The Role Of Disruptive Innovation In The 21st Century

Febryan Rivaldo Cliff Pelleng

Diplomacy 2 2014 (016201400060)

Entrepreneurship Remedial

The role of Disruptive Innovations in defining the current model of business

In a changing market of the 21st century.

Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors. Disruptive innovation is not a breakthrough innovation that makes good products a lot better. It has a very specific definition that is it transform a product that historically was so expensive and complicated that only a few people with a lot of money and many skills

It has raised $3.4 billion from investors including Andreessen Horowitz, Ashton Kutcher, Baillie Gifford, China Broadband Capital, CrunchFund, Dragoneer Investment Group, DST Global, Elad Gil, Fidelity Investments, FirstMark Capital, Founders Fund, General Atlantic, Anton Levy, General Catalyst Partners, Joel Cutler, GGV Capital, Glenn Solomon, and Greylock Partners. Its last round of funding was held in august 2016 when it raised $850 million at a valuation of $30 billion. In December 2015, it had raised $1.5 billion at a valuation of $25.5 billion. Besides the venture funding, AirBnB has also raised $1 billion in debt from J.P. Morgan Chase in June this year.

However, despite of the high growing value, Airbnb is still facing a massive challenge in the current market. According to Bloomberg report, in 2015 Airbnb end up nearly with $900 million, but despite of the high revenue, the company is yet to make a profit. The reason behind this is that Airbnb put a lot of investment to expand more of their presence everywhere around the globe where today it has expanded its presence in over 34,000 cities across 191 countries globally. By this extreme expansion, Airbnb is projected to earn as much as $3, 5 billion in profits a year by 2020.

There is a subtle fact that nobody had thought about before that is a low cost strategy only as long as you have a high cost competitor in your market. In addition, as soon as they fled up market, then it is just a low cost competition against other low cost