The reality is business models run their course, sooner or later

Why didn’t Sony come out with a great MP3 player?
When the MP3 technology was coming up in the late 90s and early 2000s, CD shipments were rising 25% globally. It was a healthy and successful business. Why would they want to invest in MP3 technology that would disrupt their CD shipments? It took until 2002, after CD shipments started to fall (for them to react).

MP3 encouraged piracy?
The piracy was in the Napster model where people were exchanging music for free. So Apple took advantage of that and said, I know you are not going to make as much money as in a CD, but with the iTunes store you will make some money. In fact, whatever money they made out of iTunes they gave it to the music artists. Apple wasn’t making any money on the iTunes. They kind of gave that away because they wanted to draw money onto the iPods.

How do companies tackle disruptive innovation? How can they become disruptive innovators themselves?
Companies need have the core group — even 95% of its people — manage the core business. But take 5% of the dollars and people that are in innovation and get them working to think about the future, coming up with where are there opportunities for disruption, where are the overshot markets or non-consumers that aren’t getting access to products or services and how can we serve them. They key is to think about it, separate it out and keep it small, at least initially.

Final question: will Google disrupt Microsoft?
Let me put it in another way, I think cloud computing will upset Microsoft and Google will have a role to play in it. The idea that computing will be centralised kind of like electricity is centralised these days, will have a role to play. Initially individual companies had their own power plants and then through AC current it went to centralised power distribution plants. I think that will inevitably happen with computing.

We will figure out the security concerns and we will have these centralised places, like Google can do, to conduct search, to have storage, to have applications, to do virtualisation etc. So we won’t need proprietary operating systems like Microsoft and they don’t need to be sitting on individual computers, they can be centralised, and we can use them as a service. Google will play a role in that. Microsoft is really going to run into some real headwinds.