December 4, 2015


GE didn’t invent the CT scanner. That honor goes to EMI laboratories. Godfrey Hounsfield, the inventor, eventually received a Nobel prize in medicine and a knighthood. Yet the market share went to three manufacturing giants founded in the 19th century, rather than the comparative upstart.

Why should this be the case? Actually, it’s not that rare. Innovators often see some other company reap the fruits of their invention. Sometimes that innovator is outdone by another innovator (think Henry Ford and his assembly line), but established companies also horn in on the market. They have a lot of what economists call “complementary assets” to help monetize the invention: manufacturing expertise, distribution networks, sales forces. This is one reason that biotech firms so often end up getting bought by Big Pharma: The small firm may have a great drug candidate, but the big firm has the cash and experience to take the drug through clinical trials, the manufacturing expertise to make the stuff in large amounts, and the distribution networks to put the stuff in the hands of patients.

So remember that when we ask, “Who is going to control this market?”, that is different from “Who is going to have the breakthrough that gives us a level-four self-driving car?” That company may end up owning the market, or it may end up pushed to the side as less innovative firms copy the advances, and push them out to the market using their complementary assets.

As they used to say in Silicon Valley, you can spot the pioneers — they’re the ones with the arrows in their backs.

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