Market disruptions often occur – or not – as a direct result of unwanted collisions between innovative technologies and their more incremental regulators. In the latest standoff, the U.S. Food and Drug Administration last month ordered startup 23andMe to stop marketing its $99 genetic testing kit, just before the season Christmas shopping will accelerate.
To date, more than half a million customers have been sampled in exchange for detailed ancestry data and personalized information on 248 genetic traits and health conditions. The company, which launched in 2007 with substantial backing from Google, has been working closely (though more slowly than the FDA would have liked) with the FDA to ensure it complies with federal health and safety regulations. But the agency concluded in its recent warning letter that 23andMe was marketing a “device” that was “intended for use in the diagnosis of diseases or other conditions” and, as such, its marketing materials required prior FDA approval. , which includes extensive research studies.
23andMe is an example of what we call a “Big Bang Disruption”: a product or service innovation that undermines existing markets and industries seemingly overnight by being simultaneously better and cheaper than the competition. What’s happening in genomic testing (and healthcare generally) is consistent with our research in more than 30 different industry segments, from manufacturing to financial services to consumer products.
When technologies improve exponentially, many industry incumbents (and the regulators who oversee them) remain constantly imbalanced. This is because incumbents have been indoctrinated by a generation of academic literature and MBA training to ignore disruptive products until they had a chance to mature in the market, assuming that they would first appear as cheaper but inferior substitutes that would only appeal to niche market segments.
#### Larry Downes and Paul Nunes
##### About
Larry Downes and Paul Nunes are co-authors of *[Big Bang Disruption](http://www.accenture.com/microsites/bigbangdisruption/Pages/index.aspx): Strategy in the era of disruptive innovation* (Penguin Portfolio 2014). Downes is a researcher at the Accenture High Performance Institute, where Nunes serves as Global Managing Director of Research. His book has been selected as the 2014 book of the year by the Consumer Electronics Association.
Physicians, who are also incumbents in this situation, are struggling to respond to disruptive medical technologies that change the power dynamics in the relationship with the patient. Several 23andMe users have reported that they followed the FDA’s advice to review their genetic results with their doctors, only to find that the doctors were unprepared, unwilling, or downright hostile to help interpret the data.
Often, incumbents’ only competitive response (or the only one they can think of) is to go to regulators. That’s what’s been happening with car-sharing services like Uber, Lyft, and Sidecar; to private drone manufacturers; and informal accommodation services such as Airbnb, to name just a few examples. And now it’s happening to 23andMe, one of hundreds of startups aiming to give healthcare consumers more and better information about their own bodies, information that has long been under their exclusive and increasingly expensive control. of medical professionals.
In the absence of an actual law on the issue, the agency has strained credulity by categorizing 23andMe’s product as a diagnostic “device,” subjecting it to its strictest oversight. The FDA letter focuses intensely on the possibility that consumers will both underreact and overreact to revealed genetic information. The agency fears that users will pressure their doctors to give them potentially unnecessary surgeries or medications to treat conditions to which they are genetically predisposed, for example. And it assumes that the costs of such information abuse outweigh any benefits, none of which are mentioned in the agency’s analysis.
