Google & Apple’s Gale of Creative Destruction

Abstract

Creative destruction is an economic theory of innovation popularised by the Austrian economist Joseph Schumpeter (2006). In this paper, Schumpeter’s theories are used to explain how radical technological innovations in information-intensive industries are influencing the erosion of traditional industry and market boundaries leading to the emergence of new competitive business models and strategies. Developments in digital technology has resulted in new technology shifts and market linkages resulting in dilemmas for the existing incumbents in traditional industries who find themselves increasingly trapped and victims of a new innovation logic (Abernathy et al. 1983, 1984, Kim et al. 1998, 2005). The new value innovation logic is being driven by entrepreneurs such as Page and Brin (Google) and Jobs (Apple) who are currently in the process of revolutionising the economic structures of many industries and creating new markets and organisational business models in a gale of creative destruction reminiscent of the theories developed by Sombart and Schumpeter (2006, 1975). This creation of new market models and their impact on established industries is explained further in the value chain evolution theory and its corollary sustaining innovation classification-scheme (Christensen et al. 2004). These theories reinforce the view that innovators, thinking in new and radical ways, provide sustainable new market developments and earn above the average revenues compared to incumbents, whose profit pools have eroded. This paper researches and analyses the impact that Google and Apple are having upon a broad range of information-intensive industries and the strategic options of the incumbent firms in the respective traditional industries in response to this radical change. Its purpose is to provide explanations of why and how radical innovators are able to redefine the rules of the market game leading to economic growth and development.