The_Innovators_Dilemma__Clayton

Specifically, in the desktop personal computer marketplace between 1986 and 1988, the smallness of
the drive began to matter more than other features. The smaller 3.5-inch drive allowed computer
manufacturers to reduce the size, or desktop footprint, of their machines. At IBM, for example, the
large XT/AT box gave way to the much smaller PS1/PS2 generation machines.
Figure 9.2 Substitution of 8-, 5.25-, and 3.5-Inch Drives of 30 to 100 MB
Source: Data are from various issues of Disk/Trend Report.
For a time, when the availability of small drives did not satisfy market demands, desktop computer
makers continued to pay a hefty premium for 3.5-inch drives. In fact, using the hedonic regression
analysis described in chapter 4, the 1986 shadow price for a one-cubic-inch reduction in the volume of
a disk drive was $4.72. But once the computer makers had configured their new generations of desktop
machines to use the smaller drive, their demand for even more smallness was satiated. As a result, the
1989 shadow price, or the price premium accorded to smaller drives, diminished to $0.06 for a onecubic-inch
reduction.
Generally, once the performance level demanded of a particular attribute has been achieved, customers
indicate their satiation by being less willing to pay a premium price for continued improvement in that
attribute. Hence, performance oversupply triggers a shift in the basis of competition, and the criteria
used by customers to choose one product over another changes to attributes for which market demands
are not yet satisfied.
Figure 9.3 summarizes what seems to have happened in the desktop PC market: The attribute measured
on the vertical axis repeatedly changed. Performance oversupply in capacity triggered the first
redefinition of the vertical axis, from capacity to physical size. When performance on this new
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