I got an email from Randy Hanker (who is the Princial of Enable Technologies, a PDM consultancy in Vancouver) in response to an earlier post of mine. I had quoted Dr. Paul Kedrosky, as he made the case that in a world where the cost of customer acquisition, data storage, and software infrastructure drops nearly to zero, and the real value of any startup is in the quality of its concepts, access to venture capital becomes a less and less important success factor. Randy pointed me to the November Business 2.0 where it’s suggested that R&D costs have plummeted (as well) because “the user base has become the manufacturer’s R&D lab”.
I hadn’t seen that talkback (thanks for that, Randy), but I had noticed what Randy was talking about, this very interesting change in the way that R&D is being done. Companies (like Konfabulator), are leveraging the community gravitational effect to build active innovation communities around their platform. It’s a popular idea (that often proves hard to execute) that by publishing web service/RESTful APIs, or by open-sourcing some or all of your IP, you can bring value to these communities. The most successful Web 2.0 companies are being proactive and going further, creating forums (fora?) for their customers to add value of their own, strengthening the ties that bind the community to itself, and to the platform.
At the same time, some larger companies are adopting a kind of R&D model that has been popular in the Pharmaceutical industry for quite a while: small companies (like Ludicorp), innovate, creating new capabilities (like Flickr) with only a general idea how to commercialize. Once they have proven they have something of value, a larger company (like Yahoo) acquires them to feed into their “commercialization machine”. As an interesting aside, I’d point out that in addition to looking outside, Google has leveraged their enormous cash resources to create their own internal community of part-time entrepreneurs, who then get “bought” from their current projects to work full time on their new invention; gmail and scholar being two examples that stand out.
It’s easy to see how these two trends reinforce each other: Lots of entrepreneurial activity creates lots of opportunties for bigger players to cherry-pick, and those high-profile success stories encourage yet more activity. It’s when you add venture capital accelerant that the whole thing starts to spin out of control, but that’s another story.
Coming soon: Oprah Winfrey gets it. Jon Stewart, not so much.