What happened to innovation?

There’s a lot of debate about whether or not the pace of innovation has slowed, and if so, what that means.  After some particularly brutal pitches that felt like Saturday Night Live parodies of startups, I feel compelled to weigh in.  This question cannot be answered with a yes or a no; innovation has slowed dramatically in some areas and gone faster than most people would have thought possible in others.  It’s interesting to ponder why.

We were once great at innovating in the physical world.  Sometimes I stand in Manhattan and think about how amazing it is that everything around me was dug out of the ground, and made with things that were dug out of the ground.  Making an iPhone starts with digging silicon out of the ground, putting some impurities in it and making it into a chip. Then robots, also made with metal mined from the ground, assemble all the chips plus more stuff dug out from the ground to make a phone.

But recently, software (and mostly Internet software) has been the focus of innovation, and its importance is probably still underestimated—there are compounding effects to how it’s changing the world that we’re only now beginning to see.

It’s amazing how fast it’s happened.

In 1990, the Internet was 21 years old and only 2.8 million people had access to it.  (HTML/HTTP wouldn’t be released for another year.)   There are now over 2.5 billion Internet users—a nearly 100,000% increase in 23 years.  Also in 1990, there were 12.4 million mobile phone subscribers.  These were very basic phones, of course—even in 1999, there was no such thing as smartphone.  In 2012, the number of global smartphone users crossed 1 billion, and the number of mobile phone subscribers is much greater.  There are now approximately as many mobile subscriptions (not unique subscribers) as people in the world!

But innovation in the physical world (besides phones and computers) over the same time period has been less impressive.  We went from the first flight with a piston engine to the first flight with a jet engine in about 30 years; 30 years after that we landed on the moon.  Since 1939, jet engines have certainly improved incrementally, but I’m still waiting to travel by ramjet (which incidentally was patented in 1908).  When we made it to the moon in 1969—guided by computers with 64KB of memory and a clock speed of 0.043MHz, similar to a modern high-end toothbrush—people thought the rest of the solar system and the stars were not far off.  We are still waiting.

In the 1960s, oil was our primary energy source, followed by coal, gas, hydro, nuclear, and a tiny fraction of renewables.  Today, the order is…oil, coal, gas, hydro, nuclear, and a tiny fraction of renewables.

Instead of way better ways to generate energy, we talk about reducing usage.  I’m all for conservation, but there’s still something defeatist about it—weren’t we supposed to be generating huge amounts of cheap, clean energy by now? 

There are countless other examples of apparent lack of breakthrough progress in materials science, biotech, food, healthcare, etc.  I can’t order food from a Replicator.  In some ways we’ve even backtracked—I have not been able to travel faster than the speed of sound since I was a kid.   (To be fair, there may be great innovation happening now that is difficult to see.  Innovation often looks like the creation of idle toys while it’s happening, and only in retrospect can we see how important developments really are.)

There’s another important consideration in addition to software/physical—short-term/long-term (or incremental/radically new).  We’ve seen much more progress on things that can be incrementally improved in a short time frame than things that require open-ended, new development.  This is true for both software and physical things.  For example, there are a huge number of people working on making websites really nice-looking and easy-to-use—and they’re doing a fine job—but not very many people working on artificial intelligence.  There are a decent number of people working on more efficient jet engines, but not very many civilians working on replacing the jet engine with something new.

Incremental progress is good—it compounds, and it’s a way to develop great things eventually.  It works a much higher percentage of the time than step change innovation.  It’s certainly the model I’ve observed help many startups reach great success.  The iPhone, which I think is the most important innovation of 2005-2010, came about at least somewhat via compounding incremental progress.  But there were a few critical discontinuities, and Apple took as much time as they needed to figure those out.  They also had the luxury of one guy saying that they were going to do these crazy things like ship a phone with no keyboard running a real OS and require everyone to buy a data plan. 

Part of the reason Internet businesses have been so successful is that it’s easy to iterate quickly with incremental changes.  This makes them appealing businesses.  But there are some things incremental refinement will never get us.

