Nurturing the Accumulation of Innovation: Lessons From The Internet


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October 23, 2009 Washington DC

Accelerating Energy Innovation: Lessons from Multiple Sectors

Rebecca Henderson and Richard Newell

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Nurturing the Accumulation of Innovation: Lessons From The Internet

  1. 1. Shane Greenstein Accelerating Innovation in Energy: Lessons from other Sectors
  2. 2. <ul><li>Motivation </li></ul><ul><li>Lessons of pre-commercial era </li></ul><ul><li>Lessons of commercial era </li></ul>
  3. 3. <ul><li>Internet touched wide breadth of economy </li></ul><ul><ul><li>Transformation for better. </li></ul></ul><ul><ul><li>Lower prices, new services, efficiencies. </li></ul></ul><ul><ul><li>Changed life as we know it. </li></ul></ul><ul><li>Big Question: What economic lessons can we learn from the Internet for large innovative efforts, such as in major energy innovation? </li></ul><ul><ul><li>Goal today: provide overview of chapter. </li></ul></ul>
  4. 4. <ul><ul><li>The chapter focuses on two eras, pre-commercial, and commercial. </li></ul></ul>
  5. 5. <ul><li>Refined Question: What policies lessons can we learn from each era of the Internet? </li></ul><ul><ul><li>Focus on processes underlying accumulation of innovation. </li></ul></ul><ul><li>Pre-commercial era. </li></ul><ul><ul><li>Lessons for managing dispersed community exploring frontier engineering/science. </li></ul></ul><ul><li>Commercial era. </li></ul><ul><ul><li>Lessons for creating new industry when within competitive market with widely dispersed technical leadership. </li></ul></ul>
  6. 6. <ul><li>Motivation </li></ul><ul><li>Lessons of pre-commercial era </li></ul><ul><li>Lessons of commercial era </li></ul>
  7. 7. <ul><li>Not the Manhattan project, not Apollo </li></ul><ul><ul><li>Not a single urgent project in a single lab devoted to building/engineering a single object. </li></ul></ul><ul><li>Collective invention </li></ul><ul><ul><li>Multiple overlapping groups of funders who shape attributes. Department of Defense, National Science Foundation, universities & research labs. </li></ul></ul><ul><ul><li>Multiple overlapping groups of inventors from programmers, administrators, and users. </li></ul></ul>
  8. 8. <ul><li>DOD desired new knowledge & prototypes </li></ul><ul><ul><li>Radical technical departures that no existing military services would produce. </li></ul></ul><ul><ul><li>Workable models of s/w-h/w combinations that supported data communications capabilities, and (eventually) portable to military application. </li></ul></ul><ul><li>General concepts in search of implementation </li></ul><ul><ul><li>Communication along many paths. </li></ul></ul><ul><ul><li>Over geographic distance. </li></ul></ul><ul><ul><li>B/w computing systems w/o human intervention. </li></ul></ul>
  9. 9. <ul><li>DARPA modeled on a skunk works </li></ul><ul><ul><li>An organizational home for projects of value to long term mission, not connected to operations. </li></ul></ul><ul><ul><li>Not beholden to any short term mission of any military branch. </li></ul></ul><ul><ul><li>Program officers w/strong technical skill picked researchers/stars, funded their labs/students w/uncommonly large amounts of money. </li></ul></ul><ul><ul><li>Build new research community. </li></ul></ul><ul><li>Satisfying work environment for inventors. </li></ul><ul><ul><li>Wild ducks familiar nomenclature from computing. </li></ul></ul>
  10. 10. <ul><li>Working prototype: unrefined implementation of designs w/aim to learn </li></ul><ul><ul><li>Most skunk works aim for working prototypes. </li></ul></ul><ul><ul><li>DARPANET went further. NSFNET went even further. </li></ul></ul><ul><li>When inventors use what they build… </li></ul><ul><ul><li>Ideas grow out of own experience, but it has to work, and work for someone else, and soon. </li></ul></ul><ul><ul><li>Users/admins want valuable app (email, FTP, etc.) </li></ul></ul><ul><ul><li>Inherited from the university: Technical meritocracy for keeping/eliminating change/improvements. </li></ul></ul><ul><ul><li>Learn to achieve scale. </li></ul></ul>
  11. 11. <ul><li>Compared to what alternative? </li></ul><ul><ul><li>A counterfactual that did not take place, and we can never observe. </li></ul></ul><ul><li>In 1960s & 70s gov’t funding did accelerate. </li></ul><ul><ul><li>Abundant evidence of lack of private firm interest in the 1960s & some interest in 70s. </li></ul></ul><ul><li>During the NSF era in the 1980s? Yes. </li></ul><ul><ul><li>Observers foresaw coming of electronic commerce. Just not this fast or in this form. NSFNET fostered multiple pathways. </li></ul></ul>
  12. 12. <ul><li>Federal funds for Precommerical Internet = $200m. How could that be possible?!? </li></ul><ul><ul><li>Only from NSF era. Not counting DARPA. </li></ul></ul><ul><ul><li>Not counting DARPA failures on other projects. </li></ul></ul><ul><ul><li>Benefiting from innovation in computing. </li></ul></ul><ul><ul><li>Using existing capital in telephony. </li></ul></ul><ul><ul><li>Prototypes cheap to replicate b/c software. </li></ul></ul><ul><li>Distributed investment. </li></ul><ul><ul><li>Costly part – backbone – targeted by DOD & NSF </li></ul></ul><ul><ul><li>Investment in edges (apps, installations) often the domain of university researchers/admins/users. </li></ul></ul>
