Innovation in 2011 - the end of the Dark Ages

Every year around this time, I write about 4 or 5 things I think will happen in the next. But this year, I only have one thing to say.

I think 2011 is going to be the year when people finally realize the pointlessness of what I call dark ages competitive advantage.

Competitive advantage from the dark ages is anything you do which denies access to resources to competitors.

Denying access to resources is dark ages because it hurts not only competitors but customers as well.

Copyright and patents are a dark ages response to protecting competitive advantage. If you’re the creator of something, you get to tell people when they can use it, usually in exchange for a fee. You get to tell competitors they can’t use it at all.  

But in both cases, all you’re really doing is setting up a situation where everyone you constrain is highly motivated to break your constraints. I mean, you only have to look at the music industry to see this. That’s an industry that trained a whole generation that breaking the law is OK, entirely because of the constraints it attempted to impose.

How dark ages.

Trade secrets are just as silly. You deny access to knowledge by keeping it a secret. This is dark ages because the observation that something can be done, encourages others to do it too.  As soon as they work out how, maybe by reverse engineering, maybe by espionage, or by some jedi mind trick perhaps, that’s any advantage gone.

On the internet, everyone has the capability to observe everything.

Anyway, I think  2011 is the year when people cotton onto the fact that this stuff doesn’t drive value at all. At least, not value that’s long term enough to make all the effort of denying resources to competitors that worthwhile.

There are, however, new sources of competitive advantage available now which are just as potent as the old strategy of denying access. The primary source of this value is relationships that are enabled by products and services, rather than the products and services themselves.

In this new world,  you get more value from a product or service the more you use it. You aren’t penalized for doing so, unlike the traditional model which imposes a tax for use.  That’s what a price is, by the way.

Is there really anything in Facebook that’s all that valuable from a technology perspective? Not really, but it does help practically everyone manage their relationships with each other. The fact that my friends are all on Facebook makes it valuable to me, and the more I use it the more valuable it is.

Why is the iPhone and AppStore such a hit? Not because there’s anything very special in the iPhone, clearly. What is special is iPhone is about managing relationships between customers and providers of Apps. Apps let customers do things that Apple never dreamed of.  The more Apps there are, the more valuable the phone is to me.

There are so many examples of this now. Examples where the product itself isn’t really all that exciting, but where all kinds of relationships are made that create value.

Where the product creates a relationship between customers, or between suppliers and the customer, or between the customer and the product.

Why is this so much better than dark ages stuff?

Because relationships aren’t portable. Once they’re there, embedded in whatever platform they formed on, they’re fixed. Competitors can only win if they can make more powerful relationships than you can.

Relationships are better because they don’t have taxes every time you use them.

And, relationships are better because they’re based on giving things to customers, not taking them away. They’re formed on an ethic of sharing, not of denying access.

So I do think this is the year people will give up on the dark ages stuff they’ve been doing.  Otherwise, I think it’s the year they’ll be going out of business.

Comments

[Steve Burrows]

Thoughtful post James, I enjoyed it.

Why should we spend millions developing and realising new ideas if the chap next door can just copy the end result, making it more cheaply without the overhead of invention?

Will we survive?

Is information valueless?

If we can't protect our ideas what incentive does the chap next door have to do better, to create an alternative?

Don't disagree with the value of relationships, but the concept of having something that the other chap doesn't drives much corporate innovation. Without protection will we invest in innovation? Without protection innovation may be a luxury that we can't afford.

Yes, the system is unbalanced. Protection of innovation is often disproportional to its value. Protection can institutionalise inertia and stifle innovation - vis. the music industry which is living in the "dark ages". But for all its failings protection has value, why bother creating innovation if we don't get the reward of exploiting it?

Innovation does have a "sell by" date, its usefulness is finite, within that timeframe there should be protection sufficient to allow the innovator to reap their reward. But yes, the current system is broken.

[James Gardner]

Steve,

Thanks for your comment.

Your comments go directly to the argument I'm making in my next
book: innovation for the purposes of creating genuinely new things
actually doesn't pay for the reasons you describe. Sometimes it does
cost millions to do really new stuff, and that stuff is often easily
copied regardless of dark ages IP protections. Protecting ideas and
knowledge seems backward when the thing that can't actually be
copied is people's investment in any platform that you *create* with
the knowledge. After people have invested themselves in your stuff,
they don't move very often regardless of how good the competition
is.

That's why noone ever moves their bank accounts even if someone has
something better.

I guess my point is there's a shift happening. In the old world, it
was the accumulation of knowledge that drove value, and you
protected the knowledge to ensure your stuff didn't commoditise.
Now, it is what you do with knowledge that counts, and *sharing* it
drives the value.

The old-guard doesn't see it that way yet, I know. But they will, I
think,

[Carl Morris]

I don't know if Apple are a very good example here. Their products are tightly wrapped in patents and secrecy, plus consumer lock-in scams like DRM.

Good post though. My favourite example would be WordPress, you can download and adapt the software for free. They as a business then reincorporate the best changes into their paid premium services through wordpress.com

[Insmartcompany]

Very interesting James, this really has provided me with food for thought. I agree with you about the importance of openness, sharing and the utility of relationships.

However, I'd like to add an additional remark regarding the latter point. Would you not agree that such relationships also exercise some ideational utility? in the sense of providing fertile ground for ideas to evolve, due to the fact these ideas need to be reflective of these people's concerns.

[Curtis Johnson Realty]

This is a great chance for most consumers to be aware of the competitive advantage of the dark ages. It is wherein competitors denies the liability and influence of the great access from the consumers. This is called dark ages because consumers will be greatly affected of the closure of the access. Needless to say, this is a dismay but we still have a long road to take. Starting from scratch may not be easy but it is worth a try.