Amazon’s Purchase Of Whole Foods Shows Why Every Industry Needs An Ecosystem
In the 1970s, Route 128 outside Boston was considered to be the center of the tech world. Companies like Digital Equipment Corporation (DEC), Data General and others disrupted the market for mainframes with new minicomputers that were smaller, cheaper and more agile. They seemed destined to dominate the information age.
Yet as AnnaLee Saxenian explained in her classic book, Regional Advantage, by the 1990s, the mantle had clearly passed to Silicon Valley. While the Boston firms were vertically integrated islands unto themselves, the Silicon Valley upstarts worked to integrate themselves into a ecosystem.
As Amazon’s recent purchase of Whole Foods highlighted, today just about every industry is facing many of the same forces that the Boston tech giants did 40 years ago. Unfortunately, many are making the same mistakes by thinking strictly in terms of proprietary advantage rather than building an industrial ecosystem and they will undoubtedly meet the same fate.
How Boston’s Technology Industry Got Left Behind
The technology industry along Route 128 outside Boston, much like Silicon Valley, arose from the nexus of government, academia and venture capital. After World War II, scientists at places like MIT and Harvard were in great demand to fuel the military-industrial complex that was just emerging at the time.
It was with this new environment of opportunity in mind that the American Research and Development Corporation, which many consider to be the very first modern venture capital firm, was established in 1946. Its most successful investment was in DEC, the company that pioneered the market for minicomputers.
As DEC and others grew to challenge the dominance of IBM in the nascent industry, they came to look more and more like the traditional corporations they served. They were hierarchically managed and vertically integrated. Job hopping or leaving to start your own firm was highly discouraged. Each firm was an island unto itself.
Silicon Valley was very different. Set far away from the eastern establishment, it took on a very non-corporate identity. Offices were informal and organizations were flat. Firms were horizontally integrated with local universities like Stanford and Cal Berkeley and with each other. Executives regularly met at local watering holes and attended each other’s lectures. Job hopping and leaving to start your own firm was not only accepted, but encouraged in the culture.
So while the Route 128 firms were building proprietary competitive advantage centered around regional champions, Silicon Valley firms were building a decentralized ecosystem. When the computer industry began changing in the 1980s, the Bay Area was able to quickly adapt, while the Boston firms went into a deep decline and never really recovered.
The New Era Of Innovation
For the past few decades, innovation has become nearly synonymous with digital technology. Startups, first run out of garages then later bedrooms and coworking spaces, would hobble together a solution to an overlooked problem, get some seed funding and scale it up into a significant business. Their agility and drive were hard for a large corporation to match.
Yet for all the bravado about “moving fast and breaking things,” much of this was possible because technology was stable and predictable. Computing power doubled about every eighteen months, energy storage got smaller and more efficient. Software and hardware standards enabled a new product to interact seamlessly with existing ones.
Today, we’re entering a new era of innovation. Moore’s Law, that trusty paradigm that advanced digital technology with such metronomic regularity, will end in just a few years. Lithium ion batteries are also approaching theoretical limits. These technologies will be replaced, but it will take a while before we understand the new paradigms as well as we do the current ones.
At the same time, digital technology is enabling revolutions in other areas. The Internet of Things is beginning to transform traditionally low-tech industries, such as agriculture and construction. Digitally powered advancements in fields like genomics and materials science will revolutionize how we make things.
Building An Industrial Ecosystem
Looking back, the drive for vertical integration among the minicomputer companies seems foolish. Today, just about all the technology we use — from the Internet to computer languages to data protocols — is based on communal, open source technologies. Corporate giants, from Google, to IBM to Tesla, regularly donate patents to the world at large.
They do this not out of some hippie induced altruism, but because they understand the cold, hard realities of business today. No one company — or any institution for that matter — is powerful enough to control ideas. As Sun Microsystems Cofounder Bill Joy famously put it, “no matter who you are, most of the smartest people work for someone else.”
None of this is done willy-nilly, but in an organized fashion. From open source foundations, like Linux and Apache to platforms like Github and WordPress and consortiums like SEMATECH and the Partnership on AI, there are clear rules of governance that allow competitors to collaborate and create the ecosystems needed to advance the field as a whole.
Clearly, the technology industry did not invent the concept of competitors working together to advance common interests. Industry associations like the National Association of Manufacturers and the American Petroleum Institute work diligently to promote the interests of their members, but tend to focus more on lobbying and regulation than on innovation.
Innovation Needs Exploration
Every business is set up with a particular mission in mind. Ken Olsen, DEC’s founder, started the company because he saw the potential for lower end machines to compete favorably with mainframes for many business processes. His focus was to develop talent and hone processes in order to more faithfully deliver on that initial vision.
Like many other organizations, DEC became so focused on that internal mission that it failed to recognize the future is made up of both continuities and discontinuities. While we follow trends and prepare for the most likely future, we also need to remember that there are always things we can’t see. The next big thing always starts out looking like nothing at all.
The truth is that every enterprise is a square peg business waiting for a round hole world. While we must run our operations to serve the needs of the present, we also need to prepare for a future that is inherently unknowable. That’s why innovation needs exploration. Not all who wander are lost. The key is to wander with purpose.
It is easy to look at the predicament of traditional retailers, cowering amidst the Amazon onslaught, with no small amount of schadenfreude, but we need to recognize we all are next. Even, at some point, Amazon. Every organism eventually dies. In the long term, it is only ecosystems that survive.
An earlier version of this article first appeared in Inc.com