27

Chapter 3
Disruptive Product
Innovation Strategy:
The Case of Portable Digital Music Player

Nazrul Islam
Aberystwyth University, UK & Middlesex University, UK

Sercan Ozcan
Aberystwyth University, UK

ABSTRACT
In today’s business world, many companies are in search of an innovative strategy to move on to a market
where there is as yet no competition. In view of that, many academics and managers are trying to find
a systematic framework for a strategic innovative business model. One of the examples of a systematic
framework is Blue Ocean Strategy (BOS), which provides various tools for managers to find a gap in an
existing market or to create a new market where there is no competition. This chapter uses Apple’s iPod
product chain to illustrate how BOS tools can be used to create an innovative strategy for two reasons.
Firstly, there are few practical examples that illustrate the BOS, as it is a recent business model and
so this chapter can be a useful illustration for those audiences who are interested in strategic innova-
tions focusing on disruption. Secondly, the iPod is a great example of an innovative product where the
manufacturer benefits from low competition, high market share, and high profit return.

INTRODUCTION already in the market. They more than often target

Innovations resulting from disruptive technolo-
gies usually offer change either in products or in
services that are typically simpler, more efficient,
easy to use versions of existing products or services
DOI: 10.4018/978-1-4666-0134-5.ch003
new customers or low-end customers by lower-
ing the price or designing products/services for
a different set of consumers.
The general understanding of disruptive tech-
nologies, technology-based products, and business
models has been shaped by the pioneer works

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

of Clayton Christensen’s book The Innovator’s
Dilemma published in 1997. Disruptive technolo-
gies generate new innovations that unexpectedly
bring an established market to an end (Christensen
1997). In his book, an important distinction was
made between sustaining and disruptive innova-
tions. Sustaining innovation, pioneered by estab-
lished companies, ensures their competitive status
in a market by enhancing and improving existing
products’ performance in an expected way that
customers value (Christensen and Overdorf 2000).
However, disruptive innovation usually originates
from newcomers, upsets the market status by
fundamentally altering the way customers think
about product performance because it exceeds their
expectations in an unexpected way. In comparing
both innovation types, it can be seen that sustain-
ing innovations are the type of technological
outcomes that can be outperformed outdone by
large and established competitors within a short
period of time, while disruptive innovations cannot
be imitated or outdone by other companies due
to the number of difficulties they face. Some of
these difficulties that established companies face
are their flexibility in political, operational and
cultural positions (Kim and Mauborgne 2005).
With disruptive innovation, the vital concern
is to make such a leap that the relevant offering
provides a better product/service than anything
that existed beforehand. It is almost impossible
for established companies to cope with the change
as they are focusing on their sustained innovation
that helps to maximise profits and keep making
their product(s) more desirable. However, estab-
lished companies can be disruptive by attracting
low end customers as in the case of the portable
digital music player. Many companies are in search
of an innovative strategy to move on to a market
where there is as yet no competition. In view of
that, many academics and managers are trying
to find a systematic framework for a strategic
innovative business model. One of the examples
of a systematic framework can be found in Kim
and Mauborgne’s work on Blue Ocean Strategy
28
Disruptive Product Innovation Strategy
(BOS). BOS provides various tools for managers
in their innovative strategic decisions to find a gap
in an existing market or to create a new market
where there is no competition.
This chapter attempts to explore the product
evolution and disruption trends in the case of
portable digital music players. The aim of this
chapter is to clarify a debate on whether the iPod
offers a disruptive product innovation or creates
a new market space. BOS tools are adapted for
the iPod case in considering the gaps in this area
and a market forecast is made for the case of this
portable music player.
TRENDS OF PORTABLE MUSIC
PLAYER DISRUPTION
In 1979, Sony released the first portable music
player called the Walkman, which was a cassette
player that replaced the bulky music players known
as the boom box (Sony 2011). When the first
Walkman was introduced, many people claimed
it would not sell as it did not have a recording
function. However, consumers took to playing
their music through a portable device in the 80′s.
The term Walkman even entered English usage
as a portable cassette player. It was not long after
that, five years later in 1984, the first portable CD
player was introduced by Sony and the portable
music player market was dominated by Sony for
a long time (Sony 2011). However, the portable
music player market started losing its influence
over consumers after the mp3 music format
became popular (Lasser et al 2006). Consumers
started using various online sites and P2P programs
illegally to download their favourite songs in mp3
format. Many manufacturers introduced mp3
players but people were still downloading mp3
songs in an illegal way (through P2P programs
such as Napster) and the mp3 devices could not
store a great number of songs.
In 2001, Apple introduced their first digital
music player called iPod and in 2003 introduced
Disruptive Product Innovation Strategy
their iTunes software, which, with the agreement
of five major music companies, enabled users to
download music legally (Knight and Hormby
2007). With iTunes’s user friendly design, con-
sumers could download legal, high quality songs
in mp3 format at a reasonable price. In this way,
customers had the possibility to buy the exact song
they liked instead of buying the whole CD album.
Also, it was a one stop shop enabling customers
to find a great range of music of high quality.
There are two types of disruptive innovations;
these are low end disruption and new market
disruption (Hang and Kohlbacher 2008). Low
end disruption occurs when a product or service
fulfils the low end of the market by providing
more value for money demanded by customers.
New market disruption occurs when a product or
service offered by a company in a new or emerging
market segment which is unoccupied by existing
competitors. The introduction of iPod can be
considered as both an example of new market
disruption and a low end disruption technology.
It can be classed as a new market disruption due
to the unexpected high quality being offered to
customers compared to other portable digital au-
Table 1. Trends of disruption – the case of portable music player
Period Disruptive Disrupted Technology
Technology
1970s Sony Walkman Boom box (Ghetto
Cassette Player Blaster)
Late 1980s The Discman Sony Walkman Cas-
and 1990s and Portable CD sette Player
Players
1990s and iPod and Other Portable CD Players
2000s on- Digital Players
wards
dio players. In addition, it can be considered as
a low end disruption technology as they reduced
the price of music sales by introducing the iTunes
store. Moreover, when considering Apple’s iPod
product chain, it can be said that they introduced
products that cover low end disruption and are
also sustaining innovations.
Historically, downloadable digital music media
and portable digital players disrupted many previ-
ous technologies such as music CDs and portable
CD players (Lasser et. al 2006). In Table 1, the
history of disruptive technologies in portable mu-
sic players is illustrated. Over the course of time,
it can be seen that iPod has become the leading
technology which played the key role in disrupting
the previous portable music player market with
their new innovative technology.
According to Christensen (1997), successful
leadership with a disruptive innovation results in
enormous value. For example, Apple currently
leads the digital audio player (DAP) market suc-
cessively with their iPod product chain and their
iTunes music store. Even though there were many
companies involved in the DAP market before
and after iPod was introduced, Apple still holds
Notes
In the late 1970s, the boom box was quite popular among the younger
generation. Companies were competing on who could produce the
loudest product or the biggest product. In 1979, Sony introduced the
first portable cassette player and it became very popular in a short
time and disrupted boom box players
In 1984, Sony introduced the world’s first portable CD player. This
invention accelerated the spread of the CD usage. Following this in-
vention other large companies started producing portable CD players
which in time disrupted the cassette player market
In the late 1990s, many companies started introducing flash memory
based digital audio players. However, most players were bulky in
size, had low storage capacity and low battery life. In 2001, Apple
introduced their first iPod model and in 2003 they introduced their
online music store iTunes. In a short time, iPod became very popular
as Apple was the first company who offered customers a legal whole
package product. The new way of online music purchase and the qual-
ity of iPods disrupted portable CD players and became the leader of
the digital audio player market
29

