Discussion of innovation trends in 6 sectors of the IT industry - compoents, software, goods, infrastructures, services and digital conent.

1. Innovation and Information
Technology Industries
Research Laboratory for the Economics of Innovation, HSE
(and Manchester Institute of Innovation Research)
Higher School of Economics , Moscow 2011
www.hse.ru

2. Outline
• PART ONE:
– IT Industries
– Technological and Service Trajectories
– IT innovation: new goods and services
• PART TWO:
– IT, Innovation and Competition
– Winners, Losers, and Alliances
– Futures of IT innovation
Higher School of Economics, June 2011

3. Before we begin
• Not all innovations come from private industry!
• Knowledge for innovation is often developed in the public
sector.

4. Before we begin
• Not all innovations come from private industry!
• Knowledge for innovation often developed in public sector.
• Major new ways of doing things may be
created in public sector institutions.
• Links to such institutions may be important
for firms – spin-offs, partnerships.

5. What do we mean by
PART ONE
Innovation?
Product Innovation: Making new things (goods), doing new things (services)
Process Innovation: doing or making things in new ways
Realisation of an
idea in a product
Schumpeter,
Freeman, or process that is
OECD Oslo Manual
Invention adopted by
users.
Applic- Develop-
ation ment
All stages require
development and
application of
knowledge and Commerc-
Diffusion
skills ialisation

6. What do we mean by
PART ONE
IT (aka ICT)?
• New Information Technology
• Mechanical and Analogue ways of storing,
communicating, processing information have
been existence since beginning of history
• Many specific innovations in C19th, including
electricity-based ones: telephone, telegraph
as well as mechanical and chemical ones
(phonogram, photogram)
• C20th: electronics – valves and transistors Transistor
1950s
• Microelectronics (and optronics etc.)
VLSI 1968

7. New IT triggers innovation
Technological Opportunities “Swarming of Innovations”
search for
Market Opportunities Invention
Applic- Develop-
ation ment
Problems and
Needs may
trigger search for
solutions-
Technology
Commerc-
possibilities may Diffusion
trigger search for ialisation
problems

8. Cornucopia (Pandora’s Box?)

9. What do we mean by the IT
Industry (aka ICT Industry)?
The Harvard Map
SERVICES (bits)
Communication Information
Services Services
COMMUNICATION INFORMATION
McLaughlin, JF and
Antonoff, AL, 1986,
Information
Inf
Mapping the and Information
information Business. Communication Products
Harvard University Equipment
Program on
Information
Resources Policy,
Cambridge, MA
GOODS/ PHYSICAL PRODUCTS (atoms)

10. PREST
Institute of
IT Industry (aka ICT Industry)
Innovation
Research The Houghton Framework
Legal,
Post, SERVICES (bits) accounting
courier CALL
BASIC HIGHER LEVEL PROFESSIONAL
TELEPHONY TELEPHONY NETWORK SERVICES
SERVICES SERVICES
Communication Information
BCS & Services
LEASED Services COMPUTER,
TRANSMISSION LINE & COMMS &
NETWORKS &
PSDN SOFTWARE
SERVICES
SERVICES SERVICES
CONDUIT, CONTENT,
FORM SUBSTANCE
LINE. SWITCH, LAN,
TRANSMISSION & NETWORK PACKAGED
WAN, DATA SOFTWARE SOFTWARE
BROADCASTING EQUIPMENT
EQUIPMENT
Communication
COMPUTER
Information
SYSTEMS NETWORKED
TERMINAL &
Equipment
EQUIPMENT Equipment
SOFTWARE CONTENT
PERIPHERAL Magazines,
Paper, EQUIPMENT books
filing
cabinets Business forms
GOODS/ PHYSICAL PRODUCTS (atoms)

11. IT Industry Sectors and Products
RELATIONSHIPS
Network (Information)
Infrastructures Services
TANGIBLE
INTANGIBLE
Physical
Components
Information
and Digital Content
Communication Products
Goods
THINGS Software

12. IT Industry Sectors and Products
Network (Information)
Infrastructures Services
Physical
Components
Information
and Digital Content
Communication Products
Goods
Software

13. So the IT industry is very diverse
• Goods and Services, Components and Systems
• Communication, Data Processing, Content Production
• Digitalisation  Convergence
• Different skills, cultures, markets  Collision
• C&C = Computers & Communications; = Convergence & Collision

14. Mergers and Acquisitions –
vertical integration, economies..
Some viewed as successes;
Some disasters;
General impacts on innovation?

