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The Shackles of Success

Usually, when I have something more important to work on, I like to surf around Quora and see what technology discussions people are having – it’s pretty good for West Coast tech chatter. Here’s an answer I wrote recently to one such question in the service.

Question: Why do big companies lose their ability to innovate?

In the context of technology companies, I call it “The Shackles of Success.” To some extent, as a big company, it’s too risky to innovate. It’s better to acquire innovation.

Once you introduce a product that brings in many millions in revenue from a good number of customers, you’re actually beholden to that success and those customers. Often the customers want you to make the software better, not innovative. They just want it to work. If you went to all the Lotus Notes customers and said “we’ve got this new thing called QuoraForWork so stop using email and use that” you’d loose big time.

And then there’s that revenue. In order to innovate, you have to start with revenue of zero – you need to time to come up with the new thing, test it out, etc. And it’s risky. What if the innovation doesn’t work? So, instead you keep delivering on whatever product brings in the revenue to keep the revenue coming instead of taking the risk to creating new revenue.

Most large technology companies, then, innovate by acquiring – IBM, Oracle, Microsoft, HP, etc. They let other companies take the risks of innovating, and then buy not only technology but (in the bigger deals) market (the existing customers and pipeline of the companies). A smart, big technology company will look at acquisition as an investment, not just a technology portfolio hole filler: if I buy this company, I can get a technology, sure, but then can I pump $200M more into their sales, marketing, and R&D divisions and get 10x (or whatever) ROI out of my investment.

There’s all sorts of anecdotal arm-chair analysis about this method of innovation “working” or not. Google gets a lot of flack for it not working, while people like Oracle and IBM (esp. Oracle!) are really good at acquiring innovation and then squeezing all sorts of revenue out of it.

(There’s several other good answers to the question as well.)

Disclosure: IBM is a client, as is Microsoft.

Categories: Enterprise Software, Marketing, The New Thing.

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