more than 70% of the DAP market share and they
are the largest music store in major countries such
as USA, Japan and Canada (Dalrymple et al 2009).
Therefore, it can be argued that the iPod is not a
sustaining technology but a disruptive technol-
ogy.
One of the reasons the iPod turned out to be
a disruptive technology can be seen by using
Christensen’s (1997) performance-time graph
for disruptive technology as shown in Figure
1. Accordingly, for a product or service to be a
disruptive innovation, it has to exceed customers’
performance expectation of a product or service
in the existing market. In other words, the new
innovated value has to exceed what customers
normally demand. When considering the history
of the portable music players mentioned earlier in
Table 1 and Christensen’s (1997) theory, iPod is a
disruptive technology as it exceeded customers’
expected performance in terms of the key elements
of a DAP such as storage capacity, size and battery
life. As illustrated in Figure 1, iPod exceeded the
first mover’s DAPs (such as Creative), CD players
Figure 1. Portable music player disruption by iPod (modified from Christensen 1997)
30
Disruptive Product Innovation Strategy
and customers’ expected performance of a DAP
over a certain time interval and therefore can be
considered as a disruptive innovation.
Having mentioned the value offered by and
the high performance of the iPod regarding its
hardware, the performance in its software and
online music market has to be considered too.
Noticeably, iTunes did not only exceed the ex-
pectation of customers but it exceeded the expec-
tations of music production companies by taking
into account issues of legality too. iTunes was a
win-win situation for consumers and for music
production companies. Customers had a desire to
download mp3 songs and music companies
wanted to stop illegal music downloading and
broadcasting and to increase their profits. iTunes’s
success can be seen in the fact that it turned over
ten billion digital music sales by 2010 and as a
result it benefited not only Apple and their cus-
tomers but also music producers (Apple 2011).
Overall, it can be seen that iPod is not just a
digital music player but it is a package that covers
all the aspects of the digital music market from top
Disruptive Product Innovation Strategy
to bottom. Moreover, Apple follows a continuous
innovation strategy to increase the value of their
products for customers so competitors are always
playing catch-up. Therefore, as Christensen (1997)
described, competitors currently have to accept
their position and do not have a major role in
sharing the market.
THEORETICAL AND
CONCEPTUAL FRAMEWORK
The first analytical framework on innovation
management was described by Austrian econo-
mist Joseph Schumpeter in the 1930s (Sweezy
1943). J. Schumpeter’s idea of so-called creative
destruction defined innovation as being a trigger
to create a new market and to destroy the old
one (Sweezy 1943). Schumpeter ‘s analysis on
innovation management, from an economist’s
perspective, is similar to Christensen’s disruptive
technology theory as both analyses consider the
previous market as being destroyed or disrupted by
the market following the innovation. Schumpeter
analyzed the innovation capability of companies
and related it to their size. He argued that large
companies have an advantage due to their monopo-
listic power as defined by resource based theory
but small companies have an advantage due to
their higher level of flexibility (Sweezy 1943).
Nowadays, Schumpeter’s pioneering idea on
innovative management is catching the attention
of many academics and managers as the strategic
management of innovation plays a greater role
in the global and local market. Currently, there
are various studies on innovation management
but there are few analytical frameworks for an
integrated approach on how a new innovation can
be created or how a new market can be created
from an innovative management perspective.
One of the theoretical frameworks that provide
analytical tools for strategic innovation is Kim and
Mauborgne’s (2005) Blue Ocean Strategy (BOS).
BOS assists companies to move outside highly
competitive markets by creating new markets.
BOS is not a strategy for competition; on the
contrary it is a strategy to avoid high competition
and to find a new market where competition is not
involved. In highly competitive markets, every
company has a market share and after new com-
panies join, the market share of other companies
will decrease (Hiebing and Cooper 2003, Gilligan
and Wilson 2005, McDonald 2007). BOS offers a
way to companies to have a significant percentage
of market share or even the whole market rather
than having a limited market share.
One of the cornerstones of the BOS strategy
is value innovation (Kim and Mauborgne 2005).
New value innovation enables a company to en-
joy unoccupied sectors of a market or an entirely
new market. BOS can be applied by using its
value innovation tools, for example, the Strategy
Canvas, the Four Actions Framework and Buyer
Experience Cycle / Buyer Utility Map (Kim and
Mauborgne 2010).
The Strategy Canvas is one of the central frame-
works of BOS for value innovation and to analyze
what the current values offered to customers are
(see Figure 2). The competition level and invest-
ment of companies are identified on the horizontal
axis of the framework. The various offerings that
customers receive on a specific product by con-
sidering competing factors are identified on the
vertical axis. There are two benefits of the Strat-
egy Canvas. The first of them is that it describes
where competitors currently challenge each other
in a specific market by considering the key values
that are offered to customers. Secondly, it helps
companies to define the gap where they can take
action to gain a presence in a non-competitive
area to move on to a blue market.
Another key tool for BOS is the Four Actions
Framework which assists forming a new value
curve by considering differentiation and low cost
criteria. There are four strategic questions that
need to be asked in this framework to break from
31

