Two Models of Innovation

A blog about business and economics.
Aug. 28 2012 8:19 AM

Apple/Samsung and Two Models of Innovation

I did a column on the winners and losers in the Apple vs. Samsung verdict. I tried not to do a ton of policy in the column, and just play it as straight analysis. Here on the blog, though, I think we can understand the case as highlighting a disagreement between two models of how innovation happens and what stands in the way. But let's start with the winners and losers. A key point is that Microsoft is a winner since a blow to Android gives their platform a new chance to get off the ground. Beyond that:

Nokia, Microsoft’s key partner on Windows Phone, is a double winner. Nokia benefits from the boost to the Windows ecosystem and also from the fact that as a mobile phone pioneer, it owns a lot of potentially relevant patents. Blackberry maker Research in Motion is also a winner on these same grounds, which is why both companies’ shares started Monday sharply up. The verdict was essentially confirmation that under contemporary conditions, if you want to get in the technology game, a product people want to buy isn’t good enough. You’ll also need an arsenal of patents that you can use in countersuits to force a cross-licensing agreement with the incumbents you’re trying to challenge. Consequently, Samsung’s loss is a huge gain for a product-poor, patent-rich firm like RIM.
Advertisement

Now it seems to me that rewarding patent-rich, product-poor companies is a bad thing. But you might think it's a good thing. In particular, I could see thinking it's a good thing if your model of innovation says that the primary barrier to innovation is that it's expensive. On this view, almost any large organization could make fantastic new things if it was willing to invest the resources. The problem is that it's really difficult to internalize all the benefits of innovation. So it's important to erect lots of very strong patent protections. Part of the genius of these protections is that their value means that a company like RIM retains some financial value even when it stops making products that people like. The key thing is that the investments have to pay off.

The alternative view of innovation is that the primary barrier to great new ideas coming to the fore is that innovation is hard. Most ideas are bad. Most consumers are moderately change averse and don't really want to try janky new products. Large organizations are necessarily run by people who've had success in the past and are now super-busy and perhaps not attuned to the new new thing. In this view, when incumbents fail to innovate it's not generally because they lack adequate financial incentives. It's because for one reason or another they actually can't. They don't have any better ideas. Sony executives aren't sitting around saying "meh, awesome new products just aren't what they once were." They'd love to invest in the next Walkman or PlayStation, but they don't have the products.

On the first view, shoring up incumbents is good because the main risk is that copycats will bleed away the financial returns to innovation. On the second view, shoring up incumbents is bad for two reasons. One is that the new entrants with the good new ideas may simply be locked out of the marketplace. A second is that we may not be able to recombine ideas. What if pinch-to-zoom (iPhone) is a good idea, but so are Android-style widgets that display live information? Well if nobody can copy each other's ideas, then nobody will ever be able to buy a phone that has them both. And that's a huge shame, precisely because good ideas aren't so much expensive as they are straight-up scarce.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

Congress’ Public Shaming of the Secret Service Was Political Grandstanding at Its Best

Michigan’s Tradition of Football “Toughness” Needs to Go—Starting With Coach Hoke

A Plentiful, Renewable Resource That America Keeps Overlooking

Animal manure.

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10

Politics

Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

Hasbro Is Cracking Down on Scrabble Players Who Turn Its Official Word List Into Popular Apps

The Ludicrous Claims You’ll Hear at This Company’s “Egg Freezing Parties”

  News & Politics
Politics
Sept. 30 2014 9:33 PM Political Theater With a Purpose Darrell Issa’s public shaming of the head of the Secret Service was congressional grandstanding at its best.
  Business
Moneybox
Oct. 1 2014 8:34 AM Going Private To undertake a massively ambitious energy project, you don’t need the government anymore.
  Life
The Vault
Oct. 1 2014 10:49 AM James Meredith, Determined to Enroll at Ole Miss, Declares His Purpose in a 1961 Letter
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Behind the Scenes
Oct. 1 2014 10:54 AM “I Need a Pair of Pants That Won’t Bore Me to Death” Troy Patterson talks about looking sharp, flat-top fades, and being Slate’s Gentleman Scholar.
  Arts
Brow Beat
Oct. 1 2014 10:44 AM Everyone’s Favorite Bob’s Burgers Character Gets a Remix You Can Dance to
  Technology
Future Tense
Oct. 1 2014 10:27 AM 3,000 French Scientists Are Marching to Demand More Research Funding
  Health & Science
Bad Astronomy
Oct. 1 2014 7:30 AM Say Hello to Our Quasi-Moon, 2014 OL339
  Sports
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.