Transcript Comments on “The Great Realignment…”

Shane Greenstein
Accelerating Innovation in Energy:
Lessons from other Sectors
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Motivation
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Lessons of pre-commercial era
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Lessons of commercial era
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Internet touched wide breadth of economy
◦ Transformation for better.
◦ Lower prices, new services, efficiencies.
◦ Changed life as we know it.
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Big Question: What economic lessons can we
learn from the Internet for large innovative
efforts, such as in major energy innovation?
◦ Goal today: provide overview of chapter.
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The chapter focuses on two eras, precommercial, and commercial.
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Refined Question: What policies lessons can
we learn from each era of the Internet?
◦ Focus on processes underlying accumulation of
innovation.
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Pre-commercial era.
◦ Lessons for managing dispersed community
exploring frontier engineering/science.
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Commercial era.
◦ Lessons for creating new industry when within
competitive market with widely dispersed technical
leadership.
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Motivation
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Lessons of pre-commercial era

Lessons of commercial era
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Not the Manhattan project, not Apollo
◦ Not a single urgent project in a single lab devoted
to building/engineering a single object.
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Collective invention
◦ Multiple overlapping groups of funders who shape
attributes. Department of Defense, National Science
Foundation, universities & research labs.
◦ Multiple overlapping groups of inventors from
programmers, administrators, and users.
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DOD desired new knowledge & prototypes
◦ Radical technical departures that no existing
military services would produce.
◦ Workable models of s/w-h/w combinations that
supported data communications capabilities, and
(eventually) portable to military application.
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General concepts in search of implementation
◦ Communication along many paths.
◦ Over geographic distance.
◦ B/w computing systems w/o human intervention.
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DARPA modeled on a skunk works
◦ An organizational home for projects of value to
long term mission, not connected to operations.
◦ Not beholden to any short term mission of any
military branch.
◦ Program officers w/strong technical skill picked
researchers/stars, funded their labs/students
w/uncommonly large amounts of money.
◦ Build new research community.
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Satisfying work environment for inventors.
◦ Wild ducks familiar nomenclature from computing.
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Working prototype: unrefined implementation
of designs w/aim to learn
◦ Most skunk works aim for working prototypes.
◦ DARPANET went further. NSFNET went even further.
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When inventors use what they build…
◦ Ideas grow out of own experience, but it has to
work, and work for someone else, and soon.
◦ Users/admins want valuable app (email, FTP, etc.)
◦ Inherited from the university: Technical meritocracy
for keeping/eliminating change/improvements.
◦ Learn to achieve scale.
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Compared to what alternative?
◦ A counterfactual that did not take place, and we can
never observe.
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In 1960s & 70s gov’t funding did accelerate.
◦ Abundant evidence of lack of private firm interest in
the 1960s & some interest in 70s.
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During the NSF era in the 1980s? Yes.
◦ Observers foresaw coming of electronic commerce.
Just not this fast or in this form. NSFNET fostered
multiple pathways.
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Federal funds for Precommerical Internet =
$200m. How could that be possible?!?
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Only from NSF era. Not counting DARPA.
Not counting DARPA failures on other projects.
Benefiting from innovation in computing.
Using existing capital in telephony.
Prototypes cheap to replicate b/c software.
Distributed investment.
◦ Costly part – backbone – targeted by DOD & NSF
◦ Investment in edges (apps, installations) often the
domain of university researchers/admins/users.
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Arises from restrictions on participation
◦ Motivates spinout in the early 1970s.
◦ Eventually transfer of network to NSF management
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New management explores new objectives.
◦ NSF mission: support research. How? Rationalize
network operations. Make accessible to students.
Expands scale and user base.
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Truncated exploration in NSF too.
◦ No commerce.
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Motivation
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Economic lessons of pre-commercial era?
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Economic lessons of commercial era?
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NSF management expanded range of
capabilities, but their mission also limited.
◦ Privatization permitted a new set of participants,
and that would expand the range of new uses and
new users and new processes…
◦ Beyond proof of concept at a large scale…
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Side note: Transition to commercialization
very challenging for gov’t managers.
◦ Lack of experience w/apps for non-research.
◦ No experience w/contracting b/w many carriers.
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Wide & fast adoption for a reason.
◦ Supply of commercial Internet did not merely create
its own demand.
◦ More than twenty years of operations and
refinement prior to widespread commercialization.
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Browser: another useful invention in long line,
and with propitious timing.
◦ World Wide Web starts in 91. W3C starts in mid 94.
First commercial browser in late 94.
◦ NSF transition finishes in 95.
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Integrating innovation into the economy:
Revenge of a skunk works.
◦ Making up for truncated exploration.
◦ Explore new opportunities affiliated with Web.
◦ More than just technical exploration. Explore
multiple models for conducting business.
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Markets good at sorting out durable value.
◦ Firm forecasting is necessarily imperfect.
◦ Despite dot-com speculating and VC fratricide,
much of it does remain after.
◦ 39B in just access revenue in 2006. That is big.
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Healthy innovative conduct?
◦ Economic experiments: activity to learn about
unknown factor, not learnable in a lab.
◦ Vigorous standards competition: bleeding edge
technologies generally require routine processes,
particularly for interconnection w/others.
◦ Entrepreneurial initiatives: business organization in
pursuit of a new opportunity.
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What healthy innovative conduct nurtures: the
pursuit of a variety of options.
◦ When “most valuable” outcome is unknown.
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Overcome misunderstandings.
◦ Firms can over-commit to one technological
forecast about direction of change.
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Overcoming organizational inadequacies.
◦ Lack of “internal champions.” Overcoming excuses,
& short-sighted cannibalization concerns.
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Heterogeneity in incentives to invest.
◦ When unclear which direction is most valuable.
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Sticking point for policy: Interoperability…
◦ Accumulated coming from a variety of firms,
working together…incentives for platform entry.
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Commercial era – comparatively low barriers
to unrestricted entry for entrepreneurs.
◦ PSINet, UUNet enter in 89 – interconnection issues.
◦ Dial-up ISPs entered under rules that prevented
local telcos from refusing to interconnect. Allows
for the explosion of entry in 1996.
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Comparatively easy to set up consortia
◦ Plays key role in setting up W3C at MIT. Berners-Lee
leaves CERN b/c organization is not helpful.
◦ Lubricated the establishment of a key standard
setting body, accelerates technical development….
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Two distinct ways for accumulating
innovation from dispersed set of innovators.
Skunk works aimed at demand.
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Inventors assess value from own experience.
Working prototypes put into operation.
Technical meritocracy
But comes at a cost: Truncated exploration
Market orientation explores range of apps.
◦ When no monopoly and when interdependence
rules nurture entrepreneurial initiatives.
◦ Appropriate nurturing policies can help.
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