Wall Street unfortunately rewards those that chase earnings and profits quarter by quarter without regard to a long-term corporate strategy. This is no doubt why some of the largest high-tech companies in the world have lobbied for a weakening of the U.S. patent system.
These short-sighted tech companies cannot envision a day when they won’t be dominant. Such hubris can only exist in the absence of reflection and an understanding of history. How many of the once mighty and now fallen tech darlings ever thought they would cease to exist, let alone cease to be dominant?
Kodak invented the digital camera, but through ineptitude and a specific desire to turn back the clock and ignore trends they ceded the industry to others, ultimately filing bankruptcy. The name Wang used to be synonymous with computers, at its peak brought in $3 billion annually in revenues, and employed 33,000 people, but today it is little more than a Wikipedia entry that conveys information useful for a 70s and 80s trivia night contest. Even the trendy Napster became high flying and concerned themselves too much with copyright infringement and completely missed the usefulness of the peer-to-peer file sharing technology it was sitting on. Sun Microsystems taught the world how to turn a multi-billion dollar company into a multi-million dollar company as they shifted away from the hardware and proprietary solutions to embrace open source software. Yahoo! Well that is a special story of boom to bust that nearly defies explanation.
These are but a few examples of high-tech companies that lost. What they all have in common is an unwillingness to plan for the future. In some cases, they hoped to stave off the tides of change to cling to old world models, which have also done in the likes of companies like Sears & Roebuck which at one time was the real world equivalent to Amazon.com. In other cases, they chased fads that seemed trendy; trendy that is right up until the bubble burst. Perhaps CNET summed it up best when talking about Yahoo! The Internet changed, but Yahoo! failed to change and adapt to the new realities.
For a variety of reasons, constantly chasing quarterly profits is myopic, and the type of thing that leads to very bad decisions, and sometimes even unethical or fraudulent behaviors. It also leads to an complete and total inability to plan for the future. But how could it do anything otherwise? If you are only looking ahead at most 3 months you can’t expect to identify or invest in the next big thing, or even have any clue what that next big thing might even be. Chasing numbers quarter to quarter is a recipe for disaster, and is simply incompatible with innovation.
The myopia associated with chasing quarterly earnings isn’t the only short-sighted predilection giant tech companies display. Affirmatively weakening the patent system in order to avoid upstart competitors who are lean, full of ideas, and willing to take risks to succeed is not just myopic, it is plain stupid. Sure, copying the work of others today may make business sense when trying to beat or meet earnings expectations, but expecting others to continue to invest, innovate and take risks when what they produce is simply copied is naïve to the extreme.
Market dominate corporations that are the darlings of the NASDAQ are too invested in old world, or at least older world, business models. These mega-giants do not innovate, they copy. But it should be hardly surprising that mega-giant corporations don’t innovate. They can’t possibly innovate, which is why they not so subtly define innovation not as doing something new, but rather as bringing a new product offering to the market. But when Google and Samsung entered the marketplace with the Android OS smartphones was that innovative? No, not by any proper definition of what it means to be innovative. The fact that the smartphones they sell were new to them didn’t mean they were new to the world or the marketplace. Apple was the innovator, and the rest of the market were those seeking to mimic the innovator. Mimicking is not innovating, and it is rather shocking that the mega-giants of the tech world have been able to convince judges, juries and Members of Congress otherwise.
Large companies simply cannot innovate because they simply do not create an environment that encourages or supports thinking outside the box and taking risks, both of which are absolutely required for innovation. If we want paradigm-shifting innovation, a disruptive innovation that lifts markets and economies for the benefit of everyone, we need policies that reward and even favor individuals, startups and small businesses.
Outside the box thinking and risk taking occurs on the micro level, not the macro level. But again, that should be hardly surprising. When the inventor is fewer degrees of separation away from the manager that can green-light the project more successful projects are undertaken and fewer successes are weeded out. Essentially, minimizing or eliminating involvement of mid-level managers maximizes innovation. For anyone familiar with the comic strip Dilbert (or corporate life in general) this should be hardly shocking. Mid-level managers frequently become allergic to change and risk, which is why they stagnate as mid-level managers. How could any organization with layer after layer of mid-level management ever succeed at creating paradigm-shifting, disruptive innovation?
The lack of ability to innovation and the layers of bureaucratic red tape explains why large corporations that dominate a particular market generally engage in only incremental, sometimes minimal, innovation. Such minimal, or low-level incremental innovation moves at a slow pace, just ahead of consumers becoming disengaged with whatever the current offering presents. Policies that allow this to be the predominant innovation do not benefit society, they affirmatively trap society into cycles of sub-optimal innovation. Such a stagnant innovation ecosystem is the very antithesis of an economy with a strong patent system that recognizes, grants and stands behind strong patent rights.
Simply put, strong patent rights block competition, which requires competitors to push the innovation envelope in order to compete. The strength of a patent is directly correlated with the quantum of innovation that a society will see. As the U.S. patent system has decayed over the last 12 years the U.S. has not seen paradigm-shifting, disruptive innovation, and that is hardly coincidental. As the Chinese patent system has grown stronger, more investment and innovation into areas like artificial intelligence are occurring in China. This direct correlation plays out all over the world, and throughout history. If you want to find a country with weak patent protect look for the countries without a developed economy, and vice versa. It is a near perfect correlation. See Innovation Around the World.
While it seems impossible to believe, the great tech giants of today will either at some time be just ordinary companies that have grown into stable players in mature markets, or they will cease to exist. Burning white hot like a soon to be burned out star, hopefully these tech giants that myopically chase quarterly earnings and are hell-bent on dismantling the U.S. patent system won’t take our innovation economy down with them.