Payments Disruption By Any Other Name

HBS Professor Clay Christensen published an article last week that said Uber isn’t a disruptive innovation – even though 100 out of 100 people would beg to differ. MPD CEO Karen Webster suggests that now may be the time to retire Christensen’s nearly 30-year-old framework, since the very fundamentals of that framework would disqualify nearly all of the things that have disrupted and transformed payments and commerce over the years. Do you agree?


A year and a half after Harvard University Professor Jill Lepore published a stinging rebuke of Harvard Business School Professor Clay Christensen’s theory on disruptive innovation, Christensen has published a piece clarifying his position on disruption and the “innovator’s dilemma” he made so famous.

And he contends that Uber isn’t really a disruptive innovation.

Still clear as mud to me!

But when a famous HBS prof doubles down on a tough position, you gotta think maybe he must have a point and I’m just not smart enough to get it.

So, here we go.


Back in June of 2014, when Lepore’s piece was published in The New Yorker, she questioned the very essence of Christensen and his “innovator’s dilemma” concept. Lepore asserted that most of the companies that Christensen considered the “poster children” for disruption actually failed; made fun of Christensen’s famous quote in 2007 about Apple being a non-disruptor; and pointed out that the ROI of the Disruptive Growth fund started in 2000 using Christensen’s theory of disruption to guide its investment strategy lost 64 percent of its value during the 2008 financial crisis crash (the Dow lost 50 percent during that same period).

By the way, here’s Christensen’s quote on June 28, 2007 about Apple:

“[T]he prediction of [my disruption] theory would be that Apple won’t succeed with the iPhone. They’ve launched an innovation that the existing players in the industry are heavily motivated to beat: It’s not [truly] disruptive. History speaks pretty loudly on that, that the probability of success is going to be limited.”


Lepore also challenged Christensen’s “disrupt or die” mantra, which she claimed only forced all companies new and old to attach an artificial importance to the notion of disruptive innovation at the expense of everything else.

Christensen, in response, called Lepore’s piece a “criminal act of dishonesty – at Harvard of all places,” but did agree that “disruptive innovation” had become way too overused.

I wrote an extensive piece dissecting the “Battle at the Harvards” (Business School and University) last June. I agreed that disruption was being used to describe everything new — and that not everything new is disruptive (or even innovative). There’s a lot of colorful narrative on the topic which I won’t repeat – you can read all 3,000 juicy words here.

What I want to focus on this time is the difficulty of trying to neatly define the disruptive innovation about which Christensen speaks. And to even question how relevant his framework is anymore, especially when applied to the innovation that is unfolding before our very eyes in the very dynamic market of payments and commerce — and even most two or multi-sided platforms.


Let’s start with the basics of his framework.

Christensen says that for an innovation to be disruptive, it must come to market in one of two ways: through low-end footholds that serve customers that incumbents don’t want to or can’t serve profitably, or through new market footholds in which innovators find entirely new consumers of the innovation because they create entirely new markets.

In both cases, Christensen says, innovators are successful because they enter with products that are lower in quality and cheap to produce. Users embrace those low quality solutions without question or complaint. In new markets, they have no basis for comparison and are happy as clams for a new experience. In underserved markets, users are so desperate for something, that they’ll take anything. Incumbents serve their core customers in existing markets well enough already with a higher quality product so there’s no risk of losing them to a lower quality solution.

Except of course when they do – but hold that thought.

Disruption then happens, Christensen says, when those lower quality solutions evolve and get better over time. When they do, they become so popular that they attract the mainstream users once served by incumbents, who never see the disruptors coming. Christensen’s advice to incumbents to avoid such a fate is to assume that someone, somewhere is out to eat your lunch and to “disrupt or die.”


Christensen describes Uber as entering the market differently, appealing to the mainstream user in a big market. This big market was also already being served by an existing provider – the taxi. The top end of the market was also being well served by black car services. And, unlike disruptive innovations that start life with an inferior product, Uber entered with one that made the end user experience better in every way.

And that, Christensen says, is why Uber is innovative, but not disruptive. They didn’t start at the low end of the market, they didn’t create a new market and they entered with a superior product that cost the mainstream user more.

It’s really a pain when reality doesn’t synch with ivory tower academia, isn’t it?

And I’m sure that Travis and his Uber team, with its $70 billion market cap after six years, is distraught that they don’t meet Christensen’s criteria for being a disruptive innovator.

Since they certainly do according to everyone else.

Ask any taxi driver how they describe Uber.

Ask any taxi medallion owner, who’s seen the value of that investment shrink by 50 percent or more since Uber entered the market, how they describe Uber.

Ask any regulator how the taxi associations who’d like to see Uber more tightly regulated describe Uber to them.

Disruptive (along with probably a few other colorful adjectives) is probably at the top of the list.

Because if you ask any consumer who has downloaded and now uses the Uber app how they describe Uber, they now call it essential.

And then there are all the new firms starting the “Uber-of-this” which show promise of disrupting many other industries. Like Airbnb, for example, which just raised $100 million on a $25 billion valuation.

Hey, maybe another way to look at Uber is that it’s so disruptive, it’s even disrupted the Professor of Disruption’s 28-year-old disruptive innovation framework!


