Recently, Dan Farber – the Editor in Chief of ZDNet – was kind enough to invite me to contribute to Between the Lines, the excellent ZDNet group blog. My inaugural post is now up: Innovation 2.0: Why Web 2.0 companies might have to flip to avoid being flopped, and I will be back every now and then.
Want the short version on Innovation 2.0 ?
Forget the innovator’s dilemna principle in the Web 2.0 world: established players (Google, Yahoo, Microsoft & al) are bringing in talents by hiring them away or acquiring their companies, and are playing catch up on new features and services at an unprecedented pace. The initial versions of what they produce are not always great and don’t really match startup products or services, but in a relatively short order, they get closer and closer. And since the “elephants in the room” know one thing – scale, they can intercept startups when these start facing scalability issues and their initial architecture can’t cope with their success.
Enjoy, and let me know what you think.
And thanks to Dan for the opportunity to reach a much larger audience.
(congrats on the new ZDNet 'Innovation 2.0' column jeff -- it's well deserved :)
in general i agree with the framework of your analysis (namely: large plaform companies can compete with small startups more easily in a Web 2.0 world), however there are also some disadvantages for the larger companies as well:
* bureaucracy & red tape
* entrenched product lines / established revenue streams
* cranky old platforms / legacy systems
* search expertise <> app dev expertise
* lack of equity accelerator motivations
having recently left the PayPal / eBay empire last year, and having worked extensively with/for Microsoft in the late 90's, i would say the greatest disadvantage for the platform players is their perceived monopolies and risk-averse nature. while eBay & MS are recently waking up to their slowly eroding monopoly power, they are still much slower to act than startups. for many such companies that are dominant in one or more areas, a successful corporate strategy is to NOT do anything -- in other words, there is sometimes more risk to a monoply by doing SOMEthing than doing NOthing, and thus the company sets up bureacracy and multiple layers of approval in order to protect its monopoly position from potentially errant internal innovation. while i don't necessarily agree with this philosophy, it does have some logical basis for existence. certainly it has been in evidence at some level in both of the companies i mention above (and to a lesser extent in eBay's case, this philosopy has perhaps limited the ability of eBay's PayPal division in maximizing its 'off-eBay' market opportunities, where some of those may have deleterious effect to the eBay marketplace).
i have less insight into Yahoo & Google's internal workings, however i do have friends at both companies and while they are terrifically smart & bright people, they are not superhuman (well, not all of them anyway... they each have their superstars here & there). however, again these companies have entrenched product lines & revenue streams -- not to mention the princes/princesses who control these fiefdoms -- and they will go not easily into the night as new innovators challenge their market position & corporate authority. smart companies will set themselves up to 'eat their young' regularly and prevent such political infighting, however it's inevitable that the potential internal entrepreneurs will make enemies here & there.
one other issue that contrast with your point about scale & resources being an advantage for larger players -- their platforms and systems are by definition legacy systems, and while Web 2.0 techniques makes it easier to layer on new systems, integrating with older systems still doesn't happen overnight. tying into security, profiles, other product lines, regression testing -- all of these require time, testing, approvals, coordination, etc, etc. i certainly know from experience that even with relatively young platforms like PayPal, there is a queueing & prioritization mentality at work that limits how quickly platform companies can evolve & innovate, regardless of how simple it is to tie in new technology. smaller startups will always be more nimble, and tho Web 2.0 makes it easiER, it's still not EASY.
another argument against large player platform player advantagees, at least where Yahoo & Google are concerned, is that their vast expertise in search technology don't necessarily translate to application development expertise. while Microsoft may have some innate advantages here, they also are relatively new to the Web 2.0 game also. and large dev teams don't particularly scale well. so while they might not have a DISadvantage here, they also don't have an ADvantage either -- it's still going to be dev teams of 5-50 people internally going at it with 5-50 person startups externally.
lastly, and perhaps most importantly, startups are hungry -- and they've got equity multipliers that still provide more motivation than large company bonuses. most entrepreneurs can only stay so long in a large company (unless they're running the show), and while the golden parachutes of equity options may retain talented people at large companies for awhile, similarly a drop in stock option value tends to motivate real talented folks to leave the nest and get to work on the Next Insanely Great Thing. again personally, money isn't the only motivation for doing startups, but the combination of creative energy, scaling mountains, and a pot of gold if you make it to the top provide lots of incentives for would-be mountaineers to climb the next Everest.
... and so, tally-ho i go! :)
- dave mcclure
www.simplyhired.com
Posted by: DaveMc500Hats | October 18, 2005 at 09:55 AM
Credibly sustainable 'social media' startups need a core competency in running marketing/user-showcasing as a PROFIT CENTER.
Think variations on what Trump and Martha Stewart get from The Apprentice, and what the show did for the (sane) participants of Apprentice I...
Best,
Posted by: Frank Ruscica | October 18, 2005 at 09:43 PM
wow, congrats jeff :-)
and thx for this super interesting input
- didier
Posted by: didier beck | October 19, 2005 at 01:54 PM