Apple, Video Games, and Disruptive Markets

Posted by: TomS on January 28, 2011 @ 7:36 am

AppleAt lunch the other day, the conversation turned to Apple, and one of my co-workers posed the question, “Why hasn’t Apple released a video game system yet?” At the time, I was playing Angry Birds on another co-workers iPhone, and I waved the iPhone at him and responded “They have.”  He of course responded that it isn’t really what he meant, but I thought a bit more about what Apple has done with its gaming strategy up till now, and they are actually positioned surprisingly well to pull in a huge chunk of the video game market over the next few years.Angry Birds

Before I dive into the details, most of my argument is based on Clayton Christensen’s ideas around disruptive innovation and low-end disruption. In a nutshell, Christensen theorizes that most disruptive innovation occurs when established firms neglect certain market segments because they offer too low of a margin to entice the incumbents.  Innovators enter the low-end segments and the incumbents do not react, but overtime, the entrants overshoot the needs of the low-end markets and begin to pick up additional market segments.  Left unchecked, the entrants eventually overtake the market, driving the incumbents out completely.  Its a pattern that has repeated itself throughout history, and Apple may be repeating it again with the growing library of games it distributes on the App Store. (more…)