DeepSeek disruption: Lessons for business firms and nations

DeepSeek is a classic example to prove the difficulty of forecasting disruptive technologies using ordinary tools

It was nearly two years ago my son asked me whether I knew about Open AI movement, when I returned home from the university. He showed me how the beta version of Chat GPT could do coding with explanations in all popular languages almost instantly instead of hours to be spent by a developer to do the same. We all witnessed how different brands of generative AI solutions were making strides in every industry offering convenience as well as challenges in the recent past. In business firms, we are now discussing how to use Gen AI solutions to do things better, faster and cheaper. A few days ago, my son again discussed with me the disruption by DeepSeek in the same domain which prompted me to write this article. 

The shortened life cycle of products was something we have been witnessing over the past years. This has pushed vendors to differentiate their offerings early to ensure improved competitiveness, payback, profitability and growth. However, it is rare to see products still in their early stages of life cycles are threatened by disruptive innovations. In this context, it is worth examining the case of DeepSeek who is making headlines nowadays which can unfold some interesting lessons for business firms and nations. 

DeepSeek, the Chinese open-source AI company developing large language models has just disrupted the market. Their free and open-source solution looks better and energy efficient. It requires less disc space and not so powerful processors and hardware. This revolutionary solution has already impacted on the stock price, profitability and brand value of leading software and hardware vendors. DeepSeek has proved that billions of dollars and massive infrastructures are not required to build impactful models. 

Disruptive innovations 

Introducing new products and processes that can create new markets and make existing products obsolete was named as disruptive innovation by one of the most influential authors of our times, Late Prof. Clayton Christenson of Harvard University. When he coined the term disruptive technologies in the early 2000s, the popular examples were steel mini mills, SUVs by Kia and Hyundai and smart phones. Since then, we have witnessed many disruptive technologies changing the competitive landscapes of the manufacturing industries as well as in the service sectors across the world. 

Christenson cautioned us about the difficulty of forecasting technology changes with disruptive technologies. The popular technology S curve shows the enormous engineering efforts and time exerted initially in introducing new technology and how it starts showing drastic improvements in products and processes no sooner it passes the tipping point. The curve will then become flat at the tripping point signalling the manufacturers and users to introduce and switch to newer and complementary technologies. DeepSeek is a classic example to prove the difficulty of forecasting disruptive technologies using ordinary tools. 

Survive or grow?

The desire and courage of leadership matter a lot in disruptive innovations. Whether you prefer to go with the industry dynamics with a conservative approach of compliance or challenge what is going on seeking to be a leader is a paradoxical situation for any business firm. As found through research, disruptive innovations are mostly introduced by start-up firms. Established firms may find it challenging to go for disruptive innovations due to many reasons such as path dependence, lock-in situations, stakeholder influence, etc. Yet, there are multiple strategies to address these challenges. 

Imitate or invent?

Those who were following how China has been investing in inventions in the past decade would clearly understand what is going on. They are bound to dominate multiple industry verticals. A country known globally for their callous disregard for intellectual property rights a few decades back has consciously transformed themselves into the biggest inventor in the world. 

Way back in 2004, I was heading a subsidiary company of a well-known local conglomerate. We imported the first electric car to Sri Lanka from India and made multiple requests from the authorities for tariff reductions. The lethargic and negative response of State officials prompted us to look for alternative sources of low-cost automobiles. During our negotiations with potential suppliers from China, we came across the identical land cruiser with an inverted Toyota badge glittering on the front grill. Having seen many similar cases, as a company, we decided not to proceed to avoid any possible legal consequences. How do they perform now? China has issued over 4 million patents last year to be the highest in the world. Inventors and innovators reading this article will recall what they see in popular patent search engines such as Google Patents. China is discovering novel products and processes and ambitiously protect IP rights. What do we do? 

