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The Innovation Question

June 8, 2000 at 12:00 AM EDT

MARGARET WARNER: Both sides in this antitrust case have claimed to be fighting on behalf of innovation in the fast-changing technology and information field. We look at the issue of where innovation comes from and who does it best with Paul Saffo, director of the Institute for the Future, a Silicon Valley technology think tank; Paul Kedrosky, a former Wall Street analyst who teaches information technology and commerce at the University of British Columbia; Rob Enderle, vice president of Desktop and Mobile Technologies at Giga Information Group, an information technology advisory company; and Jaron Lanier, a computer scientist, artist, and author.

Well, gentlemen, we just heard Joel Klein make his pro-innovation argument. As you know, Microsoft has argued that it in fact has always been a champion of innovation in bringing this to consumers. Paul Kedrosky, would you call Microsoft an innovative company? Has it been an innovator?

PAUL KEDROSKY: I would. And the tricky thing in all of this is trying to tie anybody down and get them to answer the question of what exactly constitutes being an innovative company. And I mean in the broadest possible terms, being innovative simply means doing something new, introducing a new product and new services, something that’s new to the world.

And I think at that basic level we can all agree that Microsoft has done that and done that many times. Where things get really thorny, though, is in people trying to figure out whether or not the things that Microsoft has introduced are new enough for them or constitute some kind of radical change in the world and that’s where all the debates start.

MARGARET WARNER: Paul Saffo, is Microsoft innovative enough for you?

PAUL SAFFO: I couldn’t disagree more with Paul. Microsoft is very innovative on the business side, and Bill Gates may be one of the business geniuses of this century. But technologically speaking, Microsoft has never been anything more than a fast follower, that all of their major products have become because of ideas of other people outside the company.

MARGARET WARNER: Rob Enderle, how do you see this question? Do you degree with Paul Saffo that there are two different kinds of innovation here maybe?

ROB ENDERLE: Well, yes, absolutely. I mean, Microsoft has been very good about bringing technologies often developed by others to market. That’s really their strength, they make, you know, millions of dollars on doing things that other companies that might appear to be more innovative haven’t been able to do. But fundamentally here, it’s business innovation is what we’re talking about, the technology has come from others.

MARGARET WARNER: And Jaron Lanier.

JARON LANIER: They’re an embarrassment to the technology field. I mean, everyone who invents technology thinks of them as a disaster in terms of innovation. And in fact, if anything, if they had followed the law, if they were not antitrust violators, they would have gotten nowhere.

MARGARET WARNER: Well, what do you think, let’s go to the question raised earlier. What constitutes innovation in this field? Mr. Lanier?

JARON LANIER: Well, you know, there’s almost a religion around innovation in Silicon Valley, and it’s not just inventing a new device. It’s really reimagining how relationships work between people, how people think, I mean, it’s really quite remarkable, if you think about what’s happened with computers. This hasn’t been a bunch of inventors saying here’s a better mousetrap.

It’s more like something saying how can I turn the mouse into my venture capitalist. People really radically rethink how to live life, and it’s this incredible spirit of optimism that however much we think we understand, however good our lives might be, we can go still further. And that spirit is really what drives the whole enterprise.

MARGARET WARNER: Paul Kedrofsky, would you define innovation in that cosmic sense, in terms of, putting Microsoft aside, in terms of this field?

PAUL KEDROSKY: I think at a 30,000 foot level it’s a fine abstract ideas of what innovation is. But in practice, I think that innovation for businesses constitutes introducing new things that people will actually buy.

It’s fine to have great gadgets hanging around the labs, but if you are asking, you know, a company that has to satisfy shareholders and analysts and everyone else, to introduce these kinds of starry-eyed things, you’re dreaming. I think the reality is that you’re going to see incremental innovations, small things. We’re not going to see Microsoft introduce a new light bulb, but we are going to see Microsoft introduce on- the-fly spell checking. We can quibble about whether or not that constitutes innovation.

And, you know, innovation is very much on that level in the eye of the beholder. But this is the difference between being a commercial company, doing applied research, stuff that has to get sold on the marketplace and bought on the marketplace, and someone else who is doing basic research that maybe some day some how will be useful for someone.

MARGARET WARNER: All right. Paul Saffo, weigh in on this, what is innovation in this field and what does it take for a company to be innovative and continue to be innovative?

PAUL SAFFO: Well, it’s a process of taking ideas and convincing a culture to use them. Jaron is absolutely right, and it’s a very hard process. We’re all fascinated by change, but in fact we hate change. In fact, Bill Gates is just like the rest of us in that regard because he’s a man who really does fear change. It is, innovation is the process of swimming against the resistance to change, convincing us all to do things, and it’s a very tough business. Keep in mind that in Silicon Valley, vastly more companies fail than succeed.

MARGARET WARNER: And how do you think size affects a company’s ability to innovate on an ongoing basis?

PAUL SAFFO: Well, the process of innovation is really an ecology, where there are players of all different sizes. Small companies tend to be the ones who propose a new idea, and the large companies are the ones who dispose of it. The small companies bring in the new things, and then either the small company gets large and moves it outwards, or large companies adopt it and carry it forward. There’s a role for companies large and small in this.

MARGARET WARNER: But, Rob Enderle, are large companies better or less well equipped to continue to innovate?

