Guest post by Zack Urlocker
It's interesting to see how the the incumbents in a market respond to disruption because there is a predictable pattern, regardless of the industry or the type of disruption.
I'll look at that pattern as it flows from a great disruptive innovation in the billion-dollar professional guitar market. At the end I suggest four management lessons that apply more broadly in other sectors.
First, let's summarize the steps that established suppliers typically follow when their core market is being disrupted by a new supplier:
A new entrant joins the market
Their offering is perceived as limited and technically inferior
The new entrant starts to gain a toehold in a few niches
The incumbent waits and watches
The entrant becomes "good enough"
The niche market starts to boom
The incumbent responds by trying to cram disruption
The new model wins
If you're a new, disruptive company, there's often a paradoxical desire to both get recognition and also to fly under the radar. You need visibility with prospects and attention from the press and other market forces in order to gain a toehold. But at the same time, you don't want to wake sleeping giants who could crush you. In most cases disruptive new products are not direct replacements for incumbents --they solve a different and more limited problem. So, ego aside, there's little to be gained by making a full frontal attack on an incumbent. After all, why paint a target on your back. Remember Netscape? Me neither.
However, once the incumbent responds, it can be a different story. At the very least, it shows that something is going on and that can be an even more powerful market force --for the disruptor. Ok, sounds crazy, but bear with me.
Rather than the usual high-tech examples (of which there are plenty) I'm going to focus on a different market: electric guitars. If you're not a music player, you might be surprised to know that more than a million electric guitars are sold each year in the United States alone. The electric guitar itself is a bit more than 50 years old and was perfected by Les Paul, who at the age of 90 still plays at the Iridium club in New York. Most of the market is controlled by two rivals that emerged in the 1950s: Fender (with the Stratocaster) and Gibson (with the Les Paul). There are dozens of smaller boutique guitar manufacturers, ranging from budget Korean guitar makers to low-volume luthiers who hand craft custom guitars for the most demanding musicians.
You can pretty much divide guitar players into two camps: those who love their Fender Strats and Telecasters with the searing sound of Jimi Hendrix, Eric Clapton and Mark Knopfler of the Dire Straits, or those who swear by the thicker tones of Gibson Les Pauls or SG's favored by the likes of Led Zeppelin and AC/DC. Hobbyists as well as professional musicians can spend thousands of dollars every year (even on a single instrument) trying to recreate the classic sound of their favorite guitar player. Walter Becker of Steely Dan referred to this affliction as GAS - Guitar Acquisition Syndrome.
So how do you disrupt a market that is completely entrenched and obsessed with classic designs from the 1950s? Coming up with a "better Strat than Fender" has been tried many times. While brands like Ibanez and Kramer have had limited success, only one company, PRS has gotten close to the market share of Fender and Gibson by combining the best of both designs. Companies have also offshored production to Japan and then Korea to gain a cost advantage. They've thrown money to win endorsements from up-and-coming rock stars, but still, the classic guitars are winning. And designs that have been too radical, like Steinberger, Parker or Traveler Guitar have been relegated to low single digit market share. It turns out that despite their radical taste in music and clothing, guitar players are amazingly conservative when it comes to their instruments.
A small southern California amplifier company called Line 6 looked at things differently. In the late 1990s they specialized in the esoteric world of digital modeling amplifiers and effects that recreated classic tube sounds via modern DSP (digital signal processing) electronics. Line 6 asked the question that no guitar builder would ever have considered: why not model the guitar itself? In 2002, they launched an electric guitar, the Variax (get it?), that digitally recreates any of 25 vintage guitar sounds at the touch of a knob, allowing you to use the same instrument to perform with sounds as varied as those of Keith Richards or Bruce Springsteen, who use Telecasters, to Johnny Cash, who used a Martin. Settings include a 1959 Fender Strat, a 1968 Telecaster, a 1961 Gibson Les Paul standard, a Rickenbacker 12 string, a hollow-body Gretsch, a Martin acoustic, a Dobro resonator, an electric sitar, banjo and a dozen other variations.
Demo Video:
For guitar players who want to get a range of classic sounds and can't afford to buy a dozen different guitars (many of which are collector's items), it's a compelling offer. Models range in price from under $500 to around $1500, making them price-competitive with mid-market guitars from Fender and Gibson.
The Variax has a slightly naked look to it, due to the fact that it does not have conventional magnetic pickups. Instead it has a custom Piezo acoustic pickup under the bridge that captures the sound of each string and is then digitally transformed with the onboard electronics to recreate the sounds of whatever classic instrument has been selected.
Since all of the guitar manufacturers are private companies, it's hard to get a handle on their revenues. Nonetheless, I estimate that the worldwide total market for guitars and accessories is approaching a billion dollars and that Fender has roughly 45% market share with Gibson a close second, PRS, a likely third and everyone else destined for single digit market share.
