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« Power to the People | Main

Why The Flow Of Innovation Has Reversed

I had a beer recently with Dave McClure of 500 Hats. As is always the case when I get together with Dave, we had a long, rambling and enjoyable conversation about how the Web is changing the way businesses get built.

At some point, I said that the vector of innovation has changed. It used to be that innovation started with NASA, flowed to the military, then to the enterprise, and finally to the consumer. Today, it is the reverse. All of the most interesting stuff is being built first for consumers and is tricking back to the enterprise. I suggested that one reason this is happening is that the success of a web service is more often determined by its social engineering than its electrical engineering.

Dave immediately said he'd give me three months to blog that before he did. I thought that was generous even for me who doesn't blog easily or often. But just to be sure I make the deadline, here is the post.

The basic insight that the flow of innovation has reversed has been out there as a meme for a while. Fred wrote about it and referenced Esther Dyson's Release 1.0 article. I took a shot at why it was happening; I focused on changes in the way services are built and their complexity. The conversation that Dave and I had was more about how critical the user interface is in consumer facing web services and how that might influence the flow of innovation.

We have marveled more than once on this blog about the remarkable efficiency of Craigslist. That service is essentially a very lightweight governance system that manages an enormous collection of users who contribute all of the content and much of the oversight that makes the service work. It is because Craig and Jim focus on managing the efforts of their users instead of doing the work of those users that Craigslist is so phenomenally efficient. Many of the most interesting web services are like Craigslist, at their core, lightweight governance systems. Facebook and Twitter come to mind.

Even services that do more than mediate communications among their users often depend on users contributing data through their engagement with the service before they can provide value back to those users. Wesabe can only help users understand their spending and suggest ways to do more with less because users share their spending data with the service. Del.icio.us depends on users tagging the Web in order to be able to help users discover sites, services and memes on the web. Last.fm only works because users share their listening behavior with the service.

In the old days, electrical engineers focused on getting computers to work not on getting people to engage with the systems built on top of those computers. The folks that built enterprise software were vaguely aware that their systems had to be accessible to the humans that used them but they had a huge advantage. The people who used them did so as part of their job, they were trained to use them and fired if they could not figure them out.

Today, no one tells you to use Facebook. There are no employer sponsored training sessions on the use of del.icio.us. The burden is on the designer of the system to meet a need, entertain, or inform their users. They also have to seduce those users, hiding complexity, revealing one layer at time, always enticing, never intimidating, until the user one day finds they are intimately familiar with power and the pleasures of the service.

Designing a system that does that is not an electrical engineering problem. It is a social engineering problem. The best social engineers are working today on consumer facing web services. They understand that there is enormous potential leverage in those services. The creators of these services recognize that services like theirs will ultimately disrupt the economics of many, if not most, parts of the global economy in much the same way that Craigslist collapsed the multi-billion dollar classified industry into a fabulously profitable multi-million dollar web service.

So that, it seems to me, is one more reason the flow of innovation has reversed.

September 29, 2008 09:23 AM, By Brad Burnham
Tags: craigslist efficiency innovation

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    43 Comments

      • ^
      • v
      On the other hand, there is absolutely validity to the notion that company management has to move from push to pull based methods of product development and accounting. And if that's what you mean by reversal in the flow of innovation, fine. "Innovation" is kind of a loaded word.
      • ^
      • v
      I'm not completely convinced. Sure, the consumer internet has demonstrated that social networks could be valuable for coordinating activities inside large companies. But most of the technology under the hood was developed and implemented by engineers who had to solve new problems in order to get the thing to work. And those skills, in turn, were developed by working on the cutting edge science and engineering that is taught and researched at universities.

      Has the flow of technology development reversed? Or does it just seem that way to the VCs that are trying to expand the market of consumer internet technology? I remember during the dot-com bubble, there was a moment when all of sudden, it was B2B that was where the money was, not consumer.

      ...and that came right before the bottom hit.
      • ^
      • v
      Great thoughts. I wouldn't say *the* flow has reversed, but that a new flow in the reverse direction has emerged and is slowly validating its power. I for one still think the traditional flow has huge potential with its accidental discoveries, such as that the military-commissioned internet has great consumer/commercial use =)
      • ^
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      Where ever the innovation drive comes from ("top" or "bottom"), only the best will take benefit from it.
      in non-mature industries, innovation is no longer limited to a restricted number of people and companies. Almost anywhere in the industrialized world people and companies can bring innovation as the price to enter the arena in non-mature industry segments has been lowered (especially in web services).
      Just don't try to bring innovation in car design or manufacturing (mature industries), as there the price to enter is higher than ever before.
      • ^
      • v
      Brad - great post and discussion. The idea of 'social engineering' vs. 'electrical engineering' is showing up also in open source and social innovation. What is seems to be pointing to is the prioritization of building the systems/structures for products to emerge vs. focusing on the building the products themselves. Much like you pointed to in Craigslist.

