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Illustration: Lau Ka-kuen
Opinion
The View
by Cathy Holcombe
The View
by Cathy Holcombe

Thank the rich for driving technology trends that will benefit us

Clayton Christensen's theory that cheaper imitations take over is being turned on its head as the wealthy drive demand for high-priced gadgets

Clayton Christensen created a revolution in business thinking when he argued, in his book , that markets are often disrupted not because better stuff gets invented, but because cheaper "good enough" imitations take over.

Yet the biggest consumer phenomenon of the recent past has defied this very influential theory. Apple launched a successful attack on the market from the high end, and has a following of "beautiful-tech" geeks. Smartphones were getting cheaper and cheaper until the iPhone came along.

Christensen concedes that Apple has defied his expectations, but he believes the company will eventually fall from its perch. And the market agrees. Apple's shares generally trade on price-earnings ratios in the mid-teens, below many tech peers, on the reasonable expectation that its good run can't last forever.

Fair enough, but interestingly, Apple is not the only recent case of high-end disruption. Tesla may provide another example. And we are seeing massive research and development in robotics, some of it aimed at replacing ordinary consumer appliances, like vacuum cleaners, with more expensive self-operating engineering feats.

Christensen once ran a fund based around the concept of low-end disruption. It might be time for a high-end disruption fund.

Why now? After all, in OECD countries, the once-expanding middle classes are largely shrinking, and real income growth for everyone except the rich has either stagnated or declined in the past decade. Many consumers should rationally be demanding the cheapest tack possible, as long as it comes with a lower price tag.

The rich, however, are getting richer - and it is they who seem to be driving the trends in technology markets. Others are following. Average household expenditure on telecommunications - devices and services - has soared in the United States since the introduction of the iPhone in 2007; this even if not everyone can afford a new model smartphone, something the has dubbed "iStrain".

Last week I met executives of iRobot, a company started by a group of science giants from the Massachusetts Institute of Technology. Their robots have been used in space exploration, for detecting mines in war zones, and to tour the Fukushima nuclear plant after the 2011 disaster.

But all that exciting and lofty stuff does not pay the bills - most of the company's profits come from Roomba, their robotic vacuum cleaner. While sales in traditional vacuum cleaners have been stagnant for years, robotic models have been gaining in popularity, and now have 15 per cent of the global market share for higher-end vacuums.

Consider the predicament of the traditional-branded vacuum cleaner company, which for years has been fighting off low-end challengers, often by trying to find some niche of safety in the high end. Now they are literally competing against rocket scientists for that niche.

And the competition is likely going to get worse. When iRobot started its business in 1990, the US federal government allocated 1 per cent of its budget to space agency Nasa. Today that has dropped to 0.5 per cent. With the burden of ageing populations, OECD countries cannot support the sciences as deeply as in the past, so skills are transferring to the private sector.

They are literally competing against rocket scientists for that niche

The robotics industry cites changing demographics as a key driver of its business. As populations age, there will be fewer working-age people to do what needs to get done, from vacuuming to doctoring to pool-cleaning, another robot line from iRobot.

The solution is to raise productivity with machines that allow us to do more with fewer people. The risk of course, is that in the meantime, those machines will further exacerbate the widening wealth gap. After all, whatever may be on the horizon is on the horizon - right now there are many people in the OECD looking for jobs.

But in the long run, Christensen is probably right. Today's technologies will get commoditised away, replaced by cheaper, good-enough versions. And so when other countries cross the threshold South Korea and Japan have already crossed - where there really is a deficit of workers and surfeit of old people to take care of - then, hey, perhaps we can thank the rich. Their appetite for lofty technology might be underwriting a trend that looks like luxury now, but could be necessity later.

This article appeared in the South China Morning Post print edition as: The imitator's dilemma
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