At this stage,Line 6 revenues appear to be well under $100 million, but growing steadily with product line expansion, broader distribution and endorsements from seasoned guitarists from bands such as Yes, the Eagles and Duran Duran. They also have a rabid installed base of customers who sing their praises and buy numerous add-on products. Still, it's not clear that Line 6 has a break out strategy that will enable them to grow faster. Until now.
At the music industry's January NAMM Show in LA, Fender and Gibson both made announcements that may give Line 6 the boost in recognition that they need. Fender announced the VG Stratocaster that introduces digital modelling for the first time to the Fender line. And Gibson has finally shipped their long delayed Digital Les Paul HD 6x Pro, a high-end guitar with digital output and an Ethernet connection. While the VG Stratocaster is more clearly targetted at Line 6, both company's reactions are typical. When incumbents respond to disruption, they invariably follow a predictable approach. First they ignore it, then they try to co-opt it, usually getting it wrong. The sequence goes like this:
- Ignore disruption for as long as possible
- Try to "cram" the new disruptive idea or product into their existing approach
- Introduce a "hybrid" solution even if it's not disruptive
- Use high prices and selective distribution to minimize cannibalization
Although Fender and Gibson have risen to disruptive forces in the past (for example, by introducing asian-made models to fight off low-priced clones) their latest attempts to match Line 6 are unlikely to succeed. Instead of beating Line 6, they've introduced incremental improvements. And they've priced their new products far beyond the levels established by Line 6. The Fender VG Strat has a list price of $2,500 and roughly half the sounds of a Variax. (The Fender model notably lacks any acknowledgment of rival Gibson's classic sounds.) That makes it more than twice the price of the typical Variax. The Gibson Digital Les Paul is twice as expensive again, with a list price of $5,000. Fender and Gibson's new products are out of the reach of all but the most dedicated of studio musicians or wannabes. Whereas Line 6's Variax line is within the reach of an intermediate player. Line 6 also offer a lot more fun with computer-based add-ons for additional custom modeling, digital effects, recording, web-based instruction and so on.
Guitar players who read about the new products from Fender and Gibson's marketing blitz will likely also read about Line 6's Variax. In effect, Line 6 may be able to ride on its competitors big-budget spending. Though Line 6 is in a good position, they have challenges they need to contend with:
- The Variax is considered an "average" guitar with excellent electronics
- Quality of workmanship on the Variax has been inconsistent
- Customer service has suffered as the company has grown
- Limited ability of retail stores to properly demonstrate the Variax
In other words, Line 6 has the usual growing pains. Now they need to grow up --and fast.
Line 6 also has a great opportunity to further integrate their family of guitars, amplifiers and computer-based add-ons. If there was an advantage for Line 6 amplifier customers to buy a Variax guitar (and vice verse) that would be accelerate growth. In fact the model for Line 6 may be less about the tradition-bound world of guitar makers and more about consumer electronics. Since Line 6 CEO Mike Muench hails from Apple, I'm sure he and his team of engineers can come up with some creative ideas here.
But guitar players are a fickle lot. If the quality of Line 6 workmanship does not improve, they may find their customers playing a different tune.
Four important management lessons in disruption stand out from the experience of Line 6:
- To compete effectively as a new entrant, you have to change the basis of competition: Line 6 did not make a better Strat or a better Tele. Instead they used electronics to create a poly-sonic guitar.
- Even mature, conservative markets can be disrupted, typically by competing along any of these characteristics: Convenience, accessibility, flexibility, customization or (typically the only card some competitors play) price. In this case, Line 6 competed by making the classic sounds of rare vintage guitars accessible and by creating a more flexible instrument.
- Disruptive innovations usually make no sense to the mainstream suppliers or their customers initially. Line 6 went where no guitar maker would: It used electronics to model the sounds of guitar.
- Incumbents' response to disruption are usually late and insufficient because they must serve and defend their current market position. Note how Fender and Gibson's digital guitars are more expensive and lack the full suite of sounds the Variax offers.
Zack Urlocker is a software executive and author of The Open Force blog.
**Other Resources**
USA Today's Kevin Maney interviews Gibson CEO Henry Juszkiewicz on his buyout and turnaround of Gibson going back to their troubled history in the 1980s. It's a good interview on a corporate turnaround, but take a look at Maney's blog and posted comments from guitar players for a customer perspective that suggests an industry ripe for change.
SoundOnSound the trade magazine for the recording industry has an interview with Line 6 founders Michel Doidic and Marcus Ryle on the history of the company and their designs.
Mod Job: Guitarist Jeff Miller transplants the Variax electronics into his own custom guitars and shows off his and the Variax's multi-talents in this video.
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