Rapidly Diffusing Technology

Ben Bajarin / January 2nd, 2017

With the mass proliferation of smartphones and a rapidly maturing consumer base making their smartphones their primary computing devices, there is a fascinating new dynamic emerging. Our company, Creative Strategies, spent a lot of time in the late 80s modeling adoption cycles of new technologies. Using the market data in hand, along with discussions with academics and people like Geoffrey Moore who published a seminal book on the subject called Crossing the Chasm, models were built to understand the conditions that drove technologies into the mainstream. In those days, decades were used in models to predict how technologies went from the early innovators into the hands of average consumers.

Then, much of the effort was built around adoption cycles for personal computers that fit on desks and, eventually, ones that fit on your lap. It took decades just to get to the point where it was common for a single household to have a personal computer in their house. Now, around 3 billion humans across the globe have a computer that fits in their hands and goes with them everywhere. We are in uncharted territory and at a unique point in technology history with this many people owning such a powerful pocket computer, continually connected to the internet and other people, with instant access to buying and selling, and a wealth of information and data accessible at all times. Put all this together and we are watching technology diffuse and become adopted into the mass mainstream at unprecedented rates. This is happening with both hardware and software.

I first started thinking about this trend several years after Apple released the iPad. As that product launched, we were still using traditional models to predict and anticipate adoption cycles of new technology. We shortened the time span some, due to more mature market dynamics, but we did not expect the iPad to become the fastest adopted new technology product of all time and forecasts were well under what iPads sales rates were. So, we focused our research and analysis on why this happened and what we can learn. This was the first time we needed to step back and honestly look at how much has changed in the market to rethink how technology will diffuse in the modern age.

The iPad was a useful case study in adoption cycles for more than just how quickly it went mainstream but also how quickly it seemed to hit its addressable market. Once the iPad’s S-curve was on a steep incline, forecasters began to modify their underestimated forecasts but then began to overestimate. Some people were predicting a potential market size north of one billion tablets. Sales started to slow and it quickly became a replacement market with a total active installed base of around 350-400 million units, well short of the billion plus forecasts and well short of the PC installed base of ~1.5 billion and smartphone installed base of ~3 billion. While the iPad went mainstream faster than any tech hardware product in history, it also hit its max total addressable market extremely quickly. This is the new dynamic I think we are to expect as we move into a cycle of rapidly diffusing technology.

We can make some of the same observations about the wearable market. Specifically, things like smart watches and fitness wearables. This market shot off like a rocket but then slowed very quickly. This dynamic made predicting its exact market size difficult. The slowing year over year growth of the category came quickly and, while the market size for wearables may still be larger than it appears it is today, it also diffused quickly in certain developed markets.

We also see this trend in software. Perhaps one of recent example was the fascinating phenomena of Pokemon Go. There has never been software which went from zero to 500 million as fast as Pokemon Go. While not all of those 500 million people are still using the app, we saw a fascinating phenomenon of diffusion of software in the form of hoards of people walking around public spaces hunting for digital creatures hiding in the physical world.

The groundwork has been laid for technology, both hardware and software, to diffuse rapidly in short periods of time. Which again, makes it very difficult to predict their market size. A product, app, or service may appear to be addressing a larger market than it is in its early stages. This means metrics around hardware sales, app downloads, service subscriptions, etc., may be extremely misleading. The problem is, we have no idea the degree to which they are misleading or not.

Twitter, Fitbit, and GoPro are just recent examples of things that grew quick but also hit their max market opportunity just as quickly. As these companies went public, it was on the basis of a much larger market opportunity than it appears is the case. It’s possible Snapchat may fall into this category, but we don’t know, which is the new challenge of our modern era.

One last point. There are clearly things which will not diffuse as quickly because they are truly new and groundbreaking types of technologies (AR and VR for example) and may spread more slowly since consumers have less familiarity or context with the new technology. In those cases, I believe, we can still assume some type of longer than usual adoption metrics. I’m also not saying the mentioned companies or categories can not still grow their market opportunity with innovations. Only that the “easy” growth was over and over quicker than anticipated.

All in all, I’m convinced those of us who study these markets are in for new challenges in our approach as we try to size market potential for consumer technology. It means we need to address research with new methodologies, ask different sets of questions, understand deeper nuances of each consumer segment and, overall, be willing to abandon old practices and assumptions to create new ones for the modern era.

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • klahanas

    Happy New Year.

    In the case of tablets, not just the iPad, diffusion was quick for the exact same reason adoption was quick. The industry was selling sledgehammers to drive thumbtacks. PCs were over sold to customers who didn’t want or need their capability. The netbook phenomenon was the original proof of this, and tablets served that market better, albeit at higher prices, than netbooks. They served the “good enough” crowd, which is the vast majority. Why would this majority upgrade devices? The internet is the internet.

    Perhaps this desire of OEMs to make disposable, non-upgradable devices is being bitten by the hand that fed them.

