Product innovation has accelerated

Symptom: Product innovation has accelerated.

Implications for the market:

• Accelerated product innovation is a common indication that an industry is becoming hostile. Most innovations are aimed at improving the product's functional attributes by adding features, a tactic we call bundling.

• Product innovation is unlikely to produce an industry winner. Functional innovations fail to move much share because they can be quickly copied by competitors. Soon everyone is offering that innovation.

• However, innovation will hasten the demise of the losers. Innovations raise costs for everyone in the industry, but it is the weakest competitors who experience the greatest pressure on their margins. As a result, many weaker companies will choose not to further innovate or will do so with half-hearted efforts. This decision further weakens these companies and hastens their market withdrawal or takeover by other firms.