Creative Destruction is Harder Than it Looks

In “The Jig Is Up: Time to Get Past Facebook and Invent a New Future” Alexis Madrigal criticizes today’s technology start-ups for a lack of innovation. He accuses modern start-ups of tinkering within a narrow mobile/social “paradigm” and thereby failing to break through with the genuine radical innovations of their predecessors (Facebook, Twitter). This criticism reflects a frequently held but unrealistic expectation of frequent disruptive innovations in the digital economy (e.g. innovations that create a new market and/or disrupt existing ones over a short time frame). But is it reasonable to expect a constant and frequent supply of disruptive innovation, and attribute the absence to a failure of entrepreneur imagination?

The short history of the digital economy has already seen Schumpeterian gales of creative destruction unleashed on publishing, music and photography far more profound than either the iPhone or Facebook, examples chosen by Madrigal. This might suggest that they should continue to occur at this frequency. But to predict the future frequency based on the relatively sort lifetime of the digital economy would be to fall victim to the inductive fallacy – the past frequency is not a predictor of future frequency. Despite this the technology press (exemplified by TechCrunch) fuels this unrealistic expectation with a constant stream of news about start-ups expected to be the next big thing. Hysterical news coverage of start-ups began during the first dot-com bubble. The growth of the bubble created a mythology of constant, radical innovations in, which served to explain the otherwise inexplicable IPO valuations.

Despite the later revelation that these valuations were illusory, the mythology continues to be propagated by an uncritical technology media who tell us continually that the next paradigm shattering technology is just around the corner. Madrigal’s criticism seems self-interested – without constant high-profile success stories, people will stop listening to the technology press hype machine.