Disruptive Innovation and Business Models

Project 2: Disruptive Innovation and Business Models

For this project I would like to examine the electronics industry, and specifically the television, to examine how the LCD flat screen TV has been a disruptive innovation and the impact it has had on the business models for companies that produce televisions.  For years and years the viewing public endured the Cathode Ray Tube (CRT-TV) television experience.  Especially those of us in my age bracket (mid-40’s) who grew up with huge televisions, often disguised as pieces of furniture, that offered an average image, but a “big screen” was something around 32 inches and you had to hire a six man moving crew to bring the unit into the house.

What was going to be the answer to create a better home theater experience for those who were tired of the 32” CRT television, and did not desire to have some sort of home movie video projection contraption taking up their entire basement?  Enter the flat screen television, and early on, the plasma flat screen.  Yet there was a problem.  Price.  For example, in the year 2000 a 50” plasma flat screen television cost $20,000.1  Therefore in the late 1990’s and early 2000's the CRT TV was still the television of choice, and that “choice” was mainly driven by price.  At that time the largest CRT televisions available had about a 40” screen and weighed several hundred pounds, yet they were priced below $1,000, so they were obviously more affordable than the plasma television.   Traditional TV sets, those that rely on cathode-ray tubes to create a picture, accounted for 96% of television shipments in 2004, analysts reported. But CRT shipments only grew 3% between 1996 and 2004.2  The year 2005 represented the first year that more LCD TVs were sold than CRT televisions. This next statistic is even more starling because by 2006 only 25% of the television sold that year were CRT televisions.3

While unaffordable for most consumers, the idea of the 40” to 50” flat screen was intriguing to almost everyone who wanted a new viewing experience.  You no longer had to have a specific area in your family room for the CRT unit that was as deep as the TV was wide.  Why, you could simply hang the flat screen television on the wall!  Like a piece of art.  Or put it above your fireplace, often the most central part of the room.  But man, how do we justify that price?

Enter the disruption of the LCD screen.  LCD technology has been around for decades, but was never in the forefront because the lower end of this technology was used for things like calculators, digital watches, and early cell phone screens.  Then, as computer manufacturers began to produce screens for laptops using LCD technology, and then moved into small computer monitors, LCD as an option for a flat screen television began to gain the interest of not only those in the computing business with those and a television business.  

As LCD televisions entered the market, the price of Plasma televisions began to come down considerably.  In 2004 the price of a 42” Plasma TV had dropped to $6,000 and was predicted by be as low as $3,000 by the third quarter of 2005.3  Interestingly, a similar sized LCD television cost $8,000 in 2004 and was predicted to sell for $3,200 in the third quarter of 2005.4 

So if the LCD was originally “the other” flat screen, as we all know that the early entrant was the plasma televisions, what happened to allow LCD television technology to not only supplant CRT-TV, but also the plasma television?

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Marketing, technology, and simple economics are the factors that have enable LCD TV to the top of the mountain.  The purists still argue that the plasma has a better picture over an LCD screen, and apparently it does in a total dark room test environment, but none of us at home watch television in those conditions.  So when we look at marketing, the television companies, many that were producing both plasma and LCD television, began to realize that that as LCD technology advanced, they could produce a TV that had almost as good a picture as a plasma, costs less, weighs less, and uses less energy.5  It was the LCD version of the trifecta.  And that has been the play that the major manufacturers have run since about 2007.  To the point that now no leading television manufacturer produces a plasma television.  Samsung pulled the plug on plasma in 2014, and that year their 60” plasma television cost $2,000.  Their 60” LCD was priced at about $850.6