If you’d like an essay-formatted version of this post to read or share, here’s a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
Before “disruption” turned into a punchline, it was a genuinely exciting idea. Using technology, we could connect people to one another and allow them to collaborate, share, and cooperate to make great things happen.
It’s easy (and valid) to dismiss the “disruption” of Uber, which “disrupted” taxis and transit by losing $31b worth of Saudi royal money in a bid to collapse the world’s rival transportation system, while quietly promising its investors that it would someday have pricing power as a monopoly, and would attain profit through price-gouging and wage-theft.
Uber’s disruption story was wreathed in bullshit: lies about the “independence” of its drivers, about the imminence of self-driving taxis, about the impact that replacing buses and subways with millions of circling, empty cars would have on traffic congestion. There were and are plenty of problems with traditional taxis and transit, but Uber
magnified these problems, under cover of “disrupting” them away.
But there are other feats of high-tech disruption that were and are genuinely transformative – Wikipedia, GNU/Linux, RSS, and more. These disruptive technologies altered the balance of power between powerful institutions and the businesses, communities and individuals they dominated, in ways that have proven both beneficial and durable.
When we speak of commercial disruption today, we usually mean a tech company disrupting a non-tech company. Tinder disrupts singles bars. Netflix disrupts Blockbuster. Airbnb disrupts Marriott.
But the history of “disruption” features far more examples of tech companies disrupting
other tech companies: DEC disrupts IBM. Netscape disrupts Microsoft. Google disrupts Yahoo. Nokia disrupts Kodak, sure – but then Apple disrupts Nokia. It’s only natural that the businesses most vulnerable to digital disruption are
other digital businesses.
And yet…disruption is nowhere to be seen when it comes to the tech sector itself. Five giant companies have been running the show for more than a decade. A couple of these companies (Apple, Microsoft) are Gen-Xers, having been born in the 70s, then there’s a couple of Millennials (Amazon, Google), and that one Gen-Z kid (Facebook). Big Tech shows no sign of being disrupted, despite the continuous enshittification of their core products and services. How can this be? Has Big Tech disrupted disruption itself?
That’s the contention of “Coopting Disruption,” a new paper from two law profs: Mark Lemley (Stanford) and Matthew Wansley (Yeshiva U):
The paper opens with a review of the literature on disruption. Big companies have some major advantages: they’ve got people and infrastructure they can leverage to bring new products to market more cheaply than startups. They’ve got existing relationships with suppliers, distributors and customers. People trust them.
Diversified, monopolistic companies are also able to capture “involuntary spillovers”: when Google spends money on AI for image recognition, it can improve Google Photos, YouTube, Android, Search, Maps and many other products. A startup with just one product can’t capitalize on these spillovers in the same way, so it doesn’t have the same incentives to spend big on R&D.
Finally, big companies have access to cheap money. They get better credit terms from lenders, they can float bonds, they can tap the public markets, or just spend their own profits on R&D. They can also afford to take a long view, because they’re not tied to VCs whose funds turn over every 5-10 years. Big companies get cheap money, play a long game, pay less to innovate and get more out of innovation.
But those advantages are swamped by the
disadvantages of incumbency, all the various curses of bigness. Take Arrow’s “replacement effect”: new companies that compete with incumbents drive down the incumbents’ prices and tempt their customers away. But an incumbent that
buys a disruptive new company can just shut it down, and whittle down its ideas to “sustaining innovation” (small improvements to existing products), killing “disruptive innovation” (major changes that make the existing products obsolete).
Arrow’s Replacement Effect also comes into play
before a new product even exists. An incumbent that allows a rival to do R&D that would eventually disrupt its product is at risk; but if the incumbent buys this pre-product, R&D-heavy startup, it can turn the research to sustaining innovation and defund any disruptive innovation.
Arrow asks us to look at the innovation question from the point of view of the company as a whole. Clayton Christensen’s “Innovator’s Dilemma” looks at the motivations of individual decision-makers in large, successful companies. These individuals don’t want to disrupt their own business, because that will render some part of their own company obsolete (perhaps their own division!). They also don’t want to radically change their customers’ businesses, because those customers would also face negative effects from disruption.
A startup, by contrast, has no existing successful divisions and no giant customers to safeguard. They have nothing to lose and everything to gain from disruption. Where a large company has no way for individual employees to initiate major changes in corporate strategy, a startup has fewer hops between employees and management. What’s more, a startup that rewards an employee’s good idea with a stock-grant ties that employee’s future finances to the outcome of that idea – while a giant corporation’s stock bonuses are only incidentally tied to the ideas of any individual worker.
Big companies are where good ideas go to die. If a big company passes on its employees’ cool, disruptive ideas, that’s the end of the story for that idea. But even if 100 VCs pass on a startup’s cool idea and only one VC funds it, the startup still gets to pursue that idea. In startup land, a good idea gets lots of chances – in a big company, it only gets one.
Given how innately disruptable tech companies are, given how hard it is for big companies to innovate, and given how little innovation we’ve gotten from Big Tech, how is it that the tech giants haven’t been disrupted?
ALT
