Innovation faces huge obstacles from Big Tech

The big companies’ own information technologies allow them to maintain dominance, while slowing down the growth of competitors, reducing opportunities for innovation disruptions, the essay said. MIT Technology Review.

Essay author James Bessen, an economist and executive director of the Boston University School of Law’s Technology and Policy Research Initiative, challenges the popular belief that technology creates a breakdown in which the innovation of smaller, newer companies allows them to grow and ultimately beat their older ones. , less productive predecessors.

This type of failure has declined sharply over the past two decades, and Mr Bessen attributes the decline to the dominant companies ’own technologies.

In total, companies (excluding those whose product is software) now invest more than $ 240 billion in in-house software each year, up from $ 19 billion in 1985. “Most of these changes come from large firms,” Mr Bessen writes. “The top four companies in each industry, ranked by sales, have increased their investment in their own software eightfold since 2000, far more than even second-tier firms.”

Dominant companies see a return on investment. Since the 1980s, the four largest firms in each industry have increased their market share by 4-5 percent in most sectors. “My research shows that investment in proprietary software has been the cause of much of this growth,” Mr. Bessen writes, noting that the increase in company dominance is accompanied by a corresponding reduction in the risk that they will be thwarted.

Failures have been declining since about 2000, when leading companies began significant investments in patented IT systems.

“In this industry, the probability that a firm with a high rating (measured by sales) will fall out of one of the top four in four years has decreased from more than 20 percent to about 10 percent,” wrote Mr. Bessen. “Here, too, the investment of dominant firms in their internal systems is largely driven by change.”

How so? Proprietary software and IT reduce complexity management costs; they also allow large companies to scale while adapting to the needs and preferences of consumers with agility. Look at retail: Walmart is quicker to respond to changing customer needs and offers more choices than Sears or Kmart. “Sears has long been the king of retail; now Walmart, and Sears is in bankruptcy, ”the essay says.

“With the right data and the right organization, software allows businesses to tailor products and services to individual needs by offering more variety or more product features. And this allows them to beat competitors, dominate their markets, “- writes Mr. Bessen.

Mr. Bessen is the author of the forthcoming book “New Goliaths: How Corporations Use Software to Dominate Areas, Destroy Innovation, and Undermine Regulation,” with which the essay is published MIT Technology Review adapted. Read the full essay here.

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