      This is essential as organizations become increasingly dependent on people outside there organization to create the things that create the organization. Clearly important in web2 cos where the user generated content is the thing the company is actually about.

      Another example at the convergence of social innovation and open sources is OpenMRS (http://openmrs.org) which is developing an open-source medical records system that is spreading like wildfire around Africa now. They are finding more and more that what's needed to keep up the growth and success is the competencies of community management - the lightweight governance model you mentioned.

      Great stuff - we still need things that are built by conventional organizations that will do it in conventional ways. But the more that the venture is dealing with changing systems (either they are trying or it's happening around them) the more what you talk about is going to be essential for survival and success.

      Thanks for posting and prompting the discussion.
      • ^
      • v
      This is a very important idea, not least because I f@cked it up in my recent launch. This is the key insight:

      "The burden is on the designer of the system to meet a need, entertain, or inform their users. They also have to seduce those users, hiding complexity, revealing one layer at time, always enticing, never intimidating, until the user one day finds they are intimately familiar with power and the pleasures of the service."

      Once the insight has been made, the solution is obvious. Not sure if I have the jets to get it done, I'm a product guy rather a social engineer. But, they ain't lowering the hoop just because I'm 5' 10". We'll see.
      • ^
      • v
      i loved this comment so much i reblogged it on fredwilson.vc

      nothing like making the mistake to teach a lesson

      i've done that so many times myself
      • ^
      • v
      Fred,

      Thanks! I will keep working the problem. Thanks to Brad Burnham for a
      great article,

      Ted
      • ^
      • v
      My business colleague and I revisit a discussion similar to this one every few months. our conversations center around how this reversal of innovation will affect how firms are financed. Our key conclusions:

      1. microfinance is the first, simplest, and most obvious step. techstars, ycombinator get props.
      2. social capital, rather than a rapidly devaluing US dollar, is what is primarily being invested. we can define social capital as knowledge, trust, experience, one's social network, and other such intangibles that are NOT of a monetary nature. put another way, stuff that cannot be traded.
      3. amortization of social capital is critical. in other words, what are your social assets, and how can you spread them across the widest number of investments?
      4. lots of small bets. consistent with this is making the small bets simple ("just fill out a form to get started!") and liquid, so that people can get out quickly. in other words, private market investing is about to become a lot more like public market investing.
      5. what's needed? private markets that enable liquidity in these transactions. a new stock market, so to speak, so that these small bets can be traded and easily liquidated.
      6. the real issue: creating the governance system that will enable this.

      in sum, my colleague and I view the reversal in the flow of innovation as being deeply connected to the pending disruption of the venture capital industry. however, the pending disruption of the venture capital industry is related to the monetary crisis we now have in the united states (and by extension, the rest of the world). greenspan's inflation of the money supply led to the nasdaq bubble; every bubble has malinvestments, which we saw. greenspan's fed then overexpanded the money supply again to create the housing bubble -- but this also gave VCs too much cash, which is resulting in a new round of malinvestments (though as housing was the primary culprit this time around the VC malinvestment is not nearly as bad....though we will look back upon stuff like electronic hamburgers on facebook and the facebook app craze in general as stuff that should've been created by some kid in a basement, not venture backed firms).

      the ashes need to settle on the collapse of the old system -- the military industrial complex/nasa source of innovation. once that's done, that's when the real reversal of innovation will occur (the game hasn't even begun yet, this is just batting practice). it will not take as long as many suspect; i say 4 years. but oh boy, the collapse that will occur over the next four years is going to be one for the books, no doubt about that one. it's going to wipe out silicon valley and most VC firms as we know it (as silicon valley is a child of the military industrial complex, and that whole tree is getting chopped). the good news is that what arises after the ashes settle will be something unlike anything we've ever seen before. pursuing this disruption to its fullest is, in my opinion, the road to creating "the next google."

      the government issue is the big obstacle. in the united states, anyone who is honest with themselves and aware of the basic facts should be able to agree that government is owned by major corporations (aka military industrial complex), and these corporations control monetary policy and corporate finance -- aka wall street. they are not going to sit by and watch their industry get disrupted by the creation of new private market governance systems. but that old system is in the process of self-destruction, and out of this darkness comes a very bright light.
      • ^
      • v
      I think we should be talking about participants - not - consumers
      • ^
      • v
      You are absolutely right. Consumption is a one way process. What is going on here is clearly two way.
      • ^
      • v
      This trend has been going on since the early days of the personal computer when employees would smuggle a machine into the office to run VisiCalc. The corporate IT managers have throttled that channel but they will never completely shut it down. Innovations that have achieved some traction with consumers will still make it into the enterprise, whether by stealth (cell phones) or influence (all those social media consultants.)

