Understanding Disruptive Innovation in B2B SaaS

Previously, we chronologically reviewed the works of Clayton Christensen on disruptive innovation. In this post, I will be focusing on the “disruptive innovation” at play in business-to-business (B2B) software as a service (SaaS).

There are now a handful of B2B SaaS companies that started at the “low-end of the market” (Innovator’s Dilemma, Clayton Christensen) by focusing on small-to-medium businesses (SMB). Why is that the case? Does Christensen’s theories explain this?

According to Tomasz, Partner at Redpoint, “I believe we’re seeing Clay Christensen’s Innovator’s Dilemma at play. In short, new startups leverage a distribution advantage to acquire SMB customers at scale. These distribution advantages take many forms:

  • a simpler product (Box vs Sharepoint);
  • mobile app store distribution (Expensify vs Concur);
  • content marketing (Zendesk vs Oracle/Peoplesoft).”

Source: Tomasz’s Blog – Innovator’s Delimma for SaaS Startups

  • deliver on-demand vs on-premise solution (Salesforce vs Siebel)

What he means by “distribution advantage” is that the Internet has enabled companies to market and acquire customers at scale. In other words, it has made acquiring small to medium businesses feasible for startups. For example, Zendesk could acquire small to medium businesses to content marketing and search engine marketing.

According to Keller and Hüsig (2009), it is “not feasible to make a complete survey of the disruptive potential for the entire software industry”. Thus, in the next blog post I will try to understand disruptive innovation in a specific segment of the web application – the customer-relationship-management (CRM) segment.

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