Innovation and Information Technology Industries

Higher School of Economics , Moscow 2011

www.hse.ru

Ian MilesResearch Laboratory for the Economics of Innovation, HSE

(and Manchester Institute of Innovation Research)

November 2011

Outline

• PART ONE:– IT Industries– Technological and Service Trajectories– IT innovation: new goods and services

• PART TWO:– IT, Innovation and Competition– Winners, Losers, and Alliances– Futures of IT innovation

Higher School of Economics, June 2011

Before we begin

• Not all innovations come from private industry!• Knowledge for innovation is often developed in the public

sector.

Before we begin

• Not all innovations come from private industry!• Knowledge for innovation often developed in public sector.

• Major new ways of doing things may be created in public sector institutions.

• Links to such institutions may be important for firms – spin-offs, partnerships.

What do we mean by Innovation?

Invention

Develop-ment

Commerc-ialisationDiffusion

Applic-ation

Product Innovation: Making new things (goods), doing new things (services)Process Innovation: doing or making things in new ways

All stages require development and application of knowledge and skills

Realisation of an idea in a product or process that is adopted by users.

PART ONE

Schumpeter, Freeman, OECD Oslo Manual

What do we mean by IT (aka ICT)?

• New Information Technology• Mechanical and Analogue ways of storing,

communicating, processing information have been existence since beginning of history

• Many specific innovations in C19th, including electricity-based ones: telephone, telegraph

as well as mechanical and chemical ones (phonogram, photogram)

• C20th: electronics – valves and transistors• Microelectronics (and optronics etc.)

PART ONE

VLSI 1968

Transistor 1950s

New IT triggers innovation

Invention

Develop-ment

Commerc-ialisationDiffusion

Applic-ation

Technological Opportunities “Swarming of Innovations”

search for

Market Opportunities

Problems and Needs may trigger search for solutions- Technology possibilities may trigger search for problems

Cornucopia (Pandora’s Box?)

SERVICES(bits)

COMMUNICATION INFORMATION

Inf

GOODS/ PHYSICAL PRODUCTS (atoms)

What do we mean by the IT Industry (aka ICT Industry)?

The Harvard Map

Communication Services

Information Services

Information and Communication

Equipment

Information Products

McLaughlin, JF andAntonoff, AL, 1986, Mapping the information Business. Harvard University Program on InformationResources Policy, Cambridge, MA

IT Industry (aka ICT Industry)The Houghton Framework

Communication Services

Information Services

Communication Equipment

Information Equipment

SERVICES (bits)

CONDUIT, CONTENT, FORM

SUBSTANCE

GOODS/ PHYSICAL PRODUCTS (atoms)

PRESTInstitute of Innovation Research

Post, courier

Legal, accounting

Paper, filing cabinets Business forms

Magazines, books

BASIC TELEPHONY

CALL TELEPHONY SERVICES

BCS & TRANSMISSION

LEASED LINE & PSDN

SERVICES

LINE. TRANSMISSION & BROADCASTING

EQUIPMENT

SWITCH, LAN, WAN, DATA EQUIPMENT

TERMINAL & PERIPHERAL EQUIPMENT

COMPUTER EQUIPMENT

SYSTEMS SOFTWARE

NETWORK SOFTWARE

NETWORKED CONTENT

PACKAGED SOFTWARE

NETWORKS & SERVICES

HIGHER LEVEL NETWORK SERVICES

PROFESSIONAL SERVICES

COMPUTER, COMMS &

SOFTWARE SERVICES

Software

Physical Components

Network Infrastructures

(Information) Services

Information and Communication

Goods

Digital Content Products

RELATIONSHIPS

TANGIBLE

INTANGIBLE

THINGS

IT Industry Sectors and Products

Software

Physical Components

Network Infrastructures

(Information) Services

Information and Communication

Goods

Digital Content Products

IT Industry Sectors and Products

So the IT industry is very diverse

• Goods and Services, Components and Systems• Communication, Data Processing, Content Production• Digitalisation Convergence• Different skills, cultures, markets Collision • C&C = Computers & Communications; = Convergence & Collision

Mergers and Acquisitions – vertical integration, economies..

Some viewed as successes;Some disasters;General impacts on innovation?

Software

Physical Components

Network Infrastructures

(Information) Services

Information and Communication

Goods

Digital Content Products

RELATIONSHIPS

TANGIBLE

INTANGIBLE

THINGS

Lets Look at the various IT Industry Sectors and Products

• PROCESSING: Microelectronic Chips – VLSI – the core revolutionary technology?...