To be completely fair, Christensen describes Uber as a sustaining innovation, a label that he ascribes to them because they entered an existing market with a better product. But that ignores one of Uber’s greatest sources of value – and therefore its source of disruptive innovation: its ability to match black car drivers with capacity with consumers willing to pay more for a better experience. The ability to match supply with demand is why Uber could enter the market with a superior product and six years later operate in 60 countries around the world with a market cap that’s bigger than GM, Ford and Honda.

And that begs the question: Who really cares anyway whether they tick the boxes of a particular innovation framework? They’ve revolutionized and disrupted – there I said it — transportation all over the world.

Take MasterCard and Visa – the two most valuable payments players in the world. The innovation they both unleashed nearly 60 years ago was the creation of an ecosystem that offered the “mainstream middle” a way to buy things one day and pay for them at some point in the future using the same payment method at millions and millions of merchants. Neither entered the market at the low end with an inferior product, nor did they create a new one – stores and banks had provided consumer credit for decades.

Was the birth of the card networks a disruptive innovation? Christensen would say it was not. Yet the value that MasterCard and Visa have delivered by creating and operating global payments networks is enormous — and has driven immense value as measured by the trillions and trillions of dollars in transaction volume — to consumers, merchants and brands all around the world.

Alibaba didn’t become one of the most valuable companies in the world by checking Christensen’s low end/new market boxes either. Alibaba offered small businesses and the emerging Chinese middle class a way to conduct commerce, online, and a method of payment that provided a trusted way for sellers to be paid. Is Alibaba a disruptive innovation? It’s not entirely clear if it would check Christensen’s boxes either, even though the solution that Jack Ma has also unleashed immense value, worldwide.

Let’s not even go there with Apple. Can we all agree that Apple and the iPhone is D.I.S.R.U.P.T.I.V.E?

What about PayPal?

Now, two decades into the evolution of online shopping, the importance of having a frictionless way to checkout online and via mobile is now a big deal and the subject of a huge land grab by the card networks, third-party wallets and more innovators than you can shake a stick at. The source of PayPal’s value is the consumer and merchant network and the global ecosystem that it has built around it over the last 17 years, solving the online checkout frictions that were largely ignored by the card networks.

The source of its disruption, though, is what is now happening around PayPal — the intersection of the massive number of consumers with smartphones and apps that makes shopping and buying anytime and anywhere a reality. The magnitude of that disruption will be determined by how well PayPal can leverage those assets and that market dynamic to transform the shopping and buying experience across all of the ways that a consumer will shop today – and want to in the future.

So is PayPal disruptive by Christensen’s definition? Would they have been 17 years ago when they started out?

And who’s keeping score that way anyway?


Christensen says that understanding his framework for disruptive innovation is critical since it helps incumbents and innovators alike understand the market. But drawing the Christensen-esque bright lines between markets that are unserved and/or underserved in a very dynamic world that is being disrupted (yes, I used that word again) by the application of a slew of new technologies and apps and connected devices that are redefining markets and reshaping ecosystems seems irrelevant.

And illustrates how hard – and even arbitrary – labels that attempt to define disruptive innovation is.

Even when you’re the guy who coined the term.


Because innovation is really, really hard and disruptive innovation (whoops, used the word again – three times if you’re keeping score) is just nigh impossible.

In payments it is insanely hard given the complexity of the payments and commerce ecosystem and the interdependencies of the stakeholders in those ecosystems.

There isn’t one set of customers to figure out and please, there are many, and two in particular that hold all the cards: consumers and merchants. An idea that appeals to one of those customer groups is no guarantee that the other will find it just as interesting. The payments landscape is filled with thousands of flops that couldn’t strike the right balance and, to use our word, ignite in a timeframe that was relevant to their customers and investors.

In the last 60 or so years, you don’t need all of the fingers on both of your hands to count the truly disruptive innovations in payments: the ATM, online banking, the debit card, just to name a few. Maybe back in 1997, when Christensen’s framework was introduced to the world, thinking about disruptive innovation in two neatly defined buckets – low end and new market breakthroughs – might have made more sense, especially when applied to many of the examples in his book: copiers, disk drives and computers.

But it seems a lot less important in a world in which access to technology makes it much easier for innovators to develop better products and get them to market faster — right at the start. And where innovation is being defined by the problems that are being solved, the frictions it can eliminate, and the new experiences that it can enable — not how it is done. And where disruption then becomes the magnitude by which the innovation creates and delivers value to key stakeholders – not where or how it starts, or even whether markets are new or old.

And I’m with Lepore. Most companies shouldn’t follow Christensen’s “disrupt or die” advice and invest a ton of money in trying to be the next Uber or iPhone. That’s for the same reason I shouldn’t invest a lot of effort in trying to become the next Serena Williams, even though I like playing tennis. I don’t have what it takes to become a super athlete and so I need to focus on what I’m good at. Most companies should do the same: concentrate on making their core business as good as it can be, and making incremental improvements to stay well ahead of the competition. And in payments, using their scale to their advantage.

And if they do want to be disruptive, focus on ways to create lots and lots and lots of value instead of worrying about whether they’re meeting some arbitrary definition of “disruptive.”