      At the same time, the reduced cost of implementation (Ruby, APIs, Moore's Law) makes it possible to build and launch a consumer service in the interval that an enterprise would still be studying the problem and arguing the "business case." Most of these will fail but out of this Darwinian process some will get big enough to attract the attention of government and business users.

      In all cases, it still takes engineers to build these things but, as you point out, attracting voluntary users puts a premium on building engaging applications. I think it is fair to say that there is plenty of innovation taking place in building those apps,even if not all of them make money until they are adopted by businesses.
      • ^
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      Brad:

      You tell a good story - but disagree with your thesis -

      -So called Innovation from the edge is often technology tinkering for the sake of technology - lacks business case and most times will never find one.
      -Design by social engineering is conversation and brainstorming of the masses, and takes much longer to synthesize into novel and inventive concepts leading to "real" products (Innovation).
      -The past few years Innovation been confused for thinking out loud. Rather Innovation is about transposing those conversations it into a real product (make no mistake - you need the electrical engineer). And it is not happening from the edge as you have extrapolated.

      The flow of Innovation seems to have shifted - but that's the view of a select few in the VC world. Show me how much of this VC funded Innovation from the other direction has created a real economy (and please don't call ad serving a real economy) - and if there is such a thing - Google innovated in that space and owns the product till the next set of innovations perhaps displace them.

      I have been through these cycles and lived life on both the money side and the innovation side. Of late people seem to use the word Innovation and Conversation interchangeably. That's pretty much most of what has happened from the edge Conversations (which you call social engineering).

      The romanticism of the Facebook anecdote is quite frankly laughable. Sorry to be harsh - but you seem think of the audience as peasants when you talk about your social engineering (it is just another conversation).

      Here are a few examples - you should be no stranger to them. Has YouTube, Twitter, Meebo, Ning, and hundreds of others figured out how to monetize yet.... NO they have started a conversation. That's it. It will change the how Innovation happens in an enterprise because the conversations at the edge push them to do what they had been thinking about for a long time. OS, Web Services, XML, APIs all these things were there long before most at the edge knew there was such a thing. BEA, IBM, MSFT and others in that league pioneered these areas long before some these VCs got a driver's license. If anything Conversations (innovation in your terms), are really catalyst for further Innovation but not Innovation in itself.
      • ^
      • v
      Further to the comment above - "Meanwhile, use of Cisco's C Vision, an internal YouTube-like video sharing site, has risen ten-fold in the last seven months"
      http://www.businessweek.com/innovate/next/archi...
      That's an example of the enterprise converting "social engineering" (conversations) into real product - using the electrical engineer for the real Innovation.
      • ^
      • v
      I agree that there is now a flow of innovation that starts with the consumer and is by nature more interesting and appealing to the consumer. But I don't think that this means the flow of innovation has reversed. Instead I believe there are two streams bringing their own benefits to the other, for example bringing community and collaboration into enterprise software, but also bringing the infrastructure, scalability and availability to the consumer web services. The enterprise-down flow is much slower when compared to the consumer-up but it is still very much there.
      • ^
      • v
      Yeah,
      The future is for "social engineers"
      and let me guess:
      YOU are a social engineer.
      • ^
      • v
      You say there are no employer-sponsored training sessions on the use of del.icio.us, etc. Well, there are at my school! I run them in my capacity as E-Learning Staff Tutor. Other than that, great, insightful post. :-)
      • ^
      • v
      Many of the most interesting web services are like Craigslist, at their core, lightweight governance systems.

      Elegant observation Brad. We could probably update Don Norman's canon The Design of Everyday Objects to The Design of Everyday Relationships.

      Today, we're not just designing the bazaars of conversationwe're designing the conversation itself, specifying often intangible and implicit nuances of how people interact and create value together.
      • ^
      • v
      Nice article. There are many important concepts here, but they're at risk of unintentional combination. Many social networking sites were not really 2.0 sites - remember how ugly or sparse myspace, youtube, and facebook were in 2006? A web 2.0 shine did not define them or make them successful, you could even argue that they all succeed in spite of a lack of 2.0 look and feel.