On the software side, it’s relatively easy right now to raise money for a new website or mobile app that brings an existing, offline industry online.  In most cases, this is a real, but small, step forward.  It’s harder to raise money for software companies working on uncertain, long-term, high-reward projects (like AI).  When it comes to hardware, it’s medium hard to raise money for a consumer hardware company, even with a well-understood plan and a short timeframe to ship [0].  It’s very difficult to raise money for a new car company, a new rocket company, a new energy company, etc.

Right now in Silicon Valley, most investors are more interested in your growth graph than your long-term plan—i.e., more interested in the past than the future.  Some possible explanations for this are risk aversion and intellectual laziness.  (Actually, it’s a little better than that—compounding growth is an extremely powerful force, and if investors believe growth will keep going at the same rate, then they can be making a very wise decision.)  This focus makes it hard for companies to raise money if they’re doing things that won’t have a growth graph of any sort for years.

Looking at the past and projecting it forward is good for public market investors, who probably should judge a company on past performance.  But venture investors are supposed to be taking risks on unproven technology and ideas.  Perversely, in the current world, public market investors love to speculate about the future when pricing a stock (sometimes getting themselves badly burned, e.g. the Internet bubble) while most venture investors—the occasional $40+MM A round aside—seem to be leaning in Benjamin Graham’s direction [1].

A two-by-two matrix of progress in innovation (and ease of attracting investment) with software/physical on one axis and short-term/long-term on the other axis looks like this:

 Green is good, yellow is ok, and red is bad.

I don’t think it’s totally correct to say that innovation has slowed—what’s happened is that innovative energy has mostly been directed to short-timeframe opportunities in software.  This is at least mostly rational—honestly, over the last few decades there have just been way more successes in the computer industry than in biotech, cleantech, etc.   The virtual world is far, far less regulated than the physical world, which makes it a less risky place to start a new business.  (Although a very interesting side note is that many of the most successful Internet businesses have been ones that connect the virtual to the physical world in some way.)   And many founders, if you catch them after a few drinks, will often say that they want to get rich in a small handful of years, and timeframes on the Internet are much faster.  Many investors are even worse on this point.

And most importantly, computers are awesome.  Again, it’s not clear to me that we’re worse off focusing our collective energy here, although I do think we should do more on the long-term opportunities.  If the Internet is the most important development of the last 30 years, it makes sense to have most of our best people working on it [2]. 

And now we get to the fundamental issue with innovation today.  People—founders, employees, and investors—are looking for low-cost (and virtual is lower cost than physical), short-term opportunities.  But what causes the low-cost, short-timeframe preference?

For one, there is some deeply human appeal to getting rich quickly, which has probably been around forever.  Investing in software businesses has worked (sometimes), and will probably continue to do so for some time.  Software has been a great place—that did not exist during the physical innovation boom—to direct investment capital.

We haven’t had a really capital-intensive war in a long time, and while that’s obviously great, I am always astonished when I read about how much real innovation has involved the military or national security—it’s hard to get effectively unlimited budgets and focus any other way.  The Internet itself came from the military.

Regulatory uncertainty for non-Internet businesses is another issue, which can at least be improved—although it will be challenging to ever match the freedom of the Internet. 

Perhaps most importantly of all, we can use software to drive innovation in the non-software world by doing as much as possible in software.  We should focus on the intersection of software and everything else—for example, programs that let us do design in software can bring down cost and cycle time.  I believe that short sub-project times are almost always a win, and many companies in the physical realm seem to have long timelines without a lot of intermediate milestones. 

Another thing we can do is to better reward truly long-term investing.  Right now, there’s a focus on the extreme short-term—many investors care mostly about what earnings are going to be next quarter, and the rise in volume of weekly options has been impressive.  Unfortunately, what Wall Street thinks trickles down the pyramid to venture capitalists and even angel investors, so we see a shortening of time horizons everywhere.  This is probably difficult to stop entirely, but I’m sure that a very favorable tax policy on multi-year holdings (and an even less favorable one for short-term holdings) would help. 

Venture funds commonly have a ten year life; lengthening that to fifteen or twenty might help.  I’d also like to see companies move to five- or six-year vesting for founders and employees. 

Or maybe we need a new funding model for radical innovation.  Investment capital will look for the best risk-adjusted return; right now, lots of investors believe Internet companies are it.  As mentioned above, many of the things we consider to be breakthrough innovations with physical things happened before computers, when there was not such a readily available and attractive investment platform.  Investors are often making rational decisions by choosing a shorter-timeframe opportunity that requires less capital.  So maybe the government needs to spend more money on discovery (although right now, it’s decreasing funding for things like the National Labs and the NIH), and maybe there’s a philanthropic model that makes sense.