Figure 2. The strategy canvas (Source: Kim and Mauborgne 2010)
the current competitive curve as shown in Figure
3.
The Buyer Experience Cycle / Buyer Utility
Map framework helps to create a BOS. The
Buyer Utility Map is a unique utility for a new
product or service. It can be used for re-innovat-
ing existing products and services to differentiate
them from competing ones. It covers the six
stages of the buyer experience cycle, which are
purchase, delivery, use, supplements, maintenance
and disposal. In addition, it combines these six
stages with six different utility levers, which are
customer productivity, simplicity, convenience,
risk, fun and image, and environmental friendli-
ness. Combining these different stages it results
a comprehensive framework which shows the six
different utilities that can be offered at six differ-
ent stages of the Buyer Experience Cycle. By
using this tool, it is possible to locate the existing
product or service, analyse the market and locate
or position the new product (see Figure 4).
These BOS tools are applied to the iPod prod-
uct chain in the following sections to see how the
various frameworks work on an innovative prod-
uct and to analyse its possible competitors in the
portable music player market.
32
Disruptive Product Innovation Strategy
PORTABLE DIGITAL MUSIC
PLAYER (iPod): A CASE OF
DISRUPTIVE INNOVATION
Previous sections identified in general terms
Apple’s achievement with their iPod product chain
and their current market position. Undoubtedly,
the iPod is an innovative product that disrupted
previous technologies in a way that it became one
of the most competitive products of the portable
music player market. The aim of BOS is to create
a unique strategy to move on to an unexploited
market as was created by Apple with their iPod
product chain. Therefore, it would be useful to use
the iPod as a case study for BOS frameworks. In
the following sections, the different BOS frame-
works will be applied to the iPod and other DAPs.
iPod’s Strategy Canvas
Figure 5 shows where the iPod Nano breaks
off from competing products and how it is dif-
ferentiated by various unique offerings. In the
following strategy canvas, it can be argued that
the iPod is differentiated from its competitors
by various factors. It is clear that the iPod offers
Disruptive Product Innovation Strategy
Figure 3. Four actions framework (Source: Kim and Mauborgne 2010)
high quality in terms of the basic characteristics
of an mp3 player that its competitors offer but it
is also differentiated from competing products
by providing unique offers. When considering
the product characteristics and offer of online
music service, the closest direct competitor is
Microsoft’s portable player Zune and therefore
it is vital to show in this analysis where Zune is
a separate product to other portable digital play-
ers. HPP in Figure 5 means high profile portable
music players such as Sony Ericsson Walkman,
SanDisk and Samsung. LPP means low profile
portable music players such as unbranded digital
players and imitation digital players.
According to Figure 5, it can be said that when
considering the hardware capability and quality,
the iPod offers really high standards compared to
its competitors, but Zune almost matches the iPod
Touch’s quality and exceeds the iPod Nano in
some factors. It is clear that the iPod is still the
only product that offers unique values to its cus-
tomers whereby it may be thought these factors
are the ones that differentiate the product They
include compatibility with various devices and
accessories, the iTunes music market, iPod’s in-
tegration with Nike sport kit, iPod connectivity
between the number of automakers and airlines,
iPod Touch’s camera, Apple’s app store (for the
iPod Touch version) and iPod’s accessibility for
disabled people. By looking at these unique of-
ferings, it is clear that the iPod is differentiated
by expanding its network with compatible features.
In addition to this, Apple targets key markets of
portable music players with those extra offerings.
33