      So was there some innovation that lead to that success? In my opinion, there was indeed innovation in utility and social engagement. Most of the sites brought together people in new ways, presented them and their connections in new ways, and provided a new platform for interaction, sharing and self-promotion. The technology didn't really matter as much as the new opportunities that these services tapped into. People were interested in doing the things that myspace, youtube, and facebook had to offer.

      Efficiency may have mattered, and efficiency is a reason is like craigslist, but the efficiency of myspace and youtube (during their rocket to brand recognition) was far from ideal. I've heard people speculate that the designs were 1) lucky, or 2) intentionally like games. In either case, they worked enough to get them 100's of millions of users and/or content views.

      So in my opinion, it goes back to product utility and social design. Make good product that people can use and love. Give them the tools or mechanisms to share it actively or passively. Learn, analyze, and improve - repeat.
      • ^
      • v
      Now that it is common knowledge that corruption mired commercially driven U.S. system is broke, expect big things from India and China. We don't even build our own TV sets, and cars will be gone to Asian factories soon, so how in hell can we know the problems? We are doomed to a third world status by our greed and sloth.
      • ^
      • v
      "Today, no one tells you to use Facebook. There are no employer sponsored training sessions on the use of del.icio.us."

      Actually, that's not true. There are plenty of "old school" businesses being dragged kicking and screaming into the social media world and lots of "social media consultants" getting paid big bucks to teach execs how to use these tools, so their company isn't the next Kryponite. :)
      • ^
      • v
      Yeah, I'd agree, the technology is the easy part. I advise companies on the hard change management issues facing enterprises today...most are nowhere close to using social media for what it is best used for, creating customer innovation via feedback loops.
      • ^
      • v
      Here is a great example of a web facing travel site that is very easy to use.
      Lifesaresort.com We're still in beta, but launching next month. Viewer numbers are massive YET (5 figs), but pageviews, time on site and bounce rates are all great. Must be the easily accessible videos (content) and design of page. Go figure. We have a bit more new stuff coming, so keep us on your radar screen.
      Best,
      Chuck@lifesaresort.com
      • ^
      • v
      Yes, innovation is in the user experience.

      Like Emil, I really feel that the successful web services will be fueled by a great sense of human psychology and a clear communication of the project social goals.
      • ^
      • v
      I think this could have farther reaching effects on the structure of Venture Capital than anyone has mentioned. It was smart for USV to be small purposely, but maybe that can be pushed even farther.

      It's not there's a new NASA, so much as there's a thousand of them working on less complicated, less capital intensive experiments and purposes. There's a really interesting essay by Ron Chernow in the NYT's Week In Review section yesterday about the critical link Wall Street was to scarce capital back in the day (19thC).

      Today's problems are not as obvious as the need to build factories and railroads though. While the innovation is being reversed, it seems more like Nassim Taleb's The Black Swan - you can't tell which experiment is going to win like you could with making cheap stuff or building a railroad, so more experiments, faster, smaller than the scale of industrial era investments, will increase your chances of portfolio success.

      I think it's a big deal that this is happening and may be a leading indicator of a different way to look for and fund innovation.
      • ^
      • v
      This relates also to the general movement from "planned" and "knowledge based" processes to agnostic approaches - where immediate action response is how you move ahead. In a highly networked environment, everything that happens is co-happening. Nobody knows enough to effectively plan and control complex systems and outcomes.
      • ^
      • v
      I don't think it's innovation that's changed direction: it's product requirements. Now, customers dictate WHAT they want - but you still need the providers to figure out HOW to make it happen.
      • ^
      • v
      I'd consider using "social architecture" instead of "social engineering." At least three reasons come to mind:

      1. The term "social engineering" has negative connotations.
      2. Engineering per se was never about "putting together" of material systems and people... architecture always was.
      3. Social systems are based on metaphors and rhetoric - not on formal logic.

      Notice to VCs - my impression is that most of the newer pure social web companies' founders have backgrounds in humanities... not engineering.
      • ^
      • v
      I agree that architecture is a better word. It also captures the idea of leverage in a way that engineering does not. An engineered system is designed to do something specific, flexibility is seen in some ways as a failure. Architecture on the on the other hand is a framework. It is not deterministic. A well designed social architecture invites participation in a way that multiplies the impact that the original architect acting alone could have had.
      • ^
      • v
      Craigslist is also a fabulous example of the fact that good UI doesn't have to be sexy. The buttons don't need to be round to be functionally phenomenal!

      People need to focus on ubber functionality not ubber web2.0 sexiness.

      Great post. I really would like to have a beer and a tech convo with Dave at some point. Thanks Brad.
      • ^
      • v
      The social context of the social engineers can be as blinding as the old / persistent engineering context.

      So many geeky solutions for geeky problems. Aggregation as a whole category.

