The reality of economics in tech innovation

There are things in the economies of tech businesses that scale well (mass production; agglomeration of labor) and there are things that don’t scale well. Innovation is not something that scales well, and so I will try and point out a few reasons why.

A few days ago HP announced that it is killing its tablet and spinning off WebOS. Perhaps the only surprising thing is that it happened so quickly; the HP tablet was only a few months old.

On the surface, you would imagine — as many people did — that a company as large, talented and wealthy as HP could actually pull off a device to compete with the Apple iPad. However, I think this was a poor supposition to have been made at all, for reasons I will go into in this post.

HP’s competitive advantage in the tech industry is that, up until maybe the last decade or so, it had the best engineers in the business. While that is not arguably true anymore, it is important to note that it never really had a significant competitive advantage in the mobile/tablet market. The mobile/tablet market is dominated by Apple, of course, whose competitive advantage is simply selling great design and great UI. Apple have the most market share because they are obviously the best at it. When was the last time you said “This HP device is really great, and really easy to use?” I will go ahead and give you the answer, i.e. “Never”. They had tried mobile before, with the iPaq smartphones, and they sucked.

While HP’s lack of competitive advantage in the mobile/tablet sector doesn’t mean the HP tablet was destined to fail, it sure had a huge mountain to climb if it was to be unseat the iPhone & iPad. Unfortunately for HP, they failed.

It is also worth noting that competitive advantages, like everything else in the world, are dynamic. Research In Motion (RIM) had a competitive advantage in building mobile devices that a) worked well with enterprise software and b) were very network-efficient. Now, neither are really true; as RIM employees are starting to see the writing on the wall. RIM failed to notice that customers started wanting different things: as the mobile market expanded to “regular” consumers (as opposed to corporate consumers), people want things like cameras and MP3 players and don’t care about “true” multitasking or many things RIM think they care about. But RIM is wrong, and it will kill the company if they don’t reverse their course.

Innovation can come out of nowhere, and it can disappear just as quickly. Perhaps the first great innovator in the mobile space was Nokia; now their products are openly mocked. They had the best technology at the time the technology was emerging; once the technology became common and cheap they were quickly displaced by other manufacturers who had better devices (Samsung, Motorola, etc.) Businesses cannot rest on their laurels and presume that their advantages will live forever.


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