• CAPTURE: Sensors- semiconductors, mechatronics, chematronics, etc...

• STORAGE: magnetic memory, electronic memory, optical memory....

• DISPLAY: CRTs, LEDs, LCDs, etc. (plus audio etc.)...

• COMMUNICATION: wires, optical fibres, radio signals....

ComponentsPhysical Components

Components: underpinning trajectories

Gordon Moore (Intel) noted in 1965 that this ratio was doubling every 18 months

Nu

mb

er

of tr

ansi

stor

s on

a c

hip

People now suggest a doubling every 2 years

1971 1981 1991 2001 2011

From Wikipedia, for more and debate see http://www.kurzweilai.net/articles/

Impact on Processing PowerManchester Institute of Innovation Research

1960 1970 1980 1990

Millions ofInstructions per second

(MIPS)

100

10

1.0

0.1

.01

MainframeMinicompr PCEmbedded

From a Scientific American article

Rapid Improvement of Other Components

Problem Areas?

• Batteries/power sources.• Vulnerability to EMP/solar flares/etc.• Dependence on rare earth elements.• Fabrication plants also become increasingly

costly.

• Underpin problems in many applications of these components

All sorts of information are being digitised,

both from old information and media industries, and across economy.

Implications

• Increases in amount of data that can be handled, in speed at which it can be handled

• Continuing change in underpinning components means continual reinvention of products and creation of new products

• ...performing new services, and performing services in new ways (speed, quality, mobility, customisability)

• IT involves a revolutionary new “heartland” technology, with applications across the economy

Physical Components Physical Goods

Examples

• Computers• Digital phones• PDAs, smartphones, tablets, etc.• Audiovisual equipment – digital TVs, PVRs, Music

players; consumer electronics (incl. Synthesisers, cameras....); office and educational equipment (projectors, smartboards...)

• Products using new IT: “informatised” household appliances and industrial equipment, new devices in medicine (scanners), utilities (metering), logistics, and automated manufacturing ....

Physical Goods

Mark Weiser’s ViewManchester Institute of Innovation Research

source: http://www.ubiq.com/hypertext/weiser/UbiHome.html

Sal

es/Y

ear

Envelope curve (systems of all types)

MAINFRAME: one computer serves many people

PC: one -----

computer per

person

UBIQUITY: many

computers per person

Physical Goods

Remore Local Mobile Pervasive

Some Trajectories

• Smaller, more powerful• Networked• User Interfaces – “anthropotropic” (Levinson)• Converged devices (though also specialisation)

• Beginning to see: wearable (implantable?)• Speech and gesture recognition ((companionable?)• Many new plastic-based displays and devices;

nanotechnology possibilities• New applications – health, security, home systems…

Physical Goods

Infrastructure

• Digitisation• Gilder’s Law - bandwidth triples every 12 months;

Rabiner’s Law -the optical capacity on a single mode fibre doubles every 10 months. [Metcalf’s Law - the value of a computer network increases at a rate of the square of the number of connections.]

• Extension of optical fibre, improved capabilities• Development of successive generations of mobile

phone and wireless networks• Satellite systems

Networks & Infrastructure

Infrastructure Trajectories

• Increased scope for connectivity, with wider and higher-quality coverage

• Cross-network interoperability of devices

• Addressing security and reliability issues

Software

Physical Components

Network Infrastructures

(Information) Services

Information and Communication

Goods

Digital Content Products

RELATIONSHIPS

TANGIBLE

INTANGIBLE

THINGS

Continuing with IT Industry Sectors and Products

Software

• Instructs physical equipment concerning actions (on/off switches)

• Operating Systems, Applications Development Software, Applications Software

• Embedded in hardware, installed via storage media or download, accessed remotely (e.g. Cloud computing)

• A huge industry (emerged from “unbundling”), but most small firms are simply customising applications for end-users

Software

Software Trajectories

• Production methods like Software Engineering & SOA to confront “software crisis”.