      If it's a pyramid, with "NASA" at the top and regular Joe at the bottom, the flow has been reversed, but there is a gap in the middle.

      Facebook, myspace and flirting apps appeal to and are built for the base of that pyramid. Delicious and the rest of 2.0 are stuck at 15% from the top. This is where the social engineers live.

      Your education disruption is the team that seamlessly bridges the gap between "Send Hotness" and Delicious, "one layer at a time. "
      • ^
      • v
      That might be a part of it, but I believe there are other factors that contribute to this as well;

      1) Ease (and lack of needed funding) to launch a consumer facing service

      2) Flow of capital (from banks, to VC's and now to Angels)

      3) The ability for anyone to create a solution to a problem that they have experienced first hand

      www.twitter.com/A_F
      • ^
      • v
      Andy Freeman: Maybe we're using the word "innovation" differently. I like "The act of introducing something new." In that case, you're way off base. Check out http://www.google.com/search?q=nasa's contrib... . or:

      http://www.nasa.gov/vision/earth/technologies/s...
      http://www.thespaceplace.com/nasa/spinoffs.html
      http://www.sti.nasa.gov/tto/
      http://www.nasa.gov/topics/nasalife/index.html

      And yes, I'm biased as a former NASA employee :-)
      • ^
      • v
      > At some point, I said that the vector of innovation has changed. It used to be that innovation started with NASA, flowed to the military, then to the enterprise, and finally to the consumer.

      Huh? NASA didn't produce much innovation. Bell Labs did. Edison did. GE did. Heck, even GM and Ford did. NASA, not so much.

      Even if we restrict ourselves to govt organizations, NASA is behind at least two of the national labs.
      • ^
      • v
      So true ... innovation always flowed from people with names like David Packard, Bill Hewlett, Steve Wozniak, and Steve Jobs ... not large organizations like NASA. Even today, the recent giant leap in Search was given to us, not by 'social engineers', but rather two engineers named Larry Page and Sergey Brin.
      • ^
      • v
      I'd argue that the core of Google's innovation - the PageRank idea - was of a purely social character... based on realising the limitations of the engineering efforts of the likes of Altavista in machine based semantic analysis. The relatively simple counting the backlinks is not exactly an engineering tour de force. Nor is the realisation that links are social gestures. Larry Page is not a geek. He's much smarter than that.
      • ^
      • v
      As an educator I often feel I should get away from the everyday standards that I am required to address and teach more about the new tools for getting, sharing and using the latest information on the topic. I spent Friday sharing Twiiter with my class.
      • ^
      • v
      Tools are great, but you have to know how to read, write and do math before any tool is useful.
      • ^
      • v
      a nice read. thank you

      another important correlation perhaps - the process of innovation in consumer-driven ecosystems is now FAR MORE frictionless.

      primarily because 'user innovation' can be crowdsourced (a function of a good socially engineered system). my point is a bit chicken and egg perhaps :)


      btw, i loved the pattern recognition and insight regarding 'social engineering' and utility. Off topic, but i've been thinking a lot about the value lifecycle and utility of advertising - and how 'social engineering' has re-configured this. Your piece has cemented a lot of my thinking. Once again, thanks
      • ^
      • v
      Brad,
      I worked a for a software company that did everything with an engineering process: creation of long docs specifying features, many meetings, etc. Nothing ever got completed. I'm now in a start-up where virtually all of our development is driven by customer requests and comments on how they use our service (brand monitoring in social media). The dev team implements in almost real time- I am often finding new features during customers demos!
      While we are a B-B company, I think the reversal of the innovation model is definitely driven by the processes you describe.
      You could argue that the failure to recognize this is behind Microsoft's inability to release products that work...
      • ^
      • v
      Great topic! Innovation follows wherever you have a surplus of something that drives the cost dramatically down (which usually happens when capital rushes in to exploit an earlier innovation). Social networks and ad-hoc collaboration are emerging because we have a surplus of personal connectivity; the average smartphone and Google Maps user has the access and connectivity that President Kennedy had during the Cuban Missile Crisis; this round of innovation is focused on exploiting that surplus (and its attendant info-overload) by dividing up the labor of managing and prioritizing the data flood.

      There's lots of unclaimed opportunity out there -- unsolved problems about reputation and reliability, the balance between privacy and collaboration. Just to take the example of comments on this blog -- where's the Disqus for managing your health? That's a task that is ripe for disruption and democratization, if the right balance can be found.
      • ^
      • v
      Disqus for your health is called 23andMe, PatientLikeMe, etc.
      • ^
      • v
      I think we should be talking about participants - not - consumers

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