Figure 4. Buyer experience cycle map (Source: Kim and Mauborgne 2010)
For example, nowadays people have a great pas-
sion to go to the gym as life styles are currently
changing. Recent research shows that listening
to music whilst working out can help people’s
workout (Harmon and Kravitz 2007). Customers
want to exercise at the gym whilst listening to
their favourite songs and they are looking for a
small, lightweight and simple device. Apple with
their iPod Nano product chain miniaturized their
product and added a new built-in clip to target
those customers. Even more, Apple added a pe-
dometer and made an agreement with Nike to
enable them to use a special Nike application on
their device with a special Nike sports kit which
makes their product even more unique. One of
the most important aspects that need to be con-
sidered with the agreement between Nike and
34
Disruptive Product Innovation Strategy
iPod is the possible effects on the perception of
customers and brand value. Looking at this agree-
ment from a possible gym user’s viewpoint, it can
be assumed that it makes the iPod even more
desirable for them.
It is worth noting that according to the chart
there is another factor where all the competitors
including Apple can focus on and differentiate their
products to innovate and produce even more value.
This factor is personalization of products and can
be seen in Figure 5 that none of the products of-
fer high personalization for their customers. The
only product that offers limited personalization
is Apple’s iPod Nano as they offer their custom-
ers a free service to write a personal message at
the back of their products using laser engraving.
Considering iPod’s competitors, Apple is still
Disruptive Product Innovation Strategy

Figure 5. iPod’s strategy canvas

one step ahead but this gap could be filled by an products and created a different value curve on
extensive innovative strategy. the Strategy Canvas.
iTunes is still a unique market for those cus-
tomers who prefer purchasing their songs online. iPod’s Four Actions Framework
Microsoft is trying to capture online music sales
with their Zune music players that are compatible As indicated by the previous analysis on the
with Zune online music sales and they are trying Strategy Canvas, it is clear that the iPod is not
to combine their products with their windows
phones and Xbox as does Apple’s iTunes. How-
Table 2. iPod’s market share
ever, Zune’s market share was 1% by 2010 and the
market share of iPod is still increasing (72%) even Year iPod Market iPod Market Mp3
though the general portable mp3 player market is Share (units) Share Spending
(Volume) per Year
shrinking (see Table 2).
2004 56% 71% -
In the following part, the iPod product chain
2005 72% 83% 131%
will be analyzed with the help of the Four Actions
2006 72% 85% 17%
Framework to see how they differentiated their
2007 70% 84% - 4%
(Source: Eimer-DeWitt 2008)