And there are probably a lot of other things we should be doing too. 

I am a proud child of the computer age.  I can’t imagine life without them, and I’m happy lots of people are working to make them better.  Although it makes sense that most innovation is happening incrementally on the Internet, it would be a shame for us as a species to lose the drive for the sort of discontinuous innovations that got us the Internet in the first place.  I can’t go live in a computer yet, so I’d also like the real world to continue to get better.

Thanks to Jack Altman, Patrick Collison, Kevin Lawler, Eric Migicovsky, Geoff Ralston, and Nick Sivo for reading drafts of this.

 [0] ]It used to be really hard, but preorders have made it easier.  For example, Pebble was unable to raise money from investors until they no longer needed it—they collected more than $10MM in effective preorders on Kickstarter.  But until then, investors dismissed them, saying “we don’t like hardware.”

[1] No disrespect to Color’s investors—they believed strongly in something radical, without a growth graph, and took a big capital risk.  I’d be happy to see more of that, but maybe for different sorts of companies.

[2] Talk about STEM—the study of science, technology, engineering, and mathematics—is mostly BS.  Learning to hack Rails in ten weeks is regrettably a good career move as of June 20th, 2013.  Learning physics over ten years has a much worse economic payoff.  In today’s world, we have programming, and we have everything else.  At least in terms of a plan to become qualified for better jobs, STEM should be renamed CS.

As a side note to the side note, I don’t blame finance for stealing our good engineers.  The failure is that non-CS engineering career paths don’t look very attractive right now.

