The Schumpeter reading brought to mind other readings I had for Law 2.0 regarding the Innovator’s Dilemma. Schumpeter’s “creative destruction” and Clayton Christensen’s “innovator’s dilemma” appear to be closely linked. The innovator’s dilemma suggests that the relationship of value and innovation is an S-curve. Thus, large incumbent firms that are far along in the product development iteration process struggle to catch up with smaller, more nimble, start up companies that have targeted a different customer base and are reaching the peak of their iterative value. Essentially, large companies lose their edge and smaller companies can come along and disrupt their stranglehold on the market (see Kodak example).
This article discusses how Facebook is currently facing the innovator’s dilemma. The main point is that Facebook cannot wait around and do nothing about the drawbacks to its platform. “For all its vaunted lock-in, if someone can deliver a version of social media that satisfies the market’s needs better than Facebook without its drawbacks, it will supplant Facebook as quickly as Facebook supplanted MySpace.” For now, it appears that Mark Zuckerberg is taking the need to continue innovating very seriously.
Michael, thanks for the shout-out to the Kodak article. What I found particularly interesting about Kodak is that they did in fact at least recognize the threat of digital photography and online photo sharing platforms. The problem was that they did not fully embrace these new innovations; Kodak still wanted to use the film camera in some way. It will be interesting to see if Facebook is able to truly recast itself as new social media sites come into the picture, or, if they, like Kodak, will stay overly enthralled with its current state.
Hmm, I think the Kodak example is a powerful one but I think the Netflix analogy is perhaps more pertinent to Facebook’s situation. There, due to Blockbusters strong hold on the market and unwillingness to develop a secondary market that would possible force them to abandon part of their sales, they lost out on the streaming service market. I wonder how Facebook is analogous as the clients of the site are not necessarily paying less in the same way. For example, Blockbuster was undercut due to the ease of ordering home videos over the mail and streaming services but Facebook is already free and readily available. What is the market edge for encroaching competitors?
Completely agree that the Netflix/Blockbuster analogy is more akin to Facebook’s situation. The Kodak example was just to exemplify the Innovator’s Dilemma, not compare to Facebook. The lack of paying customers is definitely a distinguishing dynamic between Netflix and Facebook. I don’t have an answer to your question…perhaps someone else in the class will!