Intel’s Atom: Disruptive Innovation in Action

Tuesday, June 10, 2008

If you’re familiar with Clayton Christensen’s research into sustaining and disruptive innovations and the forces that can make established companies turn a blind eye to going “down market” to take advantage of a disruptive innovation, then the news coming out of Intel last week was all the more revealing. Don Clark’s article in the June 3 Wall Street Journal (“Intel Looks to Power Bottom of Market: Atom Chips Will Serve In Notebooks, Desktops Priced as Low as $200) appears to be a highly unusual case of an established company finding a way to go against the grain and produce a lower margin product to be able to compete in a tighter margin but potentially high growth market. In this case it is the low price laptop and desktop markets. This is apparently a classic case of companies taking advantage of “performance oversupply” and offering a solution that has trade-offs more appealing to an underserved market. In “The Innovator’s Dilemma,” Christensen uses Intuit as a case study in how to exploit such an opportunity.

By watching for small hints of where the product might be difficult or confusing to use, the developers direct their energies toward a progressively simpler, more convenient product that provides adequate, rather than superior, functionality.

Clearly the computer manufacturers of Nettops and Netbooks, (Acer Inc. and Asustek Computer Inc.) recognize that the trajectory of focusing on the most demanding customers (computer geeks who demand more and more functionality) can distract a manufacturer from a market where adequate functionality would actually end up exceeding their expectations. As for Intel, I can only imagine the battles that ensued in its resource allocation process to justify going down-market where margins are low and markets relatively unknown. If Christensen’s research provides a crystal ball, the Atom chip will go through a series of sustaining innovations over time and eventually supplant the higher priced (and margin) chips as the chip-of-choice for established manufacturers.