  • obarthelemy

    Aren’t there two very different scenarios, one for the “serious” stuff , where benefits/costs prevails, and one for the fun stuff which is more akin to media frenzies ?

    I put costs in plural, because beyond monetary, skills and time are important hidden costs. Going from an Android phone to a tablet requires no new knowledge (and barely any money: $80 for 8″, $120 for 10″ for a “serviceable” device), but switching between iOS and Android does require new skills+knowledge, and the time+frustration to acquire those. Plus there are hidden costs, a PC needs a desk, a tablet doesn’t. I think once you factor all that in, the cost for a tablet, smartwatch.. is an order of magnitude lower than what it used to be for desktop PCs.
    Around me, everyone is buying the tablet that matches their phone, though in some instances a case could/should be made for switching platforms (both ways, I’m not being rabid about it, and I’m having a hard time finding an Android tablet with good, loud sound).

    On the other hand, Pokémon Go et al (Clash of Clans, Candy Crush…) are not utterly random in that the apps are of better quality than average, but success could have blessed other apps of similar quality and mechanics (except P. Go, though Ingress was very similar). Similar to how some series get hyped (walking dead…) while others of similar or higher quality (Justified…) get short shrift. Also, those are mostly free-to-start, as opposed to hardware and pro apps.

  • This discussion can get quite complicated very quickly. I think it’s better to restrict the scope, and to better understand the core argument.

    For example, I’m not sure that including Pokemon Go is a good idea. If one were to include games, then I would question why you do not include movies. Star Wars movies I expect, also have very rapid adoption, and have had so for quite a long while.

    Netbooks are also a good example of a product category that took off very rapidly, which adds to the argument that products that are already familiar to users tend to be adopted rapidly. The most prevalent explanation for their demise was that, at that time, tablets were competing for the same customers and Netbooks were losing. Therefore, it wasn’t that the addressable market for Netbooks was small, but that it simply lost to tablets. The exact same argument can be made for tablets and that tablets did not reach their full addressable market before they started to lose out to larger smartphones. Here we see an interplay between factors internal to the device category, and external.

    Furthermore, a lot of the adoption of SNSes like Twitter, Facebook, etc. were also probably not due to intrinsic factors but more due to the introduction of modern smartphones (post-iPhone). I remember using Twitter in early 2008 mainly on PCs, and it took a full year before growth really kicked in. Twitter took 2.5 years before taking off and since it coincided with the adoption of iPhone and Android, its hard to say what really contributed.

    https://blog.rjmetrics.com/2010/01/26/new-data-on-twitters-users-and-engagement/

    The way I see it, “Crossing the Chasm” is a great way to understand what you can do by yourself to bring your product to the larger market, if customers are not yet familiar with it. However, there will may be much stronger external factors that will actually do the job for you if you just manage to ride the wave. Also, because the pace of innovation in tech is so fast, external factors (new products that obsolete the old) tend to play a much stronger role than intrinsic ones when it comes to maximum adoption.

    Another point I would make is that GoPro probably didn’t cross the chasm in the first place, and I expect smartwatches haven’t done so either. If this is the case, then maybe we shouldn’t mix pre-chasm markets with post-chasm ones (this makes the discussion complex).

    • klahanas

      GoPro is interesting, and what I really like about them is that they are well positioned for best-of-breed type products. For the very same reason I like modular, they are an alternative camera to the standards that were out there. They helped define a category, the action camera.

      They also realized the need for diversification, hence the so far ill-fated Karma drone. I expect they will recover from that. I can easily see them becoming formidable in the fitness craze. And why not…

    • benbajarin

      If you follow what I’m outlining, there is no longer a chasm. Only variations of market size. Things like GoPro did actually go into the mainstream, in terms of cosnumer profile, as did the Apple Watch and Fitbit. It was not isolated into a typical early adopter profile but spanned the spectrum of profiles. The difference, is the market were small more nore niche, which again, is not unlike consumer packaged goods which is the direction I think we are heading.

      The wrong assumptions of the past are that a computing product must be for everyone. We look at the one-per-person computer cycle and think all tech must be like this but its not. But the maturity, familiarity, etc., of all tech inevitably makes it so tech can diffuse faster.

      My broader point, is the tricky part, is markets are likely to appear larger than they are at first and we really don’t have a good way to figure this out yet.

      • klahanas

        Is it even “figureoutable”?

        The closest thing to natural law in business, as far as I can tell, is the law of supply and demand. Without one, what makes you so confident you, or anyone, will be able to figure it out?

        • benbajarin

          It may not be. My current thesis is CPG does it pretty well when the look at new products. They also have nearly 100 years of consumer research to use. We dont’ have as much since tech in the mainstream is so new.

      • This is extremely tricky, and I won’t say I have a solution. I will however, quote from the original “Crossing the Chasm”.

