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A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances. The term was defined and phenomenon analyzed by Clayton M. Christensen beginning in 1995. In the early 2000s, "significant societal impact" has also been used as an aspect of disruptive innovation.

The free, online encyclopedia Wikipedia was a disruptive innovation that had a major impact on both the traditional, for-profit printed paper encyclopedia market (e.g., Encyclopedia Britannica) and the for-profit digital encyclopedia market (e.g., Encarta). The English Wikipedia provides over 5 million articles for free; in contrast, a $1,000 set of Britannica volumes had 120,000 articles.
Types of Innovation
Sustaining
An innovation that does not significantly affect existing markets. It may be either:
Evolutionary
An innovation that improves a product in an existing market in ways that customers are expecting (e.g., fuel injection for gasoline engines, which displaced carburetors.)
Revolutionary (discontinuous, radical)
An innovation that is unexpected, but nevertheless does not affect existing markets (e.g., the first automobiles in the late 19th century, which were expensive luxury items, and as such very few were sold)
Disruptive
An innovation that creates a new market by providing a different set of values, which ultimately (and unexpectedly) overtakes an existing market (e.g., the lower-priced, affordable Ford Model T, which displaced horse-drawn carriages)

A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances. The term was defined and phenomenon analyzed by Clayton M. Christensen beginning in 1995. In the early 2000s, "significant societal impact" has also been used as an aspect of disruptive innovation.

Not all innovations are disruptive, even if they are revolutionary. For example, the first automobiles in the late 19th century were not a disruptive innovation, because early automobiles were expensive luxury items that did not disrupt the market for horse-drawn vehicles. The market for transportation essentially remained intact until the debut of the lower-priced Ford Model T in 1908. The mass-produced automobile was a disruptive innovation, because it changed the transportation market, whereas the first thirty years of automobiles did not.

Disruptive innovations tend to be produced by outsiders and entrepreneurs, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition). A disruptive process can take longer to develop than by the conventional approach and the risk associated to it is higher than the other more incremental or evolutionary forms of innovations, but once it is deployed in the market, it achieves a much faster penetration and higher degree of impact on the established markets.

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