ROB ENDERLE: Well, generally a large company, as it grows, builds up a lot of people that get good at saying no. By saying no, you really never are proven wrong because the product never comes out, never goes to market, it never fails in the market, and so large companies have a great deal of difficulty taking a concept that is just a concept and deriving it into a product.

They can see a concept that somebody else has actually created into a product and say hey, that could be successful, and because of that, drive that through. Buy the product, buy the company and make that happen. An example would be the strongest labs doing research in large companies; that’s Lucent and I.B.M. However, much of what they develop never makes it out of the labs and actually to market.


ROB ENDERLE: Well, primarily because the separation between the people doing the thinking and the conceptualizing and the people that are doing the activity that actually creates product and takes to it market, the advertising campaign, puts the money behind it and drives it through, there are two different kinds of people and somebody has got to kind of bridge that gap.

And in a small company you get enough emphasis on actually at least bringing the concept to a product concept that it can then be sold to the guys in the large companies that can take them and actually make that into business plan.

MARGARET WARNER: Jaron Lanier, weigh back in on this issue terms of size and maturity of a company.

JARON LANIER: Well, the cliché is that the tiny startup company is the one with the new ideas. But I have to say that some of the large companies have really shown that they can also come up with new ideas. And a great recent example is Sun and Java. Now Java is a special computer language that lets programs exist on the Internet that are as powerful as used to exist only on individual computers.

Sun created it, brought it out. I think one of the problems with Microsoft is actually that Microsoft essentially stifled its adoption by the world, but nonetheless there’s a very dramatic example of a large company playing the innovation game. I think most of the dramatic new ideas come from little companies that then grow big.

MARGARET WARNER: So Mr. Kedrosky, let’s go back to Microsoft and the impact of this case, if the breakup happens, how do you think it will affect innovation, either by Microsoft or one of the two Microsoft’s and the industry as a whole?

PAUL KEDROSKY: Here’s where sort of split from I suppose the Microsoft internal party line, I actually don’t think it’s going to hinder them in terms of being innovative in any practical sense at all. As a matter of fact, I think you’ll have two Microsoft’s, two ferocious competitors running relatively more scared than they are today. And I’ll concede that.

I think that you’ll have the operating system group very much worried about the effect of folks like Sun and Java and driving to do everything they can to make life easier for people who are trying to build things for the Internet, and harder for companies who are trying to compete there, and ferociously competing there, and being as innovative as they can.

And the same thing on the applications side, the other proposed side of their business. So I don’t necessarily think that this is going to somehow destroy Microsoft’s ability to innovate, if you buy the thesis that they were innovative in first place that I sort of argued at the beginning.

MARGARET WARNER: So you don’t buy Microsoft’s argument that the integration of these two sides of the company is what has made it possible for them to innovate, and actually in a practical way bring those innovations to market?

PAUL KEDROSKY: No. In a financial sense I buy that. I understand one side of the business, well both sides have been highly profitable and let them do all kinds of things in terms of enhancing products and bringing new versions of products to market.

But at the same time, I don’t think that separating the two groups is going to change that. I think you are just going to have two groups with a slightly different focus who will still be competing as aggressively as they can and trying to win as much market share as they can in a fast changing marketplace. None of the things that are driving them really have changed.

MARGARET WARNER: Rob Enderle, how do you see this?

ROB ENDERLE: Well, if you think about how Microsoft currently operates, on a regular basis they go through what I call catastrophic reorganizations, that’s a case where people that are doing one job are switched over and end up doing something completely different.

So change is not something that is unique to them. It’s certainly not something that is foreign. But looking at the way the market is today, an operating system unit could better focus on the hardware manufacturers, they need to be recaptured that they’ve been losing to initiatives like Linux, initiatives like Client — initiatives that they haven’t been competitive on. O

n the other hand, the applications unit needs to move a large scale application service providers, and these are people that have never cared much for Windows, and it’s much easier to sell somebody on an application than it is on an application and a brand new platform.

So after the breakup, at least it’s my thought that Microsoft could be more powerful, could be more aggressive, and actually end up being much stronger going towards the future than they currently are today by being the large conglomerate that create products that often don’t work particularly well because they’re so complex.

MARGARET WARNER: Jaron Lanier, this sounds like a pretty rosy future.

JARON LANIER: Yeah, I can’t see any down side to it at al I really think the only person who will suffer from this is Bill Gates and only his ego, not in his pocketbook. I think this is great. They are wonderful people at Microsoft, if their culture changes so they focus a little more on making good products, and especially on quality control, I mean, the real problem with Microsoft has been very low product quality.

And every time your computer crashes, that’s a dollar they didn’t spend on product quality that they should have spent. And I think this could really be a boon for consumers. Every time there is, it’s like pruning a garden, when you have one of these monolithic structures build up, every time it’s pruned down, you have all kinds of new wonderful growth. I think this is great.

MARGARET WARNER: So Paul Saffo, new wonderful growth, lean and mean?

PAUL SAFFO: I’m completely puzzled by why Microsoft is resisting the breakup. The word it grew up in, the desktop, is disappearing. The gales of creative destruction are blowing in every corner of this industry. Their structure is all wrong for the new world, their innovation is faltering, and here amazingly a group of regulators from Washington are teaching the leading technology company how to do technological innovation. I think it time for Microsoft to listen to the lesson.

MARGARET WARNER: All right, thank you all four gentlemen very much.