• User-friendly interfaces for producing as well as using software

• Open source and FLOSS production and access to software

• Efforts to reduce ”bloatware” (impact of mobiles)

Software

Services

• Computer Services – remote data processing, cloud computing

• Communication Services – virtual networks, social networks, one-to-one and many-to-many services

• Transactional Services – ecommerce, reservations and booking

Information/ Communication

Services

Services Trajectories

• Location-based (mobile) services• Natural language processing• Semantic Web (Web 3.0)• Context-aware services• Agents

Information/ Communication

Services

Content

• Digital(ised) Content Production, “Packaging”, Delivery• Traditional Media – were 1-to-many (digital converts-

sometimes very latecomers) – Text and Graphics (print media) – Audio (recording industry, radio)– Video (TV, Film)

• Information Services (databases, business news (digital converts and natives)

• New Media (Born digital, digital natives)– Also Multimedia, videogames, websites...

Digital Content

Content Trajectories

• User produced content (Web 2.0)• Shared experiences• “Free” content • Content via narrowcast, P2P, social networks• “Realism” – 3D, VR, • Real-time access• Online storage

Digital Content

Innovation in Context

• Markets, Competition and Innovation

PART TWO

Successful Innovation

• Diffusion and Adoption of a Product– Product life cycle and innovation

• Disruptive Innovation– Often Digital natives versus (would-be) digital

converts or digital deniers– Sometimes battle between digital platforms– Can incumbents maintain/regain position?

Diffusion of innovation

Typical Model of

uptake of an innovation: percentage

of market adopting

Network effects: more people using compatible systems makes it easier to learn, easier to communicate, share

• Examples: adoption of PCs, mobile phones

Diffusion of innovation

Abernathy/ Utterback Model of

Product Life Cycle

Teece: stabilisation

of design paradigm

• Examples: design of PCs, mobile phones

Design flux

Dominant Design(s)

New models? Product differentiation?

Competition over functionality

Competition over efficiency

Competition over service/

extras

Increasing user-friendliness, less need for skill, economies of scale

Two ideas from David Teece

http://www2.haas.berkeley.edu/faculty/teece_david.aspx

• Stabilisation of design paradigms

• Complementary assets– Innovations are rarely

unique; first-comers often do not succeed in creating substantial markets; life is tough

Design Paradigm

• Innovation begins when an idea is commercialised: we can offer this new/better service

• But just what form does this take?• Often other firms will be trying to offer similar

services – or if not, and if your idea is a good one, they soon will.

• Competition at the outset is often about what design will prevail.

• This may come to be seen as the “natural” solution – e.g. car or PC keyboard layout.

So who wins?

• Not necessarily the person with the technically best design!

• Not necessarily the cheapest!• Who can mobilise Complementary Assets –

– Brands, marketing, distribution channels– Supply chain connections (e.g. hardware, content

providers)– Intellectual property,

intellectual assets– Links to users, etc.

Successful Innovation - 2

• Diffusion and Adoption of a Product– Product life cycle and innovation

• Disruptive Innovation– Often Digital natives versus (would-be) digital

converts or digital deniers– Sometimes battle between digital platforms– Can incumbents maintain/regain position?

Examples of disruptive IT Innovation

• Semiconductors displace valves, LCDs displace CRTS

• Telecomms networks displace postal service• Microelectronic watches, cameras, CD players,

etc. displace traditional designs• Music/film downloads challenge recording

and film industries, crisis in newspapers (and now books – already encyclopedia etc.?)

• Travel agents , dating agencies etc.

Comp-onents

Infrast-ructure

Goods

Content

Services

It can be hard for incumbents to stay in the game

• When there is a new business model, then adaptability is key – often very problematic

• When there is new technology, then will usually need to acquire, or form alliances

• Some successes with mergers• Many problems• Drives move to more Open Innovation

(alliances, collaborations, etc.)

Often mergers fail

Industries, Products,

Components

Technologies, Cultures,

Organisation

Convergence

Digital convergence: blurring boundaries (but multiple platforms)

Wars over standards, platforms

Finally...

• IT may be used in the innovation process itself• New tools for innovation:

– Simulation, visualisation, CAD– Virtual laboratories, networking and division of

labour• Support for open innovation:

– Collaboration software– Online crowdsourcing

Conclusions

• IT continues to be the source of many promising innovations

• Even if rapid hardware evolution slows, much scope for new services and content

• Continuing disruption and opportunities for new entrants and niches

• Expect moves up and across sectoral categories by firms from emerging economies

• Requires putting together right skills and knowledge – of markets and cultures as well as technology and technique

20, Myasnitskaya str., Moscow, Russia, 101000Tel.: +7 (495) 621-2873, Fax: +7 (495) 625-0367

www.hse.ru

Higher School of Economics, June 2011

Digital Populations

• Digital Natives• Digital Converts• Digital Deniers• Digital Excluded