Why market leaders don’t innovate

“Radical innovation never originates with the market leader” — Jim Utterback, MIT

Did you know Mitch Kapor tried to license 1-2-3 to IBM for $3,5-million in the 1980s? They told him that hardware was a multibillion-dollar industry, and that the market for PC software was only a $50-million industry. IBM later bought Kapor’s Lotus Development Corporation for $3,5-billion.

The point is that IBM missed a fundamental paradigm shift.

Another example: in the late 1800s, the chairperson of Western Union said: “Many of our stockholders have asked me about this new invention by Alexander Graham Bell called the telephone. While we think it’s an interesting curiosity, there’s never going to be a market for that technology, and therefore we have declined the offer to take a licence.”

Or this quote attributed to Napoleon: “What, sir, you mean to tell me that by lighting a bonfire under the deck of a ship, you can make it sail against the wind and the currents? I pray you, excuse me. I have no time for such nonsense.” He then kicked Robert Fulton, the inventor of the steamship, out of his office.

Thomas Edison is an example of someone who started out smart, but later became a market leader. When Edison first invented the light bulb, he invited the press to a demonstration. The market leaders then were the gas companies, selling gas to illuminate streets and homes. One company felt so threatened that it hired an electrician to sabotage the demo. He carried a hidden wire tucked under his sleeve, around his back and out the other sleeve. During the demo he shorted the wire across one of the lightbulbs, in order to cause a short-circuit and turn off the lights.

However, Edison placed a fuse on every fourth light bulb, so only four of the light bulbs went out and the others remained on. There was enough light to see what was going on and they caught the saboteur!

However, 25 years later Edison was the new market leader. An entrepreneur called George Westinghouse was working with Nikola Tesla to promote Tesla’s new AC power innovation, which was better for carrying high voltages over longer distances. Edison did everything in his power to sabotage Westinghouse and Tesla. He electrocuted an elephant to create the image that AC was extremely dangerous. He even helped Westinghouse get its first customer: The New York state legislature bought an AC generator to electrocute felons instead of hanging them.

Edison is remembered as one of the most innovative people in the world. But when he became the market leader, his mindset changed and he resisted radical innovations rather than adopting them.

Anyways, Tesla showed that AC was safe by passing it through himself to power a light bulb.