15. Lets Look at the various IT
Industry Sectors and Products
RELATIONSHIPS
Network (Information)
Infrastructures Services
TANGIBLE
INTANGIBLE
Physical
Components
Information
and Digital Content
Communication Products
Goods
THINGS Software

16. Physical
Components Components
• PROCESSING: Microelectronic Chips – VLSI – the
core revolutionary technology?...
• CAPTURE: Sensors- semiconductors,
mechatronics, chematronics, etc...
• STORAGE: magnetic memory, electronic
memory, optical memory....
• DISPLAY: CRTs, LEDs, LCDs, etc. (plus audio
etc.)...
• COMMUNICATION: wires, optical fibres, radio
signals....

17. Components: underpinning
trajectories
Gordon Moore (Intel) noted in 1965 that
this ratio was doubling every 18 months
Number of transistors on a chip
People now suggest a doubling
every 2 years
From Wikipedia,
for more and
debate see
http://www.kurzweilai.net/
articles/
1971 1981 1991 2001 2011

18. Manchester
Institute of
Innovation
Impact on Processing Power
Research
100
Millions of
Instructions
per second
(MIPS) 10
1.0
Mainframe
Minicompr
PC 0.1
Embedded
From a .01
Scientific
American 1960 1970 1980 1990
article

19. Rapid Improvement of Other
Components

20. Problem Areas?
• Batteries/power sources.
• Vulnerability to EMP/solar flares/etc.
• Dependence on rare earth elements.
• Fabrication plants also become increasingly
costly.
• Underpin problems in many applications of
these components

21. Physical
Components Implications Physical Goods
• Increases in amount of data that can be handled, in
speed at which it can be handled
• Continuing change in underpinning components
means continual reinvention of products and
creation of new products All sorts of
information
• ...performing new services, and performing are being
digitised,
services in new ways (speed, quality, both from old
information
mobility, customisability) and media
industries,
• IT involves a revolutionary new “heartland” and across
economy.
technology, with applications across the economy

22. Physical Goods
Examples
• Computers
• Digital phones
• PDAs, smartphones, tablets, etc.
• Audiovisual equipment – digital TVs, PVRs, Music
players; consumer electronics (incl. Synthesisers,
cameras....); office and educational equipment
(projectors, smartboards...)
• Products using new IT: “informatised” household
appliances and industrial equipment, new devices in
medicine (scanners), utilities (metering), logistics, and
automated manufacturing ....

23. Manchester
Institute of
Innovation
Physical Goods
Mark Weiser’s View
Research
source: http://www.ubiq.com/hypertext/weiser/UbiHome.html
Envelope curve (systems of all types)
Sales/Year
UBIQUITY:
many
MAINFRAME: one PC: one computers
computer serves ----- computer per person
many people per person
Remore      Local      Mobile      Pervasive

24. Physical Goods
Some Trajectories
• Smaller, more powerful
• Networked
• User Interfaces – “anthropotropic” (Levinson)
• Converged devices (though also specialisation)
• Beginning to see: wearable (implantable?)
• Speech and gesture recognition ((companionable?)
• Many new plastic-based displays and devices;
nanotechnology possibilities
• New applications – health, security, home systems…

25. Networks &
Infrastructure Infrastructure
• Digitisation
• Gilder’s Law - bandwidth triples every 12 months;
Rabiner’s Law -the optical capacity on a single mode
fibre doubles every 10 months. *Metcalf’s Law - the
value of a computer network increases at a rate of the
square of the number of connections.]
• Extension of optical fibre, improved capabilities
• Development of successive generations of mobile
phone and wireless networks
• Satellite systems

26. Infrastructure Trajectories
• Increased scope for connectivity, with wider and
higher-quality coverage
• Cross-network interoperability of devices
• Addressing security and reliability issues

27. Continuing with IT Industry
Sectors and Products
RELATIONSHIPS
Network (Information)
Infrastructures Services
TANGIBLE
INTANGIBLE
Physical
Components
Information
and Digital Content
Communication Products
Goods
THINGS Software

28. Software
Software
• Instructs physical equipment concerning actions
(on/off switches)
• Operating Systems, Applications Development
Software, Applications Software
• Embedded in hardware, installed via storage
media or download, accessed remotely (e.g.
Cloud computing)
• A huge industry (emerged from “unbundling”),
but most small firms are simply customising
applications for end-users

29. Software
Software Trajectories
• Production methods like Software Engineering
& SOA to confront “software crisis”.
• User-friendly interfaces for producing as well as
using software
• Open source and FLOSS production and access
to software
• Efforts to reduce ”bloatware” (impact of
mobiles)

30. Information/
Communication
Services
Services
• Computer Services – remote data processing,
cloud computing
• Communication Services – virtual networks,
social networks, one-to-one and many-to-
many services
• Transactional Services – ecommerce,
reservations and booking

31. Information/
Communication
Services
Services Trajectories
• Location-based (mobile) services
• Natural language processing
• Semantic Web (Web 3.0)
• Context-aware services
• Agents

32. Digital Content
Content
• Digital(ised) Content Production, “Packaging”, Delivery
• Traditional Media – were 1-to-many (digital converts-
sometimes very latecomers)
– Text and Graphics (print media)
– Audio (recording industry, radio)
– Video (TV, Film)
• Information Services (databases, business news (digital
converts and natives)
• New Media (Born digital, digital natives)
– Also Multimedia, videogames, websites...

