The Rise and Fall of Silicon Graphics

Whenever this topic comes up there are always comments saying that SGI was taken by surprise by cheap hardware and if only they had seen it coming they could have prepared for it and managed it.

I was there around 97 (?) and remember everyone in the company being asked to read the book "The Innovator's Dilemma", which described exactly this situation - a high end company being overtaken by worse but cheaper competitors that improved year by year until they take the entire market. The point being that the company was extremely aware of what was happening. It was not taken by surprise. But in spite of that, it was still unable to respond.

I remember Clayton Christensen mentioned that Andy Grove invited him to Intel to talk about how to deal with the dilemma, and interrupted Christensen while he was talking and said something like "I know the problem, and I need you to tell me the solution". Similarly, Peter Drucker repeatedly mentioned one of the biggest challenges in business is "killing the cash cow". Along that line, Netflix's Reed Hasting is really amazing. He somehow managed to kill the DVD business and used it to milk the streaming business, when almost everyone in the industry and some of his lieutenants in Netflix didn't believe him.

Yes and:

These years later, while the innovator's dilemma thesis describes what, there's still little treatment of why and how.

I keep wanting someone to account for the roles of investment and finance.

Amazon's innovation was lower cost of capital. They convinced investors to wait for returns. And they got a massive tax holiday. (How could they not succeed?)

Ditto Tesla, with its saavy moves like govt loans, prepurchases, tax incentives, and selling direct.

That cheap capital was necessary, but not sufficient. Both still had to create products customers wanted.

I keep coming back to Apple. How'd Apple avoid the trap? Despite their terrible position. My guess is better financial strategy (if that's the right phrase). Apple focused on margins (and monosophony) instead of market share. And then leveraged their war chest to implement monosphony.