The Mystery of Market Cannibalism

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Written By: Kurtis Hardy

As a lowly, 24-year old, unrecognizable engineer, Steven Sasson was given the seemingly insignificant task of investigating potential use of a charged coupled device. In short, an integrated circuit of capacitors that transfer electric charges. His employer of two years, Kodak, held no conceivable plans for the technology. In fact, most carried no knowledge of what he was even working on. 

By 1975, Sasson presented his findings, complete with a very rough prototype, to Kodak management. To his dismay, leadership left unimpressed. Unable to recognize any conceivable value, decided to set aside the effort to focus on other initiatives. 

Utilizing a new process named digitalization, Sasson uncovered an ability to capture the image of two incoming dimensional light patterns transformed into an electric signal. Effectively, Sasson presented what can be considered the world’s first digital camera, only to be turned down. 

At the time, Kodak controlled a demanding share of the market, sporting over 80% of camera sales with 90% of film sold. Yet, despite later releasing digital camera technology far too late in the 1990s, dramatically fell to 21% market share by 2004. In a market where technological titans, Apple and Microsoft, achieve revenues in the hundreds of billions of dollars, Kodak obtained $1 billion in revenue last year. A slow, yet dejected march toward obsolescence. 

The historic unwritten rules of business are simple. Strategically differentiate one’s products and services from competition to create value for the customer. And second, grab firm hold of all available market share and do not sacrifice any of it. 

That brings us to the subject of market cannibalism, the resulting decrease in market demand and sales volume of an organization’s product, due to the launch of that same firm’s superior product. Commonly disparaged because of the obvious – sales are important, so why would you act to hurt your own revenue streams? Long avoided, this article is to reflect the advantages. DO IT, or someone else will.

NETFLIX

Despite nearly a decade of success disrupting the ineffective DVD movie rental industry, Netflix took a major risk in trying to revolutionize the company’s own model. Ultimately, the more-accessible nature of the streaming service product proved incredibly successful. Combined then with a subscription model at an incredibly affordable price, consumers flocked to the technology, snowballing a flux of spin-off streams targeting niche markets. 

APPLE

Steve Jobs reigns modern king of the product cannibalization world. With each new idea, the propensity to launch immensely influential devices. Regardless of the tremendous success of the iPod, Apple moved forward with the release of the iPhone. A decision that appears obvious with the benefit of hindsight. However, effectively killed a product that earned $4 billion in the final quarter of 2007 alone. 

From his biography on Jobs, Walter Isaacson writes,“One of Jobs’ business rules was to never be afraid of cannibalizing yourself. ‘If you don’t cannibalize yourself, someone else will’ he said. So even though an iPhone might cannibalize sales of an iPod, or an iPad might cannibalize sales of a laptop, that did not deter him.”

The stark reality of modern commerce illustrates that all business deteriorates without reinvention. “We’ve always done it this way” becomes the famous last words within outdated industry. While some calculated pause is necessary to avoid true product pandemonium, business must deter from the risk-averse, decision paralysis managers of late. Recently, 3M implemented a 30% rule, a goal targeting a third of each division’s revenue to arrive from products introduced within the last four years. Finding this proper balance of stability within continuous innovation lies the true challenge for businesses striving for relevancy in industry today. 

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