35

an ordinary mp3 player but has unique offer-
ings compared to other portable music players.
However, by looking at only the strategy canvas
until now, it is difficult to see the progress of
iPod’s strategic innovation. In the Four Actions
Framework, the four strategic questions are asked
for iPod to see how it is differentiated and what
innovative value it has. The result of this analysis
is illustrated in Figure 6.
According to the “reduce” section in Figure
6, it can be seen that miniaturizing the hardware
with nanotechnology applications and simplifying
the usage of the device by improving the software
added a significant value to the product. For that
reason, it may be important to find out where
Apple minimizes their advanced technology and
continuously develop and miniaturize their prod-
ucts further as this information can be a key point
for competition. Therefore, the manufacturer of
iPod will be analyzed in the next chapter in detail.
Also, iTunes added an extra value to the product
by reducing the price of music purchases. In the
“eliminate” part of Figure 6, it shows that by
eliminating cassettes, CDs, the requirement of
separate batteries and illegality of the mp3 music
sector, Apple actually offered a great bundle in a
one-single product solution to the portable music
player market. Bundling an existing product with
a new or existing product/service can be perceived
by customers as a unique value and that may lead
to an unexploited market.
The “raise” part of Figure 6 demonstrates that
if a product or service can be improved upon
regarding its key elements, it may lead to greater
success. In the case of portable music players,
the key elements could be stated as size, storage
capacity, battery life and sound quality. All these
key elements were raised well above the market
level when Apple introduced the iPod. Most im-
portantly, these elements improved continuously
every time they introduced a newer version of the
iPod and are still continuing to improve which
makes it difficult for their competitors to follow
their improvements. In the last part “create”, it can
36
Disruptive Product Innovation Strategy
be acknowledged that iPod does not only pursue
technology-driven innovation but also design-
driven innovation (Zachry 2005, Verganti 2008).
Accordingly, Apple does not only focus on
how they design their product but they are also
concerned about how they present their products
as a whole unit. The iPod’s success in its design
is that it is a product that has complex functions
but in a simple way. Maeda (2006) denoted the
laws of simplicity that describes the iPod and
Google as the epitome of simplicity in their design.
To provide a complex product or service with a
simple interface nowadays is likely to attract a
larger number of users in consumer electronics
as it will probably appeal to both technical and
non-technical groups of people.
Another reason why the iPod retains its sus-
tainable competitive advantage is because of its
continuously extended comprehensive network.
The more network externalities that are involved
in a product or service, the more value is provided
to customers (Katz and Shapiro 1994), which is
the so- called network effect. The iPod has be-
come more and more difficult to compete against
as more consumers have become involved in the
market place and consequently more attractive
for consumers and other companies who would
like to link their products or services to iPod as
well. In considering the continuous development
of the offered value, it is clear why the iPod has
become such a dominant product in the market.
As shown in Figure 7, the iPod is unique in the
way that it is linked to Apple’s online music store
(iTunes store), home based music products and
other industries such as the car industry. Apple
has a value innovating strategy in their market
externalities by extending their network with the
key players of other important industries such as
BMW, Nike and Air France.
Manufacturers of the iPod
The iPod, similar to the production systems of
other large global companies’ products, is made in
Disruptive Product Innovation Strategy
Figure 6. iPod’s four actions framework
several countries through outsourcing to different
companies, and some of the key manufacturers
or assembly companies are Foxconn, Toshiba,
Asustek and Inventec Appliances (Varian 2007).
Foxconn International Holdings Ltd is the com-
pany which assembles iPods. They are the largest
circuit assembly company in the world and the top
exporter in China (Buetow 2010). The manufac-
turer of the hard drive and display modules of the
fifth generation model of the iPod is Toshiba. The
supplier of Video/Multimedia processors of fifth
generation iPods is Broadcom. For the same type
of iPod, the supplier of mobile SDRAM memory
is Samsung. However, Apple keeps marketing,
product design, software development, and prod-
uct management and innovation strategies at their
base in the United States (Linden et al 2008).
By taking into account the supply chain of
the iPod, it can be seen that mainly Asian based
suppliers manufacture many core elements of
the iPod and have a great share in iPod produc-
tion and profits. However, Apple still preserves
the core elements of iPod at their own base. It is
noteworthy that the suppliers of the iPod or their
product knowledge is not a secret but overall,
it cannot be denied that the success of Apple is
not built on only their hardware or supply chain
capability but their marketing strategy, design and
product innovation. Competitors are struggling to
challenge Apple’s iPod product chain with their
hardware capability as the key factor is not only
based on the offered hardware value.
37

