Do Large Corporations Innovate Anymore?

I refer back to Daniel Miessler a lot as I enjoy his creative and insightful ideas he has on many topics. I was struck by one of his recent podcasts about how Google’s Gmail user interface is so unwieldy and has turned more into a modern Microsoft platform while other mail platforms and innovators are taking off. It made me think, how is it a multi-billion dollar company that relies on its growing user base and was heralded as some of the most innovate companies, stale so bad? There are multiple ways I can slice this, but I’m going to follow this path: 1) Entry 2) Competition 3) Market Saturation 4) Cash Cow. I have to break this up into two parts because my thoughts on this topic are pretty long, but important.

Entry

Entry to the market is a hard one I think most software companies struggle with. There are so many creative ways the company can enter the market with failure one merger & acquisition away. Since much of the entry is based on human capital, a larger corporation with more financial backing can overtake the market relatively quickly to get market saturation and take over the market segment. Keeping up with the companies entering the market, innovating and keeping a market share is one of the most difficult things to do for a startup to do, since there is such a low barrier to enter.

Competition

Many companies just try to avoid competition by either getting into a niche market where there will always be little competition due to the low profits, or invest large amount of capital to gather a market share. I think of Uber, DoorDash or other companies. They squash competition by investing billions of dollars just to gather market share. They don’t care so much for how well the app works. They will make it work, and work relatively well, but most of their investment is in advertising, and gathering a market share. I think only a few companies will do the grind to get to the top slowly.

Market Saturation

After competition in the marketplace has settled down, there’s usually only a few major competitors in the marketplace, leading to market saturation and in my opinion, less competition. Each company follows the price of each other closely, barely needing to adjust price due to the low competition, and low entry into the market. With so much market saturation innovation can stay stagnant.

Cash Cow

While some companies innovate, others just leave it as a cash cow, allowing them to bring in the money, using some of it to boost their profits through stock buy backs, mergers and acquisitions, and as much innovation as their increasing profit requirements allow them to create. Because innovation is expensive, they only use a small amount of their profits to innovate, which makes innovation slow down drastically.

New Startup & Industry Disrupters

The cycle starts over by new companies & industry disrupters entering the market and trying to change the core thinking of the companies. Many times, especially now, these companies, as the cash cows they are now, just buy up these innovative companies and either shut them down or try to incorporate parts of their technology into their platform, with the ability to offer rock bottom prices for those features either by getting money out of the data from their users or bundling into platforms they currently have. With software so easy to integrate with very little capital, it is relatively easy to enter the market by either outspending or buying out the competition since there is so little regulation around these M&A’s.

Conclusion

These five ideas are not new, nor are they the only things the market has to fight with, but I think these reasons are why Google, with as much money as they have, tend not to innovate on products that don’t require large amounts of capital to keep their market share or cash in the positive, and why competition is so necessary to continue to drive innovation. More in part two but for now, this is a good start.