The internet is reshaping our economy from one of huge corporations with lots of jobs to huge platforms with lots of income streams

From Innovation and the Bell Labs Miracle in today NYTimes:

Innovation is an important new product or process, deployed on a large scale and having a significant impact on society and the economy, that can do a job “better, or cheaper, or both.” Regrettably, we now use the term to describe almost anything. It can describe a smartphone app or a social media tool; or it can describe the transistor or the blueprint for a cellphone system. The differences are immense. One type of innovation creates a handful of jobs and modest revenues; another, the type Mr. Kelly and his colleagues at Bell Labs repeatedly sought, creates millions of jobs and a long-lasting platform for society’s wealth and well-being.

The conflation of these different kinds of innovations seems to be leading us toward a belief that small groups of profit-seeking entrepreneurs turning out innovative consumer products are as effective as our innovative forebears. History does not support this belief. The teams at Bell Labs that invented the laser, transistor and solar cell were not seeking profits. They were seeking understanding. Yet in the process they created not only new products but entirely new — and lucrative — industries.

Putting aside the obvious rebuttal that large companies like Intel, Microsoft, Apple and even AT&T were once startups, the author seems to confuse “jobs” with “income streams”. For example, it would be easy to dismiss a website like Craigslist as a “social media tool” that has only created a few dozen jobs for its employees. But in fact it has created billions of dollars of income streams for people buying and selling things on its platform. The internet is increasingly reshaping our economy from one of huge corporations with lots of jobs to huge platforms with lots of income streams.

http://procause.com/ matthewhughes

The Craigslist analogy is on point.
http://www.kidmercuryblog.com kidmercury

you are describing the way it is supposed to be, but thanks to bubble 2.0, we are on the path of trying to create mega-corporations again. google and amazon are the last ones that can legitimately play that game. should twitter have 900 employees? or should it be more like craigslist? same with facebook and all the rest. the huge valuations and capital inputs force these guys to go the mega corporate route. but that’s not the way it supposed to work. of course, sooner or later, the correction will come and we’ll get back on track of building an internet with an abundance of small businesses and income streams.

http://www.cdixon.org chris dixon

Couldn’t agree more. I tried to argue precisely that here http://cdixon.org/2012/01/22/revenue-exceptionalism-vs-margin-exceptionalism/(inspired by a great fred wilson post)
Anonymous

+100!

I am convinced that you can drive a phenomenal amount of value from ‘just’ a tiny, agile team of committed teammates. Craigslist, Instagram, Pinterest have all captured tens of millions of users with less than 50 (eg – Insta just hired their 10th employee afaik) folks.

http://www.activetheoryinc.com Alex Gourley

Yep – tech startups are creating value and adding to the economy. But not in the traditional metric of “fulltime jobs provided” – in a new way. I wish we could come up with better vocabulary for this. As it is now, tech startup proponents are stuck saying well understood things like, “startups create jobs!” when in reality by our old metrics they probably destroy more “jobs” than they create.
http://twitter.com/digiruben Ruben M Perez

Great post. I also like the idea of corporations producing products that acts as platforms. The auto industry is producing cars that are serve as platforms for electronic accessories and digital media. I expect that new opportunities will continue to expand.

http://www.ivpcapital.com Michael Elling

All companies have to shift from thinking what products they develop to what experiences they provide the consumer.

Preston Pesek

As smaller teams managing larger platforms continue to disrupt old-model corporations with thousands of employees, I worry about the inevitable seas of people who will find themselves rendered obsolete by these changes. Adapt or die is undoubtedly the cold razor of the real world, and I’m under no illusion that things should be any different. However, I worry that far too many will be left behind. We are all to familiar at the impotence of public policy to address these problems, so I think it’s important that the titans of the new economy find ways to provide, perhaps through the design of their platforms, opportunities for “the rest” to find prosperity if not mere sustenance, else they will be attacked by the mobs along with the rest of the “haves” in the coming wave.

http://www.ivpcapital.com Michael Elling

Large companies need to think digital and empower employees to harvest all their investment in them. Pretty simple; and creates tons of value. http://bit.ly/yD5ljE

Anonymous

I don’t think you can represent the effect of Craig’s List (and by analogy other innovations) without a good deal of research. You can say they created multiple income streams, But many of those streams existed before in classified ads, garage sales etc. Though maybe they weren’t as efficient, you can’t tell without doing your homework. Also what about the jobs at newspapers that the classified ads subsidized that are now gone? You have to take those into account.

Automation (whether mechanical, electronic, or web based) has always increased produtivity and displaces workers. Remember how many people it used to take to grow the world’s food supply? The question is does that productivity open up avenues for those it displaces to become prosperous or not. I don’t think there’s a single answer that fits across every type of innovation.

http://www.cdixon.org chris dixon

I agree. I’m obviously not an economist and don’t have the ability to study e.g. craigslist effect in depth. I wish economists would study this more. I think what is interesting about this new wave of innovation is that it does what tech has always done – make things more efficient – but also is having an additional effect of creating new freelance/parttime jobs, or “income streams” as I prefer to call them. I think we are moving to a new structure and need new ways to talk about it, measure it, etc.

https://plus.google.com/112879998616209951634/posts David Barnes

I agree with you. What we’re seeing is a disruption of the whole concept of “job”. Instead of looking for advertised vacancies, we’ll need to look for our own market opportunities and then find a way to fill them.