Figure 7. iPod’s network externalities – authors’ own illustration
The iPod’s Buyer Experience
Cycle / Buyer Utility Map
By using the BEC/BUM framework on the iPod
case, it is possible to analyse the iPod’s utility
propositions that Apple is capable of offering
to their consumers. This analysis covers the six
stages of the buyer experience by combining six
different utility levers. As a result of this analysis,
the iPod’s current offerings in thirty six different
areas were examined as shown in Figure 8.
38
Disruptive Product Innovation Strategy
Customer Productivity
In the customer productivity part, it can be seen that
the iPod covers purchase, use and the supplements
sections. The ‘purchase’ section is marked because
Apple allows consumers to buy its products from
its own online site and high street shops and also
it is possible to buy them from other online and
high street companies. iTunes enables consum-
ers to find the right album or song quicker than
by shopping in the high street and therefore the
productivity of the purchase stage is offered to
Disruptive Product Innovation Strategy
Figure 8. The iPod buyers’ experience cycle/buyer utility map
customers as iTunes is a single market place for
extensive online music sales.
The next section, ‘use’, is selected because iPod
owners can synchronize their products with other
iTunes compatible products so they do not have
to buy and set their album list for each product.
In addition, the integration of the iPod with other
products and industries increase its productivity
in its usage. Lastly the ‘supplements’ section is
selected because iPod owners can buy iPod inte-
grated products and accessories from their online
or high street store quickly as their contact, ad-
dress and bank details are all stored in one single
account so this stage can be chosen as productive.
Simplicity
This is one of the areas that Apple is quite success-
ful in generally with most of their products as they
present their products in a simple way, which is
one of their successful marketing strategies. The
iPod is simple to use and Apple adds accessibility
options in the settings to make it even simpler.
According to the accessibility options, customers
who are visually impaired can select songs without
looking at the screen with the Voiceover gesture
based screen reader. It also enables customers to
change the display to white on black or vice versa.
Additionally, the sixth generation of the iPod Nano
offers a mono audio feature where customers can
play both stereo left and right audio channels in
each ear bud. Apple offers accessibility options
for iTunes as well. As a whole, Apple is trying to
make their products and services simple to use
for all of their customers.
Convenience
The importance of innovation in the convenience
part is that the new product or service should
consist of an offering that performs the work in an
easier and more convenient way. Apple offers a fea-
ture called the Genius Mixes for their iPod, iPhone
and iTunes users. The Genius Mixes search the
iTunes library to make a list of songs that matches
customers’ music preferences automatically with
one single click. iTunes creates a number of lists
for customers so that they can pick the list they
like best and let them rename and save the new
playlist. This is a great feature when considering
the convenience section for iPod users because it
is time consuming to make a playlist and people
39

