Disruptive Market Entry
A Disruptive Market Entry is one where a firm entering a market chooses not to compete with existing firms for their best customers. Instead, in a disruptive market entry, entrants appeal to customers who have been “overshot” by incumbents.
As an example, consider Microsoft Excel. Its capabilities outstrip the vast majority of its users. This means that the least demanding customers are paying for functionality they don’t need. When an incumbent firm’s product overshoots the mainstream part of the market, this sets the stage for an entrant to offer a cheaper, lower-functionality product. Excel long ago overshot the mainstream market, opening the way for Google Sheets to appeal to users who are satisfied with a “worse” product. Over time Google Sheets has added functionality, encroaching on more and more of Microsoft’s market.
Generally speaking, a disruptive entrant must use a different business model from the incumbents. They also tend to have inherent cost advantages. By using a different business model and cost structure, disruptive entries take hold among the least demanding customers and generally pursue better margins by moving up-market.