98 responses
You almost had it there. The thing your article is missing is an understanding of the impact the science of economics has had on this, and the power that government has to stifle innovation. Nuclear is safer and cleaner and more cost effective than all of the other energy systems (though not appropriate for cars, of course) yet government regulatory burden, driven by "environmentalist" (who are advocating an anti-environmental position here) hysteria has resulted in nuclear being stuck with unsafe actively managed designs from the 1940s, rather than safer more efficient pebble reactors that cannot melt down. Further, we've seen a significant erosion in property rights, where a company that *does* spend money doing fundamental research and innovation, such as Apple, sees its work completely ripped off by google in a few years, and rather than seeing this as a problem, google has successfully started a movement to abolish patents (after starting a patent war by suing Apple (via motorola) for violating FRAND patents it never allowed Apple to license in the first place) Yet there are scores of ideological "Geeks" who think Apple is the bad one here. So, economics and politics have driven our society away from freedom and capitalism (really two sides of the same coin) towards regulation, control, and socialism. I don't see this changing since the schools (socialist institutions themselves) teach kids that government is good and that they should fear "greedy capitalists" while unchecked, unregulated government politicians will protect them with regulations that, of course, could never be written out of self interest, right? The short answer is, event the brightest in raw brainpower have been hobbled by an ideology that is anti-innovation. And so, until innovation is valued and freedom returns, the direction of the USA will not be positive.
I think I owe you another concrete example. We were able, at great cost, to get to the moon in the 1960s, driven by government. But that achievement did not come for free. In fact, it was not even efficient. In order to achieve it, they took $1T or more out of the US economy at a time when that money would have gone to move many research projects forward. They burned it up in an economically unsustainable effort whose primary result was bragging rights... and a bloated NASA that had regulatory power over access to space, extending to the present day. This was literally the destruction of a significant percentage of the economies value. The rockets and capsules were not reusable and not economically viable, and thus never contributed to economic growth (real sustainable profitable growth.) If that money had been left in the economy, it would have been reinvested in research and improvements in productivity which would have a positive compounding effects over the years. It's quite reasonable to speculate that if we hadn't diverted such resources, the economy would have grown significantly faster (and we could have likely avoided the economic collapse in the 1970s completely) giving us the personal computer in the late 1960s or early 70s, and the smart phone in the 1990s and a viable, commercial, space program in the early 2000s. By this decade we could have had hotels in space, and companies like planetary resrouces (which would have been founded 15 years earlier) would be working on expanding their base in the moon and sending robot probes to mine the asteriods. The impact of not doing the space race would have been a double whammy-- lower regulatory burdens (because NASA was not around to have a monopoly on space access to protect) would have delivered to us common folk access to space in a commercially viable way.
Sam Altman upvoted this post.
Incidentally, I recently read a piece about flight and why there's no ramjets, pulse reactors or generally, supersonic airliners. It's all a matter of cost: for most people saving 1h of their flight is not worth 200$ in an airline ticket (these numbers are just out of my hat, no connection to reality whatsoever.) The barrier of sound is not exactly a metaphor: for a plane to "break it" it needs more energy, which means more fuel and thus a bigger combustible bill. So the focus went to making engines more fuel-efficient (which probably means we could be flying at Mach 2 with the fuel efficiency of airplanes of the 70s) and not faster. I think a small innovation here is possible: think about how long a flight takes from your home to your destination hotel. And which % is spent getting the check in ticket/delivering baggage, passing through security checks, getting to the gate, finding your seat and waiting for the plane to take off (and the same process with arrivals.) Isn't there quite a big chunk of time to improve here? This is just a side point to your article, though. The focus is innovation... To get back in subject, I agree we are in a world were most things are incremental improvement. But incremental improvements are what most people are capable of: big leaps are usually reserved to geniuses. The slide rule was slowly improved until the 7-8 scales in just one... And then HP beat them all with a pocket calculator (against all odds: IIRC they were told there was no market for them!) As Henry Ford put it (or is it apocrypha?,) in their time people were asking for a faster horse, not a new transportation method. Now we do have a faster horse and are longing for the new jump ahead. Thankfully there are some people working in these jumps, but the chatter of the small hoppers just keeps them silent. We just need to wait to see them up (or join them in their jumps.) Ruben
Y Combinator upvoted this post.
Garry Tan upvoted this post.
You really nail it with your statement about our focus being short-term or "surface." Why innovate, when you can develop a phone app based on buzzwords? This one doesn't just check you into a location, it checks you in and lets you post a short audio/video snippet. Oh wow, what a new idea! We laugh, but the guy who came up with it is now retired along with his staff. To my mind, the real innovation is going to come in an understanding of how we organize what we have, not in invention of "new" technologies that are reconfigurations of our 1970s and 1980s technologies.
Engineer, You say an erosion of property rights is to blame for low innovation. It sounds like you mean patents and copyright, in which case I would argue exactly the opposite. Technologies only proliferate when they can be used in new works. When existing techniques and innovations are not used, is it because the cost associated with the copyright and patent regimes were greater than blazing a new trail. It seems obvious to me that if we each had to reinvent the wheel every year, we never would have gotten to the moon. Your right about one thing: governments are interfering. They are irrationally pushing "intellectual property" hard, and guess what: we are feeling the slowdown. The answer to the slowdown? Stop pretending ideas are property.
