Tuesday, October 4, 2016

No hope of a quiet life in the age of disruption

The 20th century was a great time for innovation. Cars, aircraft, radio, television and computers are just a few of the industrial inventions and developments that changed our lives. Start-ups such as Ford, Boeing, Marconi and IBM nurtured and deployed these technologies. In the process they grew into industrial giants.
Today’s leading-edge technologies are built by digital, not industrial, entrepreneurs, using silicon and software, not steel and glass. Then, as now, we saw the typical dynamic that accompanies technological innovation: a flood of entrants followed by intense competition and exits, with a handful of large companies remaining. The same script is playing out online — with some important distinctions. Today tech groups are competing across industries rather than within them, and competing globally rather than nationally.
Consider today’s leading tech companies: Google, Amazon, Facebook, Microsoft and Apple. They are not stuck in silos or hemmed in by a single business model. Instead, they compete intensely among themselves. For consumers this boils down to tangible benefits: products and services are better, faster and cheaper than ever before.
Why is there so much competition among these already profitable companies? Why do they not just sit back, stick to what they do best and let the money roll in? Because sitting back is a sure recipe for obsolescence.
Entering a new market in the online world is far easier than in the offline world, since the necessary assets — hardware, software, and motivated employees — are readily available. But if companies can switch to new products quickly, so can their customers. You do not even have to walk across the street to switch between Lyft andUber, or Google and Bing. Competition is a click away, so competitive advantage can erode quickly.
Fine, you might say, the big companies can compete: good for them. But what about the little guys? Start-ups today can take advantage of the same features of web technologies that are available to the larger groups. Cloud computing, open-source software and venture funding are widely available.
Many start-ups are “born global”. Email, wikis, code repositories, video conferencing, mobile phones — each new technology cuts costs and empowers these micro-multinationals. Tiny companies with a half-dozen employees have access to computing and communication capabilities that only giant multinationals could afford 15 years ago.
Big groups are pulling up the newcomers, not pulling up the ladder. Companies such as Amazon, Google, Microsoft and IBM offer services to small operators that range from advertising and app stores to cloud services and open-source software. On the financial side, most large tech companies engage in venture investing as well as providing exit opportunities via acquisition.
Competition in tech is robust for both large and small companies, resulting in low prices, high-quality products and innovation that benefits consumers worldwide.
So why all the fuss about tech companies and competition? Technological change is naturally disruptive. We saw widespread industry restructuring throughout much of the 20th century and we can expect the same to happen in the 21st. Incumbents are understandably worried about being disrupted or even displaced and this anxiety boils over into demands that regulators “do something”. Unfortunately, this often means restricting competition rather than enhancing it.
“The best of all monopoly profits,” the Nobel laureate John Hicks once said, “is a quiet life.” But life can never be quiet in the high tech industries as long as technologies continue to advance, innovation continues to thrive and consumers continue to have so much choice.

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