33. Digital Content
Content Trajectories
• User produced content (Web 2.0)
• Shared experiences
• “Free” content
• Content via narrowcast, P2P, social networks
• “Realism” – 3D, VR,
• Real-time access
• Online storage

34. PART TWO Innovation in Context
• Markets, Competition and
Innovation

35. Successful Innovation
• Diffusion and Adoption of a Product
– Product life cycle and innovation
• Disruptive Innovation
– Often Digital natives versus (would-be) digital
converts or digital deniers
– Sometimes battle between digital platforms
– Can incumbents maintain/regain position?

36. Diffusion of innovation
• Examples: adoption of PCs, mobile phones
Typical
Model of
uptake of an
innovation:
percentage
of market
adopting
Network effects: more people using compatible systems
makes it easier to learn, easier to communicate, share

37. Diffusion of innovation
• Examples: design of PCs, mobile phones
New models? Product differentiation?
Abernathy/ Competition
over service/
Utterback extras
Model of
Product Life
Cycle Dominant
Teece: Design(s)
Competition
stabilisation over efficiency
of design
paradigm
Design flux Competition over
functionality
Increasing user-friendliness, less need for skill, economies of scale

38. Two ideas from David Teece
http://www2.haas.berkeley.edu/faculty/teece_david.aspx
• Stabilisation of design
paradigms
• Complementary assets
– Innovations are rarely
unique; first-comers often
do not succeed in creating
substantial markets; life is
tough

39. Design Paradigm
• Innovation begins when an idea is
commercialised: we can offer this new/better
service
• But just what form does this take?
• Often other firms will be trying to offer similar
services – or if not, and if your idea is a good
one, they soon will.
• Competition at the outset is often about what
design will prevail.
• This may come to be seen as the “natural”
solution – e.g. car or PC keyboard layout.

40. So who wins?
• Not necessarily the person with the technically
best design!
• Not necessarily the cheapest!
• Who can mobilise Complementary Assets –
– Brands, marketing, distribution channels
– Supply chain connections (e.g. hardware, content
providers)
– Intellectual property,
intellectual assets
– Links to users, etc.

41. Successful Innovation - 2
• Diffusion and Adoption of a Product
– Product life cycle and innovation
• Disruptive Innovation
– Often Digital natives versus (would-be) digital
converts or digital deniers
– Sometimes battle between digital platforms
– Can incumbents maintain/regain position?

42. Examples of disruptive IT
Innovation
Comp-
onents • Semiconductors displace valves, LCDs displace
CRTS
Infrast-
ructure • Telecomms networks displace postal service
Goods
• Microelectronic watches, cameras, CD players,
etc. displace traditional designs
• Music/film downloads challenge recording
Content
and film industries, crisis in newspapers (and
now books – already encyclopedia etc.?)
Services
• Travel agents , dating agencies etc.

43. It can be hard for incumbents to
stay in the game
• When there is a new business model, then
adaptability is key – often very problematic
• When there is new technology, then will
usually need to acquire, or form alliances
• Some successes with mergers
• Many problems
• Drives move to more Open Innovation
(alliances, collaborations, etc.)

44. Often mergers fail
Industries, Technologies,
Products, Cultures,
Components Organisation

45. Convergence
Digital convergence: blurring boundaries
(but multiple platforms)
Wars over standards, platforms

46. Finally...
• IT may be used in the innovation process itself
• New tools for innovation:
– Simulation, visualisation, CAD
– Virtual laboratories, networking and division of
labour
• Support for open innovation:
– Collaboration software
– Online crowdsourcing

47. Conclusions
• IT continues to be the source of many promising
innovations
• Even if rapid hardware evolution slows, much scope for
new services and content
• Continuing disruption and opportunities for new
entrants and niches
• Expect moves up and across sectoral categories by
firms from emerging economies
• Requires putting together right skills and knowledge –
of markets and cultures as well as technology and
technique

48. Higher School of Economics, June 2011

49. Digital Populations
• Digital Natives
• Digital Converts
• Digital Deniers
• Digital Excluded