive Innovation: Disruptive innovation results in superior value creation.
is the innovative strategy or business model that Smartphone: A smartphone is a mobile phone
enables the technology that creates the disruptive that offers more advanced computing ability and
impact. connectivity than a contemporary ‘basic feature’
Disruptive Technology: An innovation that phone.
creates a new (and unexpected) market by apply- Strategic Innovative Business Model: This
ing a different set of values. is a systematic business model that aims to create,
Followership: The capacity or willingness to deliver, and capture innovations at a higher level
follow a leading company. of business process as an intentional repeatable
iCloud: iCloud is an internet-based computing process that creates a significant value for con-
service that is offered by Apple, whereby shared sumers and organizations.
resources, software, and information are provided Supply Chain Capability: Supply chain ca-
to computers and other devices on demand. pability is the capability of organizations, people,
Innovation Capability: The ability to come technology, activities, information and resources
up, consistently, with novel ideas that deliver short involved in moving a product or service from
and long term profits to an organization. supplier to customer swiftly, accurately, and ef-
Laws of Simplicity: According to John Maeda, fectively.
president of the Rhode Island School of Design Sustaining Innovation: An innovation that
and author of The Laws of Simplicity, there are does not provide a new product rather improves a
ten principles that can help in designing for sim- product in an existing market based on customer’s
plicity, the most important being: “Simplicity is expectation.
about subtracting the obvious, and adding the Uncompetitive Market: A new market where
meaningful. no competition is involved.
Low End Customers: Customers who do not Value Innovation: Value innovation is a strate-
need the full performance valued by customers at gic approach to business growth, involving a shift
the high end of the market. This type of customer away from a focus on the existing competition
to one of trying to create entirely new markets.

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