are likely to get bored listening to the same songs
frequently. The Genius Mixes feature is a creative
and quick way of solving this problem.
Risk
Customers have great confidence when they
purchase their products from Apple’s online
store and their retail store. When the customer
makes an in-store purchase, Apple offers help
with set up, shows their customers some of the
key features of the product and teaches them how
to download new apps, which assures customers
that there is great customer service to help them
whenever they need it. It also reduces the risk of
the customer walking away and having limited
knowledge of how the product works. Also, there
is not any perceived risk at Apple online stores as
they offer great security with online purchases.
Fun and Image
The fun and image factor is one of the key char-
acteristics in the design of a product or service.
iPod’s are generally perceived as trendy prod-
ucts by their users. The brand management of
Apple products is well planned and according
to Bloomberg’s latest report, Apple is now the
most valuable brand in 2011 (Culpan 2011). It is
an amazing and surprising result how Apple has
pushed such a great brand as Google to second
place after a significant 84% increase that led to
their new $153 billion brand value. This shows
that the iPod is really valued by Apple customers.
Environmental Friendliness
Apple offers its customers the opportunity to
recycle their iPod’s with “Apple Recycling Pro-
gram” (Apple 2011). Accordingly, customers have
two options to recycle their products. They can
either recycle at an Apple retail store or they can
recycle via mail where postage is free of charge.
If customers recycle their products at one of
40
Disruptive Product Innovation Strategy
Apple’s retail stores then customers receive a 10%
discount off their next purchase of a new iPod.
Furthermore, the use of iPod’s are environmental
friendly because according to the environmental
status report (Apple 2011), iPods are produced
with arsenic-free display glass, BFR-free mate-
rial, mercury-free material, PVC-free material,
recyclable aluminium enclosure and they are
supplied with smaller, more compact packaging
(45% smaller, 46% lighter).
SWOT Analysis for the iPod
In this section, a SWOT analysis is used to evalu-
ate iPod’s strengths, weaknesses, opportunities,
and threats in the case of the portable music
player market, as shown in Figure 9. A SWOT
analysis is significant for identifying the internal
(strengths and weakness) and external (opportu-
nities and threats) factors for the iPod. It can be
said that even though the iPod has great strengths
and opportunities such as its brand value and
its innovation strength in design, there are still
some threats, as the interest of other established
players in the portable music market is so high
and other devices such as Smartphones contain
a music player function. Also, online music lis-
tening culture has the possibility of affecting the
portable music market.
PREDICTIONS FOR THE PORTABLE
MUSIC MARKET
Presently, Apple is the leader in the portable music
market with over 70% of the global market share
and they are the leaders of the online music in-
dustry as they have the highest online music sales
in major economies. However, new technological
movements in the music market may affect Apple’s
position in the music industry or they could affect
the portable music player market as a whole in
the near future.
Disruptive Product Innovation Strategy
One of the current trends in the portable music
market is consumers’ tendency to use their mobile
phones as a portable music player, as they prefer
to carry one single device that can perform both
functions. This is one of the reasons why Apple’s
iPhone rapidly became so popular in the smart-
phone market because the iPhone was not just a
smartphone but it also had iPod functionality as
well. Therefore, the iPhone was a great option for
those consumers who wanted to buy an iPod and a
smartphone at the same time, as the iPhone offers
their customers the ability to synchronize all of
their music data as easily as they can on an iPod.
Taking the iPhone as an example, miniaturization
in smartphone devices has a significant impact
on many portable devices such as music players,
handheld gaming devices and portable computers.
The key argument that can be raised regarding
this point is: can mobile phones or smartphones
disrupt portable music players, as consumers may
no longer require two devices that are capable of
playing digital media? By looking at the current
statistics of the portable music market mentioned
previously in Table 2, the portable music market is
shrinking but Apple’s market share is still increas-
ing, so when will the market share of Apple reach
saturation point, or will it be possible to expand
market boundaries in ways mentioned by Kim
and Mauborgne (2005)?
Having mentioned the possible effects of direct
competitive products on portable music players,
it is vital to analyse possible direct incumbents
Table 3. Online music sales market share
Source: Kafka 2010
for Apple’s iPod or iTunes that may affect their
market share in the future. According to the cur-
rent online music market and recent forecasts, the
main competitors for Apple can be considered to
be Microsoft’s Zune, AmazonMP3 and Google’s
forecast music service. Google entered the digital
music market with integration of their Android
system linking it to the next generation of portable
listening devices by letting consumers upload and
store their music on the Internet (Plunkett 2011).
However, this service is currently limited to an
online streaming service and consumers cannot
purchase any of the songs, but can only use their
previously purchased songs. The increase in
sales of smartphones based on the Android OS
are predicted to increase AmazonMP3 sales as
Android users cannot use the synchronize option
on iTunes and those consumers may use an online
music download service other than iTunes, such
as AmazonMP3 (Weintraub 2010). As shown in
table 3 below, it can be seen that from 2008 until
2010 iTunes’ market share stayed almost the same
but AmazonMP3’s market share increased from
4% to 11.6%. Accordingly, it can be concluded
that AmazonMP3 is currently capturing market
share from other companies or AmazonMP3 is
expanding the online music market borders with
the help of Android OS based devices. It shows
that AmazonMP3 may be a great threat in the
future when considering their online music sales.
Seeing competitors’ threats in the online mu-
sic market and the new online music trend, the so
41