        Most companies fail to cross the chasm because, confronted with the immensity of opportunity represented by a mainstream market, they lose their focus, chasing every opportunity that presents itself, but finding themselves unable to deliver a salable proposition to any true pragmatist buyer. The D-day strategy keeps everyone on point – if we don’t take Normandy, we don’t have to worry about how we’re going to take Paris.

        It seems to me that companies like GoPro have implemented a D-day strategy from the onset by focusing on a small segment of very active people who also want to share their adventures with their friends and the Internet. This is what has enabled them to quickly cross the chasm for that specific market niche.

        What GoPro is having difficulty with, is that they cannot find a quick road to Paris.

        Therefore, the way I see it, quick market adoption requires sacrificing the large market opportunity, at least for the short term. Unless we try hard to look at the long term, we will mistakenly underestimate the market potential of products that are quickly adopted within their niche.

        For GoPro, the question is whether they want to remain a company focused on Normandy, or whether they have a plan to go to Paris. We should not judge their market potential just because they’re still stuck on the beaches.

        The same could be said of FitBit.

        On the other hand, products that do not start by focusing on small niche will be adopted slowly. This is most notably the case for the Apple Watch, and is also arguably what happened for the original Macintosh. General purpose products tend to lack focus and thus have slow uptakes.

        Regarding the road from Normandy to Paris, I think the smartphone market displays a very interesting case. For smartphones, the Normandy was mobile email clients for the Enterprise. Blackberry provided a superb “whole product” for this task and successfully dominated this market niche. However, Blackberry did not or could not march to Paris, the broader consumer market outside of email. An observer during the early smartphone years might have concluded that the market was limited to mobile business professionals, and that the potential size was actually quite small (at least not in the billions). It took Apple and Android to show that this was not the case, and that the market was huge. However, it is important to note that iPhone benefited hugely from Blackberry having already familiarized the market to the concept.

        • Space Gorilla

          “deliver a salable proposition to any true pragmatist buyer”

          That’s an interesting point, if I understand it correctly. I have long argued this is what Apple does, and this is why I think Apple Watch will succeed long term (along with AirPods, iPad, etc.)

          • I agree that Apple tends to be more focused in general. That was the case with the iPod, for example.

            However with the Apple Watch, I don’t think Apple provided a simple and compelling proposition and this was intentional. Instead of targeting a small but strictly defined niche like Fitbit, Apple provided a platform which developers to could develop any kind of application on. The important thing here is that instead of focusing on a niche with the intention of quickly overcoming the Chasm, Apple insisted on a platform play so as to maximise the potential market and to explore the possible use cases.

            What is very Apple-like here is not that they strictly defined a selling proposition out of the gate (they didn’t), but instead how they play the long game. In 2016, Apple still talked a lot about Apple Watch and put a lot of priority on it. On the other hand, Google almost completely forgot about it and is now focusing on AI. Apple is used to waiting for years, and that is indeed what they did with the original Macintosh, and Mac OS X. In contrast, Google quickly changes subjects.

            Even when a product finds itself in the Chasm (and impatient pundits proclaim it as a flop), Apple has the conviction and focus to keep pushing it. They have experienced how the stars can suddenly align one day, and suddenly provide a powerful selling proposition. So yes, I do believe that the Apple Watch, iPads and even the AirPods will find a much broader market than today. However this will take many years, and Apple is a rare company that can and does wait this long.

          • obarthelemy

            I’ve got an Apple Xserve, a TimeMachine, a router and a Mac Pro that beg to differ ;-p
            Apple too sometimes waits, sometimes abandons.

          • Apple abandons product categories that are better served by others, and I think that’s a very different discussion. Here, I’m talking about their patience when they enter new markets. Therefore, I think the abandonment of the Newton, Pippin and eMate are more apt.

          • Space Gorilla

            Agreed, Apple is playing a long game, but the key point is that the products are actually useful and the buying decision is pragmatic. This aids in ‘crossing the chasm’.

        • obarthelemy

          I think the GoPro example is very telling. The next step towards greater adoption implies more ease of use and probably a lower price. The tech for that isn’t available yet (small flying automatic camera drones for $300-ish ?). I’m sure we’ll get there in a handful of years or two, maybe too late for GoPro though.

  • Glaurung-Quena

    regarding Ipads, “it quickly became a replacement market”

    How do you reconcile that contention with Apple stating repeatedly that even as Ipad sales flattened and started to decline, something like half of all ipad sales were continuing to be made to people buying their first ipad?

    I think to the contrary, we’re seeing adoption cycles break away from simplistic curves. You have incredibly rapid adoption fueled by the internet, as a new product appears and those who follow tech news read about it and know that this thing is exactly what they want. Then you have a second much flatter adoption curve as the product disseminates at a more traditional pace via word of mouth among the less technically attuned population.

  • pk_de_cville

    I think more attention should be paid to phablets being launched about 3 years after tablets.

    The over estimation error might be largely explained by phablets cannibalizing tablets.

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