Economics matter 

One important lesson for business firms and nations is the necessity of being mindful about resource usage and cost. Amazing functionalities and the excitement offered prompted many Gen AI solution users to ignore cost to them and the society. Interestingly, the vendors took it for granted. It is quite unusual to see technologies in the early phases of their life cycles being challenged by disruptors. Irrespective of the consequences to be faced by the early entrants with the deep seek disruption, they all will learn the lesson to be more concerned about the cost, energy and infrastructure usage in going forward. 

Automobile manufacturers also faced a similar situation when electric cars started making claims on operational efficiency and eco friendliness. However, calculations on energy payback made the claims debatable. 

Profitability and social responsibility can be viewed as bi-polar, making business firms misunderstand the importance of balancing both to ensure sustainability. Have you ever thought that the carbon footprint of ICT will surpass that of the global aviation industry? Ever increasing usage of technologies such as AI, machine learning and big data, perhaps unnecessarily, is causing a huge negative impact on the environment. Demand surge for your new product cannot be a reason to neglect the social cost of your operation. This is a lesson for business firms and nations. 

Negligence invites competitors 

The team of innovators of DeepSeek would have been inspired by the enormous computing power demanded by the initial Gen AI solutions. Neglecting the necessity of having costly infrastructure, high energy consumption and excessive carbon footprint would have paved the way for an early disruptor to enter the market with a conscious plan. Readers should note that Prof Christensen highlighted many examples of disruptive innovators who made entry to the market with a basic product, soon attacking the industry giants with attractive features being added to the products within a short time span. New products with unattended and unresolved gaps can be prematurely replaced by disruptive innovations. This is one important and brand-new lesson from this story. 

Is this a frugal innovation? 

Cambridge professor Jaideep Prabhu (who is also an honorary professor of SLIIT) and his co-author Navi Radjou coined the term frugal innovation that shows how resource constraints motivate innovations. In this context, one can attempt to highlight DeepSeek solution as a frugal innovation as they have dramatically reduced the need for IT infrastructure and energy consumption. It is too early to see how the companies who are affected will respond. A point for other firms and nations to learn would be the importance of understanding the resource constraints and innovating around same than blindly following the trends. Some talk about Apple’s silent victory by not throwing and wasting money on AI. Perhaps, they were waiting for a more frugal approach by someone else. 

A shift in innovator mindset is needed

Many firms struggle with incremental innovations as they focus mostly on how to improve their existing products to make them more appealing to customers. They tend to forget that all their competitors also make every effort to innovate concurrently. As a result, we often see competing firms offer similar features and functionalities at the same time. In my innovation classes I often talk about “outcome driven innovations” as a strategy to outperform rivals. This demands a shift in the mindset of the innovator. Instead of thinking about how to improve the product, you need to think about why customers buy your product and what alternative ways there are to get this job done. It is a shift from product features to purpose. For example, you are manufacturing electric drilling machines, and your innovation agenda now seeks to find alternative ways of making holes, and not necessarily improving the drills. Given the possibility of seeing many disruptions in different fields even before your product moves to growth or maturity stages of life cycle, we need to come up with alternative strategies to stay in business and grow. 

The brands which are threatened by DeepSeek disruption may come back with their own strategies to compete and/or collaborate. Further, it is too early to forecast the success of DeepSeek as the traction and sustainability will depend on many other factors including business models, flexibility in deployment, credibility, etc. However, this incident will prompt firms and nations to think differently about what they do and how they do. This short article (free from any AI generated content) attempted to highlight some insights beneficial to policy makers and practitioners. 

(The writer is a fellow of the British Computer Society, the Chartered Institute for IT and holds memberships in 8 other professional institutions in mechanical engineering, computing, engineering and technology, innovation management, marketing, psychology, and logistics. He is an ex-banker with four decades of experience in diverse industry sectors. He has over 20 years of postgraduate teaching experience in programs of 23 local and international universities. Currently, he is a senior academic fellow attached to SLIIT Business School. Email: [email protected].)