Figure 9. The iPod’s SWOT analysis
called “cloud”, Apple introduced their own online
streaming and storage service, which they called
iCloud. One of the first movers in the cloud service
was Amazon’s cloud service and Google’s new
music streaming service. With the iCloud service,
Apple customers will now be able to access all
of their digital content wirelessly from all of their
Apple products such as iPod, iPhone, Mac and
iPad. This service allows customers to have a
larger storage capacity and have the same data in
all their Apple devices. This increases the integra-
tion between Apple’s products and now Apple
customers may be tied even more to Apple prod-
ucts. This service with the new 4G technology
42
Disruptive Product Innovation Strategy
may change the importance of hard drive space
on music players as the stored data will be avail-
able to customers with a fast download and upload
speed.
CONCLUSION
Drawing on the analysis using different BOS
frameworks, it can be seen that the iPod is a
disruptive technology which had a significant ef-
fect on the global market by destroying previous
technologies and capturing and expanding the
portable music player market. One of the most
Disruptive Product Innovation Strategy
noteworthy results is how established companies
such as Sony, the inventor of the Walkman, could
not compete with Apple’s iPod even taking into
account its resource-based and knowledge-based
competencies.
This chapter has explained the effect of strate-
gic innovation in the portable music player market
using the BOS tools. With the help of various
BOS frameworks, the iPod’s current achievement
was analyzed and as a result it supported the dis-
ruptive innovation’s new market disruption and
low end disruption view. As for iPod’s offering,
it was a combination of the iPod providing new
market disruption while iTunes provided low
end disruption technology. Also, it shows that
it is not necessary to be the inventor of a certain
technology to create a disruptive innovation as
iPod was not the first digital player that played
in mp3 music format. In considering the core no-
tion of BOS, the iPod’s success can be linked to
the value innovation strategy followed by Apple,
which offered a better value package as a whole
by combining iPod with iTunes.
One of the most obvious findings to emerge
from the result of using BOS frameworks is that
the iPod is not just a technology-driven innova-
tion but it is also a design-driven innovation.
Consequently, it is worth considering in today’s
innovation strategies how the superior bond
between innovation strategies and marketing
strategies is a key coordination for today’s tech-
nological products to be successful. Furthermore,
it was proved that simplicity is a crucial element
in newly introduced high-tech products as this
makes them accessible to a greater section of the
potential market.
An important finding from the ‘Four Actions
Frameworks’ is the impact of the network effect
in the sustainability of the competitive advantage
as many disruptive technologies are imitated by
established companies. As a result of this analysis,
it has been seen how Apple extended the iPod’s
network within and outside the portable music
industry to strengthen its position in the market.
Accordingly, this factor can be shown to be one
of the reasons why the iPod is still the market
leader and as yet remains unchallenged by its
competitors such as Microsoft’s Zune.
The final finding that can be deduced from this
research is the possibility of the sustainability of
a disruptive technology in a shrinking market. As
shown in the analysis in Table 2, even though the
portable music market was shrinking, iPod sales
were still, surprisingly, increasing. This can be an
illustration of long-lasting success of a disruptive
technology compared to the success level of a
sustainable technology.
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Disruptive Product Innovation Strategy
KEY TERMS AND DEFINITIONS
4G: 4G refers to the fourth generation of cel-
lular wireless standards. It is the successor to 3G
and 2G families of standards.
Blue Ocean Strategy: Blue Ocean Strategy
is a way of making the competition irrelevant by
creating a leap in value for both the company and
its customers.
Creative Destruction: The process of trans-
formation that accompanies radical innovation.
Disruption: The term is used in business and
technology literature to describe innovations that
improve a product or service in ways that the mar-
ket does not expect, typically by lowering price
or designing for a different set of consumers and
disrupting previous products or services.
Disruptive Innovation: Disruptive innovation
is the innovative strategy or business model that
enables the technology that creates the disruptive
impact.
Disruptive Technology: An innovation that
creates a new (and unexpected) market by apply-
ing a different set of values.
Followership: The capacity or willingness to
follow a leading company.
iCloud: iCloud is an internet-based computing
service that is offered by Apple, whereby shared
resources, software, and information are provided
to computers and other devices on demand.
Innovation Capability: The ability to come
up, consistently, with novel ideas that deliver short
and long term profits to an organization.
Laws of Simplicity: According to John Maeda,
president of the Rhode Island School of Design
and author of The Laws of Simplicity, there are
ten principles that can help in designing for sim-
plicity, the most important being: “Simplicity is
about subtracting the obvious, and adding the
meaningful.
Low End Customers: Customers who do not
need the full performance valued by customers at
the high end of the market. This type of customer
is not willing to pay a premium price for enhance-
ments in product functionality.
Miniaturizing: To make a product to a greatly
reduced scale than before.
Monopolistic Power: The ability of a busi-
ness to determine the price of the goods/services
produced (to some extent).
Nanotechnology: The branch of technology
that deals with dimensions and tolerances of less
than 100 nanometers, esp. the manipulation of
individual atoms and molecules.
P2P: Peer-to-peer; denoting a network or data
communication in which no dedicated server is
involved.
Resource Based Theory: The theory that
focuses on firms’ resources and capabilities to
create a competitive advantage that ultimately
results in superior value creation.
Smartphone: A smartphone is a mobile phone
that offers more advanced computing ability and
connectivity than a contemporary ‘basic feature’
phone.
Strategic Innovative Business Model: This
is a systematic business model that aims to create,
deliver, and capture innovations at a higher level
of business process as an intentional repeatable
process that creates a significant value for con-
sumers and organizations.
Supply Chain Capability: Supply chain ca-
pability is the capability of organizations, people,
technology, activities, information and resources
involved in moving a product or service from
supplier to customer swiftly, accurately, and ef-
fectively.
Sustaining Innovation: An innovation that
does not provide a new product rather improves a
product in an existing market based on customer’s
expectation.
Uncompetitive Market: A new market where
no competition is involved.
Value Innovation: Value innovation is a strate-
gic approach to business growth, involving a shift
away from a focus on the existing competition
to one of trying to create entirely new markets.
45