There is perhaps some mileage in differentiating between “disruptive innovation” — innovation that changes hole market structures and societies, like Google or Facebook or Amazon, and something like “micro innovation” — an innovative approach that enables a successful business for its founders but does not create income streams for others (maybe like Zynga).
http://www.ivpcapital.com Michael Elling

Economists don’t understand risk. When analyzing something that has happened one needs to account for the fact that everything was unknown before any point in time. Therefore they cannot relate effect to cause (because cause could have had multiple outcomes). I agree with your assessment and what you are really pointing to is the impact of digitization of any business/vertical. http://bit.ly/y8ETYA

http://www.repeatablesale.com/ Scott Barnett

Having worked at Bell Labs in the late 80′s/early 90′s, I was immediately ready to disagree with you…. but after reading the entire article, I don’t think I agree with Mr. Gertner. There was indeed an amazing amount of intelligence and innovation at Bell Labs – but let’s not forget that once the monopoly ended and AT&T had to make it “on its own” that Bell Labs started to get passed around like a sick baby and barely exists anymore. There is no proof that “slow and steady” is any better than “fast and furious”. The most important feature is a culture of innovation, and companies such as Google (and to some extent Facebook) do that as well as Bell Labs ever did.

Anonymous

Really cool to have your perspective on this, but am not sure that I would talk about Google as ‘fast & furious’ anymore. I believe they have done a fantastic job at consolidating one Large market & have a few great apps.

Would you agree that the pace of idea/experiment/test/repeat… in smaller teams is more desireable & fundamentally valueable? Wasn’t Google 1.0, aka Startup Google, trying to sell itself to Altavista before their experiments demonstrated the potential value of the search ads market?

http://www.repeatablesale.com/ Scott Barnett

Good point – I wasn’t implying that Google was necessarily fast and furious all the time, or even lately – but rather taking note that the author seemed to indicate in general that a slower approach was better. I was trying to show that Google can (and has) created a culture of innovation that is excellent, as did Bell Labs.

I don’t know that there is one “recipe” for success in innovation, and frankly the culture supports it more than the pace or size (although I can make arguments for the “right” pace and “right” size to maximize success). My main point was that innovation comes in many forms, and Bell Labs did not have the monopoly on it. They were good at it, but they also had a lot of things in their favor at the time that other companies today do not (e.g a monopoly funding them, direct government investment in infrastructure that they could ride on top of vs. funding themselves via grants).

Anonymous

Gotcha, thanks for clarifying. Agree 100%

http://www.eliainsider.com Elia Freedman

I agree with your analysis but where do people work? We went from employing millions in mom and pop bookstores to employing a few hundred thousand at chain bookstores, to employing a few thousand (if that many) at Amazon.

http://blog.joshhaas.com/ Josh Haas

Great question, something I’ve been wondering about for a while…

Some of it will be more self-employed people making a living via the new mediums (small resellers running their business through amazon marketplace, artists funding themselves through kickstarter).

I don’t know if the numbers add up though, and it’s a very hard transition for a lot of people to make.

One possible solution is to drop the notion that everyone needs a “job” and give everyone a minimum income, funded by taxing (or voluntary contributions from, which might work better) the super-rich. This has huge societal implications though, because a lot of people’s sense of self-identity comes from working, so this would be massively disruptive (potentially in a good way although quite possibly explosively).

http://www.eliainsider.com Elia Freedman

Not everyone is cut out to run their own thing. Most do better working for someone else. As for the “give everyone a minimum income” approach, socialism and communism didn’t work out so well for those countries that tried it. This sense of entitlement we already have is destroying the country.

http://blog.joshhaas.com/ Josh Haas

I’m open to alternative suggestions. I don’t think banning innovation is a good option, nor do I think letting the majority of people starve on the streets is great either (probably leads to anarchy / violence).

I will say I think that the failure of communism doesn’t mean that minimum incomes can’t work: there are some other problems with soviet-style communism such as lack of value on individual freedom, no accountability of the ruling class, political oppression, etc., that are tangential to the economic scheme. I also suspect — although this is more of an optimistic guess — that a feeling of entitlement has more to do with culture and the way things are framed and presented than with the nuts & bolts of the economic system. For instance, I don’t think “I must work to survive” and “I must work to contribute to society” necessarily need to be coupled: there are plenty of examples of trust fund kids who grow up to contribute a lot to society (and of course plenty of examples of ones who don’t).

http://muneeb.org Muneeb Ali

Oh hey, a small group of profit seeking entrepreneurs from the 80s now fund this thing called Microsoft Research that has a $9B R&D budget, doesn’t force researchers to seek short-term profits, and lets them seek and publish the understanding of problems of their choice. Yeah thanks for nothing profit seeking entrepreneurs!

Anonymous

lol!

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Very nice post even i would say that whole blog is awesome.
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http://yallaguy.com aarondelcohen

I think you should expand on this idea Chris.

Chris Dixon

The internet is reshaping our economy from one of huge corporations with lots of jobs to huge platforms with lots of income streams