Disruptive Technology Now The Norm

No one better displays the use of disruptive technology than Niklas Zennstrom. This several time CEO keeps creating companies that distribute a technology for free, to the public at large.

The methodology is always the same, and he always uses the same pattern. Here is the formula.

First, grab his long-time partner Janus Friis and sit down at the drawing board. The question the two of them answer is what are people in need of that the internet could fulfill?

Once that question is answered, they move forward with a group of computer engineers, programmers and tech wizards. Usually the same few dozen, sometimes with special talent brought in.

Next, they come up with a new name, something that has never been used before.

Then they build a website with that same name.

After that they add a single piece of software to the website that the public can download for free. The application will be simple, user friendly, it will work well and most importantly it will do something that you want which you currently pay money for. Only using the software will not cost you money.

This is disruptive technology at its finest. Looking at an existing business model, taking that platform and work it out differently, take all the cost out (or at least 99%) of the equation and then give it away.

Niklas Zennstrom has been at the helm of three companies that have or are currently doing this. Those firms are listed below.

Kazaa, the first truly functioning file sharing program that did not rely on internal servers. To the great anger of the record companies, the RIAA and the film industry, Kazaa made it possible to download for free almost any album and several movies from your new friends in Japan and Romania. The ability to share with millions of other people, with no central database, created a powerful platform that has not stopped since its inception back in 2001. Whether you like the idea or not, Kazaa set in motion the very steep decline in record sales over the last six years. Now people could download a quality version of any song they wanted by sharing with people they never met. And there is no limit. People would share 5 songs or 500 songs. This technology disrupted a long running business model. For decades the music industry sold the people around the world something, be it vinyl records, 8 tracks, cassettes, or CD's, you paid for some actual physical product. Kazaa didn't break that cycle, but they greatly damaged it. And more importantly, they set in motion a pattern of companies, websites, clubs, and organizations that did the same thing Kazaa did. Which is two fold, create a vehicle to share digital files and to build the technology so there is no central hub or core. This decentralized version of sharing over a wide platform is the key, and Zennstrom and Friis were there first.

Kazaa technology set the table for dozens of other companies to either mimic the Kazaa technology directly or to expand upon it. This company became the all time most downloaded piece of software from the internet at one point, with over 330 million downloads. Although the firm has fallen from grace now, the technology behind it is still being used thousands of times it took you to read this paragraph. Remember, the entire capability of creating a software and interactive community of being able to download thousands of files and give files you have to thousands of people was imagined, designed and delivered by Kazaa. And given away, entirely free. There is no great disruption possible.

Skype, the second company that Zennstrom created, became much more accepted into society and he was richly rewarded for having been so generous. Skype was designed to be a free internet telephony program. The goal was to create a peer to peer network just like Kazaa, only instead of sharing digital files people would be able to make internet connections. Niklas Zennstrom announced that with the delivery of Skype that telephony was going to be a software program rather than a business service. This disruption focused on telecommunication firms, like AT&T, Sprint, MCI, Verizon, SBC, Nextel, T-Mobile and US Cellular. The list of names that Skype targeted are important, because they are both mainly landline companies and wireless. And because many of the names on the list no longer exist as independent companies.

Once again, Skype was the innovator. In 2003, Zennstrom and Friis went back to square one. They looked at telephony in the United States and around the world. They realized telephone companies were charging a lot of money of international calls. Having a landline telephone and a cell phone were relatively expensive. Especially since the technology could be utilized to create quality internet based telephone calls for no cost and no fee to the user. This is Skype. Internet phone calls for free, no matter where the two people talking live. Any nation, island, continent, or state. They each need to download the small piece of software and they each need to have an internet connection. That's it.

This was, and still is, a highly disruptive technological advancement. Just as with Kazaa, technically Zennstrom wasn't the first one to build a company or software around the concept of free telephony. But he was the first one to do it well, and the first one to do it with peer to peer technology. That is the key for all of this modern disruptive software, the fact that there is no central point of action.

Over the course of four years, Skype has become essential for millions of small business customers, there have been hundreds of millions of downloads, and people who have immigrated around the world can stay in touch for as many hours as they would like, all for free. Even a few years ago someone in Paris talking to someone in Chicago for hours a month would have been handed a major phone bill. Now there is no charge. In the past, an individual in Toronto who wanted to talk to someone in Uganda wouldn't even have the option of placing a call to the nation at any price. Now, the call is easy and free, providing an internet connection.

Skype isn't done. They continue to make great technological strides into wireless telephony, using wireless networks to place cellular calls around the world for free. They have developed the ability to have free conference calls. And they are currently working on creating the first true videophone experience, with a large number of users and fully functioning technology.

Much of the disruption comes from the technology that Zennstrom and Friis create, but even more comes when the technology (or very similar designs) are imitated by other firms. In this instance, two big cloners were Google and Yahoo, both of whom have created their own versions of high quality, free internet telephony. Disruptive technology that works well not only draws a large response, but it also creates a situation where more firms clone the idea and get there own big followings. This is the case with Skype.

All of the telephone companies listed earlier have felt the wave of migration to internet telephony. And the trend continues. More people switch to some version of free internet calls every minute. Much of the money that was pulled down by the top 10 large telephone firms has gone to the internet, as a free service. As the money flowed out, consolidation became necessary. Nextel was bought by Sprint. MCI was bought by Verizon. In an article a few years back a VP at AT&T said that his company had too much scale and size to be "Kazaa'd" by Skype. Within two years of stating that, AT&T was bought by SBC (which promptly changed its name back to AT&T) for a very discounted price of $19 billion.

Skype's presence, and the internet companies that ran with the Skype idea, have taken off. Skype was such a success, and such an ongoing success, that eBay paid $2.6 billion for the company. This is for a company that designed a free software program to make free calls around the world, and gave that technology to everyone for free. The old guard telephone companies (the ones that are still standing) have felt and continue to feel the blistering affects of disruptive technology.