Dear Sam, I'd keep it short and simple. Respect thy audience says Edward Tufte. None of your readers are stupid. We all know what works better in the long-term and how we'd have to mold ourselves if we were to pursue them. But when you look at highly educated individuals like yourselves build short-sighted mobile gimmick called Loopt and later get acquired by Green Dot Corp for over $40mn. You lost all the rights to talk about what's ideal and good in the long term. We are no different than what you used to be pre-loopt days. Trying to hit the home run and bring the jackpot home. Once I've that level of reserves, I'll be thinking bold and long-term and so will be hundred others. No one should feel guilty of doing the right thing at right time. - Work-in-Progress p.s. Do you know there are individuals working in the Wall St. who donate more than 50% of their earning towards charity?
Great post. Definitely agree on the rails v. hard science aspect. One thing though that gives me a lot of optimism is that there seems to be an increase in founders and investors who made ridiculous money off of software investing in the real hard non-continuous problem space (think Elon Musk / Larry and Sergei). I think that there might be enough fast money made by young folks in tech that then gets turned on more intractable problems. Since these people are smart, wealthy, and young, they can afford to tackle these problems and seem to enjoy doing so. That said, relying on common personality traits of a certain profession doesn't seem like the wisest social policy. To address 'Sam "Hypocrite" Altman': I don't think that Sam would defend Loopt as being on par with the potential benefit to humanity or engineering difficulty as something like SpaceX or Tesla. He loses no bearing in making an analysis of the innovation space by having participated in the fast-returns end of that innovation space. It seems suspiciously like you are irked at your "gimmicky" toy not panning out 40mil, which is unfortunate.
An unstated assumption of this post is that technological breakthroughs will be coupled with the business entities that bring them to market. Endeavors optimized for making money will always think short-term, because you can only spend money in the short-term. (Life is short.) A lot of progress in AI comes from academia. In general, academia has a lot of *very* intelligent people working on speculative, long-term technological breakthroughs. They are not included in your "founders, employees, and investors" enumeration of people who innovate. Startups are risky enough, even when you think short-term and care only about money. Ambitious research is risky enough, even when you have the safety of academia or a corporate research group. Must it be true that they can be combined profitably? Curious to hear what you think.
Innovations like : Leapmotion but a million times larger volume. Synthetic life for unlimited energy and resources. Anything that would enable humanity to escape the tyranny of consumerism Creation of synthetic consciousness capable of surviving space travel Massively modifying human genes to create new humanoids Developing a detergent bacteria that consumes oil instantly and makes it inert Call me! I need lots of solutions - money is no object
Partly, the innovation in Software, is because of all the bubble thats going on. Since Google and Facebook have earned billions, the number of startups have drastically increased. Also because of how cheap it has become to own a Cloud server, and start deploying apps, that can be accessed by anyone using a Internet connection. Anyone, who has a Laptop and wifi connection can create a app, that can be used by anyone sitting any where in the world. That is the true power of internet.
Braid Labs upvoted this post.
Geoff Ralston upvoted this post.
Yes, let's stop thinking ideas are property and weaken IP rights and we can have unbounded technical innovation! That's clearly why China is producing so many awesome new original technologies every year!
Regarding supersonic aircraft, there's two other reasons that they didn't catch on besides the high fuel costs. First, sonic booms are loud, and people who would be living under the flight paths didn't want to suffer them. It's a legitimate complaint, but it restricts supersonic travel to transoceanic routes. This also means that airlines would have to support both supersonic and subsonic aircraft to cover both international and domestic business, and that makes things more costly and inefficient for them. Second -- and this particularly applies for hypersonic aircraft like Reagan's promised but never-delivered X30 Orient Express that would fly from New York to Tokyo in two hours -- is the problem of jet lag. A business traveler (and that's who it's going to be -- tourists almost invariably try to travel cheaply) who leaves New York at 9AM EST would arrive in Tokyo at 10PM JST. Going the other way, leaving at 9AM JST would arrive in New York at 11PM EST. If you're doing a trip, it's because you want a face to face meeting. All participants will want to be fresh for it. But it's impossible to do without building in so much time to adjust to local time that there's no point in making the trip so quick. This also has the effect of limiting the windows when it makes sense to schedule flights. Oh, and Kinkfisher: Copyrights and patents, if they produce no benefits to society (namely, spurring the creation / invention and publication / disclosure and bringing to market of original works / useful, novel, nonobvious inventions, which otherwise wouldn't exist) greater than the costs they incur, shouldn't be granted, surely. If they do produce a net benefit, then they should be tweaked so as to produce the greatest possible net benefit for society. Going beyond that would be a bad idea; suboptimal at best, and if taken too far, worse than not having such laws at all. Unless you think that our laws as we now have them are absolutely perfect, there's room for improvement. It is possible that some of this improvement would involve scaling them up in some directions, and down in others. For example, patents don't seem to have benefits greater than their detriments in the software and business method fields, at the current time, since there's so much inventive activity there anyway. We could probably eliminate patents in those fields, while retaining them in other fields, and see an overall benefit. Few people are arguing for complete abolition, so you needn't bother with the straw man.
Niclas Pfeifer upvoted this post.
Tesla Space X Virgin Galactic MakerBot Pebble Lockitron etc... I think we're all good here...
Here's some free code for you: while( humanityExists ) { makePhoneFaster(); makePhoneSmaller(); makePhoneSmarter(); makeHumanSlower(); makeHumanLarger(); makeHumanDumber(); addCameraOrTelevisionToRandomAppliance(); makeBelieveThatInnovationStillExists(); }
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