plus/minus epsilon

Stifling Innovation

24 Oct 2020

The natural question that comes up when thinking about disruptive innovation is: How can incumbent companies successfully navigate the transition to a disruptive technology?

The answer I’m familiar with is basically that managers invest in the new technology, and let the old and new compete. This acknowledges the risk that the new technology might fail, and also captures the upside if it succeeds. As the previous company/department begins to decline, the other starts growing just as quickly and you already have an ownership stake in it.

However, what if the new technology is lower margin? Or if you’ve made investments in the old technology that haven’t fully paid off yet? Then encouraging the transition would be against the manager’s interests. They would rather slow or halt the development of the new technology as much as possible.

The answer here is still to develop the new technology, but just enough to make creating a startup in the area unattractive while not substantially competing with existing products.

The first real example of this I recognized was with serverless. All major VPS providers like AWS / GCP / Azure offer serverless platforms, but they’re all artificially handicapped such that people don’t see them as suitable replacements for a VPS. As long as there’s no competition, they can leave things undeveloped. But as soon as there is competition, they have the resources and market lead to stop it.