Just because an idea is smart and disruptive doesn't mean it'll work.
Ahead of CNBC unveiling its second annual Disruptor 50 list next Tuesday, we're digging into why even the most innovative, potentially game changing companies fail to live up to that potential.
Here's a look at the forces that derailed three start-ups with high hopes that were named to last year's CNBC Disruptor 50 list.
Sometimes a disruptive idea is so good, it's co-opted by giants, making that original startup irrelevant. Last year, Foursquare was named a CNBC Disruptor for revolutionizing the power of location with its mobile check-ins. The company allowed users to connect with friends nearby, creating an app that's sticky—encouraging users to open up and log in multiple times a day. The business potential was huge: Foursquare's clients, including Starbucks, Best Buy, and American Express, could use it to target deals based on a specific location.
Narrowly targeted local ads and offers are so compelling a range of Internet giants have adopted them. Facebook launched a check-in service in 2010. The next year, Google launched a product that invited users to "check in" for deals. In the past few years, Groupon has moved away from the deal-a-day model to increasingly focus on mobile deals based on location. The fact that all these services that people already use started incorporating location stunted Foursquare's growth.
So this spring, Foursquare admitted it needed a change and split into two apps. The new Foursquare app is ditching check-ins to instead focus on local recommendations to compete with Yelp. The other app, called Swarm, will maintain that check-in capability and will show which friends are nearby.
Foursquare is just one of many examples of start-ups whose idea is co-opted, and rendered redundant, or even worse, irrelevant. Another innovative idea, newsreader Flipboard, has seen that imitation is the sincerest form of flattery: Facebook's Paper app has adopted many of its tools to flip between articles, and LinkedIn purchased a similar newsreader app, Pulse, last April.
Low-cost DNA analysis company 23andMe was poised to revolutionize health care. It provided individuals with access to personalized genetic data to inform their health care decisions. Forget about costly and invasive testing—Personal Genome Service just required consumers to spit into a vial and pay $99. The company was working towards a goal of 1 million genotyped customers by the end of 2013—the 1 million threshold is considered key to enabling larger genetic discoveries to be made more quickly.
But then the FDA cracked down. In November, the FDA ordered 23andMe to "immediately discontinue marketing" its health-related genetic reports. It can only now offer ancestry-related genetic reports and uninterpreted raw genetic data. The agency says the company's personal genome services offer medical advice and require regulatory approval. The FDA's concern was that genetic results could push consumers to make risky and potentially dangerous moves—have unnecessary surgery to prevent cancer, or change or abandon a course of treatment without consulting doctors. The company agreed to stop offering new customers access to genetic tests while it works through the FDA's regulatory review.
It's not uncommon for government regulators to put the kibosh on disruptive business models. Aereo, which allows subscribers to stream live network TV, without paying a cable or satellite TV provider, is embroiled in a legal battle with the media giants, which has advanced to the Supreme Court. A ruling is expected as early as this month. And car service company Uber faces regulatory crackdown in cities around the world as it tries to upend the taxi business.
An idea can be so disruptive it can be impossible to pull off. Ouya's $99 open-source Android-based video game console was certainly ambitious. It aimed to wrest control of the video game market away from three long-established giants—Sony's PlayStation, Microsoft's Xbox and Nintendo—by giving gamers an affordable option, and the ability to sample games for free, and game-developers a chance to reach the masses. Ouya broke records as one of the most successful Kickstarter projects ever—raising $8.5 million across more than 63,000 funders, raising $1,000 a minute. It was also the first Kickstarter project to attract serious venture capital, with a round led by Kleiner Perkins.
But when the console went on sale last summer for $99 through big retailers including Amazon, Best Buy, Gamestop and Target, it fell flat. The problem: a lack of games. Developers were frustrated that it was virtually impossible to make money. There was a chicken and egg conundrum: failed to sell enough consoles to establish the base to lure developers away from making games for mobile devices, a far more lucrative business. Ouya wanted to bring new games to gamers' TV sets—to create some middle ground between the mobile games people play on smartphones and console games—but there simply wasn't enough demand for that new game category.
So now Ouya is shifting focus from the console and controller to become a software platform to bring existing Android games to TVs and set-top boxes. The company wants to embed its software into smart TVs and set-top boxes. Ouya founder Julie Uhrman has stressed that the core of the company's vision is to bring games to TV sets. Disrupting the console space and building a whole new game development infrastructure was just too ambitious, so it's shifted to work within the existing systems.