Sustaining Innovation Once upon a time perhaps, large cap was all about the M&A and the ROA and the brand power. Today, large cap tech is all about the physics. It’s true that much innovation, especially of the Zero to One sort, happens in small companies. That’s why we follow small companies so closely in George Gilder’s Moonshots. That’s why we are considering (we will decide early next year) launching a new exclusive service uncovering for our investors the most promising pre-IPO tech firms. Yet at this moment in history, certain crucial and extraordinarily profitable innovations can come only from tech firms that already dominate — not just lead, but dominate — their fields. Our great friend and colleague, the late Clay Christensen, was famous for his “disruptive innovation” paradigm. Disruptive innovation was super-sexy. It explained the mystery of how an apparently inferior, cheaper technology suddenly triumphed over an apparently superior technology. (A favorite example was the triumph of the humble PC over the powerful mini-computer. Who remembers DEC?) Everybody loves disruptive innovation. It’s the triumph of the underdog, the victory of the American way, Henry Ford in a bicycle shop, Steve Jobs in a garage. But Clay knew that mankind owed just as much or more to “sustaining” innovation. Sustaining innovation is the extraordinary work of advancing an established technology to continue to meet the ever more extraordinary demands of the most demanding customers. These are the customers who define business models, cultures, and entire economies by demanding more from entrepreneurs than it seems possible to give. Over time, as Clay knew, sustaining innovation becomes ever more challenging. And the number of companies that can participate declines, sometimes quite rapidly. This is one of those times. We are at an inflection point for sustaining innovation. If You Use Smartphone Apps, Read This... Today’s Prophecy Seventy years after the invention of the integrated circuit, 40 years since the first fiber optic networks, 30 years since mobile phones went digital, each of these technologies is hitting physically intransigent limits. Not absolute limits, but limits so daunting that fewer and fewer firms can cross to the other side. Innovation will not halt. It is accelerating. So are the profits that innovation is bestowing. But the game is narrowing. Contenders are falling by the wayside Jesus said, “first shall be last and last shall be first.” We all love that. But he also said “to everyone who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.” We don’t like to think about that so much. It’s time to think about it. Tomorrow: The limits we face and the narrowing path to victory. Regards, Richard Vigilante Lead Analyst, The George Gilder Report Steve Waite Lead Analyst, The George Gilder Report |
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