Research report: Disruptive technologies - Explaining entry in next generation information technology markets

The most difficult challenge facing a market leader is maintaining its lead ing position. This is especially true in information technology and telecom munications industries, where multiple product generations and rapid techno logical evolution continually test the ability of the incumbent to stay ahe ad of potential entrants. In these industries, an incumbent often protects its position by launching prematurely to retain its leadership. Entry, howe ver, happens relatively frequently. We identify conditions under which an e ntrant will launch a next generation product thereby preventing the incumbe nt from employing a protection strategy. We define a capabilities advantage as the ability to develop and launch a next generation product at a lower cost than a competitor, and a product with a greater market response is one with greater profit flows. Using these definitions, we find that an incumb ent with a capabilities advantage in one next generation product can be ove rtaken by an entrant with a capabilities advantage in another next generati on product only if the entrant's capabilities advantage is in a disruptive technology that yields a product with a greater market response. This can o ccur even though both next generation products are available to both firms. We also show that the competition may require the launching firm to lose m oney at the margin on the next generation product.