  13. 13. <ul><li>Arises from restrictions on participation </li></ul><ul><ul><li>Motivates spinout in the early 1970s. </li></ul></ul><ul><ul><li>Eventually transfer of network to NSF management </li></ul></ul><ul><li>New management explores new objectives. </li></ul><ul><ul><li>NSF mission: support research. How? Rationalize network operations. Make accessible to students. Expands scale and user base. </li></ul></ul><ul><li>Truncated exploration in NSF too. </li></ul><ul><ul><li>No commerce. </li></ul></ul>
  14. 14. <ul><li>Motivation </li></ul><ul><li>Economic lessons of pre-commercial era? </li></ul><ul><li>Economic lessons of commercial era? </li></ul>
  15. 15. <ul><li>NSF management expanded range of capabilities, but their mission also limited. </li></ul><ul><ul><li>Privatization permitted a new set of participants, and that would expand the range of new uses and new users and new processes… </li></ul></ul><ul><ul><li>Beyond proof of concept at a large scale… </li></ul></ul><ul><li>Side note: Transition to commercialization very challenging for gov’t managers. </li></ul><ul><ul><li>Lack of experience w/apps for non-research. </li></ul></ul><ul><ul><li>No experience w/contracting b/w many carriers. </li></ul></ul>
  16. 16. <ul><li>Wide & fast adoption for a reason. </li></ul><ul><ul><li>Supply of commercial Internet did not merely create its own demand. </li></ul></ul><ul><ul><li>More than twenty years of operations and refinement prior to widespread commercialization. </li></ul></ul><ul><li>Browser: another useful invention in long line, and with propitious timing. </li></ul><ul><ul><li>World Wide Web starts in 91. W3C starts in mid 94. First commercial browser in late 94. </li></ul></ul><ul><ul><li>NSF transition finishes in 95. </li></ul></ul>
  17. 17. <ul><li>Integrating innovation into the economy: Revenge of a skunk works. </li></ul><ul><ul><li>Making up for truncated exploration. </li></ul></ul><ul><ul><li>Explore new opportunities affiliated with Web. </li></ul></ul><ul><ul><li>More than just technical exploration. Explore multiple models for conducting business. </li></ul></ul><ul><li>Markets good at sorting out durable value. </li></ul><ul><ul><li>Firm forecasting is necessarily imperfect. </li></ul></ul><ul><ul><li>Despite dot-com speculating and VC fratricide, much of it does remain after. </li></ul></ul><ul><ul><li>39B in just access revenue in 2006. That is big. </li></ul></ul>
  18. 18. <ul><li>Healthy innovative conduct? </li></ul><ul><ul><li>Economic experiments: activity to learn about unknown factor, not learnable in a lab. </li></ul></ul><ul><ul><li>Vigorous standards competition: bleeding edge technologies generally require routine processes, particularly for interconnection w/others. </li></ul></ul><ul><ul><li>Entrepreneurial initiatives: business organization in pursuit of a new opportunity. </li></ul></ul><ul><li>What healthy innovative conduct nurtures: the pursuit of a variety of options. </li></ul><ul><ul><li>When “most valuable” outcome is unknown. </li></ul></ul>
  19. 19. <ul><li>Overcome misunderstandings. </li></ul><ul><ul><li>Firms can over-commit to one technological forecast about direction of change. </li></ul></ul><ul><li>Overcoming organizational inadequacies. </li></ul><ul><ul><li>Lack of “internal champions.” Overcoming excuses, & short-sighted cannibalization concerns. </li></ul></ul><ul><li>Heterogeneity in incentives to invest. </li></ul><ul><ul><li>When unclear which direction is most valuable. </li></ul></ul><ul><li>Sticking point for policy: Interoperability… </li></ul><ul><ul><li>Accumulated coming from a variety of firms, working together…incentives for platform entry. </li></ul></ul>
  20. 20. <ul><li>Commercial era – comparatively low barriers to unrestricted entry for entrepreneurs. </li></ul><ul><ul><li>PSINet, UUNet enter in 89 – interconnection issues. </li></ul></ul><ul><ul><li>Dial-up ISPs entered under rules that prevented local telcos from refusing to interconnect. Allows for the explosion of entry in 1996. </li></ul></ul><ul><li>Comparatively easy to set up consortia </li></ul><ul><ul><li>Plays key role in setting up W3C at MIT. Berners-Lee leaves CERN b/c organization is not helpful. </li></ul></ul><ul><ul><li>Lubricated the establishment of a key standard setting body, accelerates technical development…. </li></ul></ul>
  21. 21.
  22. 22. <ul><li>Two distinct ways for accumulating innovation from dispersed set of innovators. </li></ul><ul><li>Skunk works aimed at demand. </li></ul><ul><ul><li>Inventors assess value from own experience. </li></ul></ul><ul><ul><li>Working prototypes put into operation. </li></ul></ul><ul><ul><li>Technical meritocracy </li></ul></ul><ul><ul><li>But comes at a cost: Truncated exploration </li></ul></ul><ul><li>Market orientation explores range of apps. </li></ul><ul><ul><li>When no monopoly and when interdependence rules nurture entrepreneurial initiatives. </li></ul></ul><ul><ul><li>Appropriate nurturing policies can help. </li></ul></ul>