Can innovation become so rapid it destroys capital incentives

[Lantern]

@Voyager

You are assuming too much rationality here. Companies may innovate faster than is financially prudent if they fear that some third party, with no installed base, will innovate instead and steal the market.

Well sure this can happen for some time but companies can't sustain high-cost innovation for a long time without a suitable return to capital and eventually the weaker companies will drop out slowing down the innovation. Something like that may be happening in smartphones where there appears to be a new OS announced every month. And some of these new OS's like Palm's Web OS, Nokia's Maemo and Microsoft's Windows Phone 7 have been doing some really innovative things. Samsung also announced a new OS called Bada. And of course you already have several well-established OS's like Symbian, Blackberry, iPhone, Android and Windows Mobile 6.5 (which Microsoft may keep even after 7 is launched). OS's face network externalities big time so you will see consolidation soon with perhaps three OS's dominating and the rest dropping out.

[Voyager]

@Lantern

Well sure this can happen for some time but companies can’t sustain high-cost innovation for a long time without a suitable return to capital and eventually the weaker companies will drop out slowing down the innovation. Something like that may be happening in smartphones where there appears to be a new OS announced every month. And some of these new OS’s like Palm’s Web OS, Nokia’s Maemo and Microsoft’s Windows Phone 7 have been doing some really innovative things. Samsung also announced a new OS called Bada. And of course you already have several well-established OS’s like Symbian, Blackberry, iPhone, Android and Windows Mobile 6.5 (which Microsoft may keep even after 7 is launched). OS’s face network externalities big time so you will see consolidation soon with perhaps three OS’s dominating and the rest dropping out.

Sure. There haven’t been many big shakeouts in tech for a while, but back in the days of minicomputers everyone and his dog came out with a new mini (I used one from Lockheed in grad school) until the losers finally realized it and died - and innovation did slow down, but most of the obvious cool ideas had been done already. Ditto for the early PC market. So I suspect your prediction will come true. Innovation by itself doesn’t do much, and unless it is combined with good execution and marketing it gets swallowed up by others, and the innovator drops out - or the innovation loses out to better ones.