Why Big Companies Almost Never Notice Disruptive Innovation

Innovation

from the follow-the-money dept

Paul Graham has written one of his typically worth-reading essays about why Yahoo! went from the darling of the internet world in the mid- to late-90’s to whatever it is today (an also-ran’s also-ran). I don’t have much to say on the main point of the essay, so if you’re interested in that, go read it. However, what did catch my eye, was one little aside about trying to get Yahoo to buy Google soon after Google came on the scene:

I remember telling David Filo in late 1998 or early 1999 that Yahoo should buy Google, because I and most of the other programmers in the company were using it instead of Yahoo for search. He told me that it wasn’t worth worrying about. Search was only 6% of our traffic, and we were growing at 10% a month. It wasn’t worth doing better.

I didn’t say “But search traffic is worth more than other traffic!” I said “Oh, ok.” Because I didn’t realize either how much search traffic was worth. I’m not sure even Larry and Sergey did then. If they had, Google presumably wouldn’t have expended any effort on enterprise search.

Whenever we talk about innovation and things like patents, one common refrain is that no innovation would occur without patents because big companies would immediately copy the technology and destroy any up-and-comer. We’ve pointed out plenty of times that this simply isn’t true. For a truly disruptive innovation, big companies often won’t even notice you until you’re way ahead of them — at which point copying is fruitless. Hell, for nearly the past decade now, Yahoo’s tried every which way to “copy” Google, and it got them nowhere in terms of actual market share (actually, it got them so little that they recently gave up and outsourced it all to Microsoft).

The problem is encapsulated in the little exchange between Graham and Filo above (and, I’ve actually heard nearly an identical anecdote from some folks at AOL who looked at buying Google in ’98/’99 as well). If a company is big enough to be the “feared” competitor that people always worry about, it’s because they’re making a lot of money from something. When a disruptive innovation comes along, they usually don’t care because they’re blinded by the cash cow that they already have. In fact, the really disruptive innovations are scary to these big companies, because it they usually look like they’ll undermine the cash cow. Elsewhere in the post, Graham notes that before Yahoo! bought his company in ’98, he showed Jerry Yang a new offering he was working on that would optimize revenue on shopping search — but he notes that Yang didn’t care:

Jerry didn’t seem to care. I was confused. I was showing him technology that extracted the maximum value from search traffic, and he didn’t care? I couldn’t tell whether I was explaining it badly, or he was just very poker faced.

I didn’t realize the answer till later, after I went to work at Yahoo. It was neither of my guesses. The reason Yahoo didn’t care about a technique that extracted the full value of traffic was that advertisers were already overpaying for it. If they merely extracted the actual value, they’d have made less.

Real innovations threatens cash cows, and one of the most difficult things for any company to do is undermine their own cash cows. So stop worrying about some big, successful company copying your idea. If it’s really innovative, they probably won’t even notice it… until it’s too late.

Filed Under: copying, disruption, innovation, patents
Companies: google, yahoo