The Digital Transformation Playbook: Rethink Your Business for the Digital Age

Customer Trajectory
The first variable to consider in any case of business model disruption is the 
customer trajectory. Which customers will provide the initial basis for the 
challenger’s market entry, and are they already customers of the incumbent?
Business model disrupters can enter the market through one of two 
trajectories:
r
 Outside-in: The disrupter starts by selling to buyers that are not cur-
rently served by the incumbent (that are “outside” the incumbent’s 
market), and over time, the disrupter works its way in until it starts to 
steal customers directly from the incumbent’s own market.
r
 Inside-out: From the beginning, the disrupter starts by selling to 
some subsegment of the incumbent’s current customers. This initial 
subsegment may be small (sometimes the most affluent or the most 
eager to try new things), but over time, it grows as the successful dis-
rupter expands outward to claim more and more of the incumbent’s 
customers.
Christensen’s new market theory of disruption is based solely on 
cases that follow the outside-in customer trajectory. Indeed, one of the 
fundamental keys to his theory is that by starting outside the incumbent’s 
customer base, the disrupter makes it very hard for the incumbent to 
respond.
However, many cases of business disruption today take the opposite 
customer trajectory: inside-out. All three of the cases we just saw were 
inside-out cases. The iPhone did not start by selling to buyers who were not 
previously in the market for a mobile phone. Rather, it began with a small 
subsegment of the type of customers who would certainly have owned a 
Nokia previously. At first, Nokia could reason that Apple was stealing a 
profitable but small part of the market and that Nokia could aim to hold 
on to the much larger majority of customers who were so far unwilling to 
pay the higher monthly fees for a smartphone. But over time, the iPhone’s 
customer base expanded outward to attract more and more of these cus-
tomers. Similarly, Netflix did not start by appealing to customers who had 
never used video rental services like Blockbuster. Instead, its appeal was 
specifically to those who had—pointing to their frustration with late fees 
and promising a better customer experience. And Warby Parker obviously 
had no option but to go after customers served by the incumbents like 

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Luxottica. If you didn’t already own or need prescription glasses, you were 
unlikely to sign up for Warby Parker. The company’s rise may have started 
with some of the more price-sensitive customers from the current customer 
base (those who would give online ordering a try primarily for the $95 price 
tag), but it then expanded outward as it proved itself capable of delivering a 
true high-fashion brand as well as a superior customer experience.
Disruptive Scope
The second important variable in cases of business model disruption is 
the likely scope of the disruption. There is sometimes an assumption that 
whenever disruption occurs, the incumbent’s business, product, or service 
will be replaced 100 percent by the disruptive challenger. Out with the 
old, in with the new. In some cases, this does happen. When Henry Ford’s 
mass-produced automobile arrived, it was only a matter of years before 
the horse and buggy had basically vanished as a means of transportation. 
(Kevin Kelly has argued persuasively that no technology ever disappears 
from use entirely
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—and, indeed, you can still enjoy a carriage ride around 
New York’s Central Park as an expensive tourist treat.)
But in many cases of business disruption, the scope is not 100 percent. 
Even after being disrupted, the incumbent’s product or business model 
hangs on, confined to a diminished portion of the market but still a notable 
player in the industry.
A recent example of this can be seen in bookselling, with the arrival 
of e-books. Thanks to Amazon’s development of the Kindle e-book for-
mat and electronic readers, consumers discovered they had a new choice 
for reading. The e-book and its online bookstore offered many compel-
ling advantages: a lower price per book, a vast selection of choices, nearly 
instant purchase and download, and the ability to carry hundreds of books 
in your purse or bag at the weight of a paperback. The threat to booksellers 
was clear: there is no need for a customer to walk into their local bookstore 
to download an e-book.
In the first few years after the launch of the Kindle, e-books enjoyed 
steady growth in market share. Many in the publishing industry looked at 
that growth curve, projected it outward, and nervously predicted that in 
a few short years, e-books would comprise the majority of book sales and 
publishers would no longer be able to afford to produce print editions.
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But then something unexpected happened. After a spurt of rapid growth, 

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e-book sales leveled off. Various reports, confirmed to me by insiders in 
the industry, say that the plateau was about 30 percent of book sales by 
revenue.
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This was still enough to spark major disruption and shifts in the 
balance of power in the industry. (Borders, one of the largest retail book-
sellers in the United States, filed for bankruptcy in 2011.) Yet printed books, 
while diminished, certainly did not disappear into obsolescence.
Although this surprised many observers, it was no fluke. In fact, I 
believe that by looking at the behavior of book buyers, it would have been 
quite easy to predict the scope of this particular disruption.
One important lens for predicting disruptive scope is the product’s dif-
ferent use cases (as discussed in chapter 6). Customers buy books on a 
variety of occasions, and they read books in a variety of settings. In some 
use cases for reading, it is quite clear that the e-book provides a far superior 
value proposition—for example, when you are going on a trip and would 
like to have a variety of reading options but don’t want to be weighed down 
by a bag of books. In other reading use cases, however, a printed book may 
be better—for example, if you want to take notes in the margin or read on 
the beach in direct sunlight (cases where e-book software and screens have 
continued to lag the paper medium). We can also look at use cases for book 
purchase. When the customer is seeking to try a new book while lying in 
bed, there is no match for the benefit of being able to download a sample 
chapter in seconds to their e-reader (and purchase the rest if they quickly 
decide they like it). But what about gift giving? No one I have ever asked 
has thought that an e-book was an acceptable substitute for a printed book 
when giving a gift. This is not a small point: a large portion of book sales 
takes place around holidays and other gift-giving occasions. If only a few 
use cases favor the old value proposition, we might expect consumers to 
sacrifice those benefits to shift entirely to a new value proposition. But in 
cases like books, where the customer can easily alternate purchases of the 
old product and the new one, it is predictable that we will wind up with a 
split market—with some sales shifting to the disrupter’s offer and others 
remaining with the incumbent.
In addition to use cases, the scope of disruption of a new business 
model can be influenced by customer segments. Sometimes the disrupter’s 
value proposition is highly preferable for some types of customers but not 
for others with different needs. In the Warby Parker case, we may see that 
certain eyeglasses wearers are likely to shift to its sales model, whereas oth-
ers (those that buy luxury brands and specialty lenses or those that have 
better access to retail options) will stay with an incumbent like Luxottica.

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Lastly, network effects can play an important role in determining the 
scope of disruption. (This is particularly true for platform businesses, as 
we saw in chapter 3.) If a disrupter’s product or service increases in value 
as more customers use it (think of a platform like Airbnb, which relies on 
ample hosts and renters), this will initially be a hurdle to the new business. 
But it also means that if the disrupter manages to achieve a certain critical 
mass of adopters, its continued growth is nearly assured, and it will more 
likely end up with a very large share of the market.