Understanding Innovation

Last week Marc Canter posted his collection of links for first week of May.

However, one item caught my attention:

See how this works? TinyURL creates a market, the VCs swarm in and fund up bit.ly and now everyone will have their own URL shorterner. This is how our industry works.  No innovation, just copying the sure thing.

I wanted to respond to this  as a way to tie together some thoughts building in my head based on a couple of books I've read/reading recently.

The first book is "The Innovator's Dilemma"  -- which covers (based on empirical research) why successful businesses are replaced by upstarts based on variety of factors. His focus was on disk-drive manufacturers - effectively the leaders of a form factor (starting with mainframe drives) were replaced by new leaders when new form-factors emerged because the new form-factors didn't meet requirements to succeed initially but blazed new markets until they could attack the older market. He then points out how this has been repeated in other industries like steel (with mini-mills). 

and the second is "Why Evolution is True" -- the title basically says it all :).

Here is how I would respond:

First - as an investor in any project (and by investor this isn't just the VC, it's the employees as well - even if that's just working a job for a paycheck) - you want to increase your chances to succeed. That's easiest when you have an existing market. Nothing is harder (and more likely to fail) than establishing a new market. Remember Apple didn't invent the personal digital media player market. They just perfected it.

Second - just because products are in same basic market does not mean there is not innovation.

First a non-tech comparison - coffee. Aka "Starbuck Wars".

We all recognize that Starbuck's helped create the market for good-tasting coffee and "coffee drinks". This of course spawned numerous direct copies but also spurred innovation in other areas. This ranges from McDonald's (I occasionally like to indulge in a Bacon & Cheese McGriddle - now I can do so with a pretty good tasting cup of coffee) to local coffee shops that serve areas where Starbuck's won't and even to home coffee. Without Starbuck's - The home Flavia wouldn't exist. And would probably be drinking instant. Instead I get to indulge in a really good tasting coffee that is fresh-brewed, single serve and comes in a number of varieties. This also includes the ability to make "mixed" drinks like cappuccinos.

All basically are "coffee" but a wide-variety of innovation within the same market.

In the biological world - my favorite example would be dogs. Dogs have the most variety of any single species. A species loosely being defined as biological organisms that can produce fertile offspring. My friend Tracy owns the best examples of this. He has two dogs - one is a miniature chihuahua (weighs < 2 lbs) and the other a golden retriever (weighs > 70 lbs). My own dog is a mini-dacshund which is bigger than the chihuahua (about the only dog he's bigger than) but still much smaller than the retriever. All share a common ancestor (current thought is that the original dog was a wolf in Europe). But each has different traits that were bred to differentiate the breed. For example - dacshunds are short, squat, excellent diggers with loud barks because they were bred to hunt badgers. 

So now back to URL shorteners.  An URL-shortener service is a service that allows you to take a long URL (such as an Amazon book link, Google Map URL, practically any Oracle.com URL) and converts it into something that is much shorter. Initially this was done to make it easier to exchange links via email. Now it's practically a requirement if you use Twitter.

Let's look at the three examples referenced in Canter's post:

  • TinyURL
  • Bit.ly
  • Amazon (ironically this link is to a blog-post, that is itself hosted by another URL-shortener service...)

While they all belong to the same common-market - I would disagree they are all copies of each other.

TinyURL is basically just a URL shortener and was the market originator.

Bit.ly - allows you to track how many people actually click on your link. Which is useful - even if just for vanity reasons.

Amazon - has a long history of adding services that make it easier to use their marketplace. Additionally this helps control their brand without actually restricting the other services.

In short - innovation most often occurs within a single market category. And that while from a high-level this may appear to be the same - but there is usually strong differentiations - in particular for the successful.

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