Here’s a book that is fresh off the press: The New Goliaths: How Corporations Use Software to Dominate Industries, Kill Innovation, and Undermine Regulation.
I didn’t read it, but I did read a lengthy essay summarising it, by its author James Bessen in the April issue of MIT Technology Review.
Bessen presents a ton of statistics showing how it’s getting harder and harder to topple the incumbents.
Which runs contrary to popular wisdom. Everyone who read Clayton Christensen’s The Innovator’s Dilemma *knows* that startups will eat incumbents for breakfast. That’s why they call it disruption!
True to a point. Christensen’s book came out in 1997, when disruption was still on the rise. What Bessen claims, is that a new era started round the turn of the millennium. Since then, “the risk that a high ranking firm–as measured by sales–will drop out of one of the top four spots within four years, have fallen from 20 to 10 percent.” Meanwhile, since 1980, “the top four firms in any given industry have increased their market share with 4 to 5 percent.”
What that means is that big corporate players are less likely than ever to be disrupted by innovative startups.
That’s because the big ones all started investing aggressively into their own proprietary software systems, says Bessen, and presents numbers to prove the point.
Heavy spending on proprietary software, means that corporates are now likely to out-innovate the garage-entrepreneur. Much like fast fashion giants look to independent designers for inspiration, and put them out of business by rapidly mass producing copies of their creations.
Just look at the fate of a company like Nuance. They were the market leader in voice based interaction and sold it’s services to all the big players. That is, until Apple, Google, Microsoft and Amazon all woke up to the realisation that voice was of strategic importance, and started building their own in-house versions. All to the effect that Nuance–which had been on a stellar trajectory until then–hit a brick wall, floundered for a few years, only to then be acquired by Microsoft for a song.
So where does this leave us? Bessen worries that the dynamic will eventually mean the whole economy goes down the toilet. He also seem to think that tougher antitrust enforcement is one of the few options we have to reverse the trend. He reminds us how Bell labs, inventor of the transistor, was forced to license its technology broadly, which gave rise to the semiconductor industry. Similarly IBM pretty much created the software industry when in response to antitrust pressure, it began to sell software separately from hardware.
I think the antitrust thing makes sense, but perhaps more in the US than in Europe. I think what would be even more powerful, would be if regulations around public procurement were modified so that governments and institutions of the state were incentivised to invest into open source software solutions. I think that would bring about a profound revival to the startup ecosystem.