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Do you know who invented the CD? The compact disc was a pretty amazing innovation but few of us know of David Paul Gregg because his legacy didn’t stand the test of time.
Today CDs are cheap and plentiful and have become a commodity. If you believe Kanye West, CDs are in their death throes and will be totally replaced by streaming music.
There are a lot of products and services that have followed the life cycle of the CD. As soon as a clever product or idea becomes popular, competitors emerge and copy, duplicate and build on it, claiming the idea as their own.
The key to long term business success is having a sustainable competitive advantage; one that lasts.
Because it is hard to build a sustainable advantage (and rare to find products that truly stay ahead of competition) there is an expectation commoditisation is the destiny of most businesses.
I read a Financial Times column recently, quoting Columbia Business School professor, Bruce Greenwald: “In the long run, everything is a toaster.” His point was all great innovations eventually become commodities, bought on the basis of price and nothing else.
The author disputed Greenwald’s view, suggesting toasters are by no means commodities: “History shows the constant re-invention of toasters - they still make good money and they make better toast than they used to - has allowed toaster makers to sustain their businesses over time.”
He set out to show businesses can be too quick to call something a commodity and not try hard enough to differentiate, add value and innovate to build a sustainable advantage.
England’s Crompton and Company invented the electric toaster in 1893. Competitors entered the industry and in 1909, General Electric’s D-12 became America’s first commercially successful toaster. It retailed for US$3 and could toast only one side of the bread at a time. Wall sockets were uncommon at the time, so the power cord was designed to be screwed into a light socket.
A decade later, Charles Strite revolutionised toaster technology with his 1919 invention of the pop-up toaster, largely used by restaurants. By 1926, Toastmaster had created a consumer version.
Toaster sales skyrocketed and prompted bakeries to innovate by producing pre-sliced loaves of bread. Fully automatic toasters appeared in the 1940s.
Fast forward to today and you have toasters that can cook breakfast foods like bagels and crumpets; some have silicon chips to regulate temperature and create toast with just the right amount of colour; they cater for frozen bread and delayed consumption (toast is kept warm until you eat it).
No observer would describe the multi-billion-dollar toaster market as a commodity. There is innovation, constant re-invention and the spawning of associated products and ideas allowing for a competitive advantage to be maintained over time.
Toasters are no more a commodity than computers or cars, even after more than a century of competition.
Economist Adam Smith described water as a commodity in 1776. Try telling that to Evian as they enjoy double-digit profit margins on their bottled water sales. Coffee too has long been considered a commodity; Starbucks would tell you different.
If only David Paul Gregg had given CDs extra functionality, made them difficult to reproduce or a clear point of difference.
Then maybe he’d have created a sustainable advantage and a lasting legacy.