The Internet as an Engine of Innovation

Co-Invention & Web-Based Entrepeneurship

The rate at which the Internet can contribute to the economy is generally dependent upon the rate of co-invention, the development of novel content, applications, and transit techniques. If such co-invention is limited through forms of centralized control that discriminate against innovative uses of the Internet, then the Internet’s general positive impact on economic growth will slow.293

Many of the most celebrated online innovators driving the co-invention that has contributed to the pervasive economic impact of the Internet were not well resourced from the outset. These innovators succeeded because they could rely on a neutral platform to launch and further develop their services. As World Bank researchers Qiang, Rossotto, and Kimura note, the Internet enables “individuals outside the boundaries of traditional institutions and hierarchies to innovate to produce content, goods, and services.”294 The structures of the Internet are what have created this potential for innovation: its decentralized and modular architecture means that developers can work with a single component without needing to coordinate with, or get permission from, network operators. The ability to develop modularly is possible with the Internet because power is diverted away from those who operate the network to the developers of different modular components, like individual applications and services.

To date, the Internet has predominantly operated as an open, nondiscriminatory platform — otherwise known as a neutral network — that grants full access to everyone. This framework possesses an ‘edge orientation,’ enabling complex operations to occur at the edges of the network while maintaining the relative simplicity of the Internet core itself. Those working at the edges of the network have been able to innovate without permission; Tim Berners-Lee, a pioneer in the development of the Internet, did not have to ask network operators whether he could create and release his software that enabled the World Wide Web (HTTP protocol). Berners-Lee is now a vocal supporter of maintaining this basic architecture.295 Other examples of innovation enabled at the edges of the Internet include search engines — most notably, the one created by college-aged inventors that has since become Google. Two prominent Canadian projects that benefit from the Internet’s edge orientation are NowPublic, one of the world’s leading citizen journalism websites, started in Vancouver, and Hootsuite, one of the world’s most successful Twitter applications, created by the Canadian startup Invoke Media.

First-generation Internet applications, such as Google, competed and succeeded based on their ability to satisfy a user need. Bound by common carrier provisions — which require ISPs to charge fair prices, serve their customers without unreasonable discrimination, and provide service “with adequate care, skill, and honesty”296 — network owners could not discriminate against this first-generation of new services. Emerging Internet businesses have relied on a neutral network to lower start-up costs and compete with older, larger, and more established companies online. An economy of digital abundance and platform neutrality — where the marginal costs of service delivery and copying content border on zero — encourages exploration and experimentation. Such an environment has allowed businesses like Google, Facebook, and Canada’s Hootsuite to become hugely successful.

Leading Users and Stickiness

For Canadians to be leaders in the global digital economy, the Internet must enable and facilitate the actions of ‘leading users.’ Eric Von Hippel, Professor of Management of Innovation and Head of the Innovation and Entrepreneurship Group at the MIT Sloan School of Management, recognizes such users as possessing two key characteristics:

They are at the leading edge of an important market trend(s), and so are currently experiencing needs that will later be experienced by many users in that market. (2) They anticipate relatively high benefits from obtaining a solution to their needs, and so may innovate.297

The Internet enables a democratization of innovation by reducing the costs of entry and extending the possibilities of success. There is a wider diversity of leading users than there are large companies, and their addition to the pool of potential innovators extends prospective research portfolios. If the neutrality of the network is reduced and discrimination widely embedded throughout the Internet core, then ISPs will be in a privileged position. In turn, innovation will suffer because those most capable of innovating will be at a disadvantage.

A key reason why large firms and ISPs are less apt than small businesses and innovators to detect new trends and opportunities is related to ‘information stickiness.’ A unit of information that is sticky is one that is hard for an information collector to transfer from its point of origin to a specified location in a usable manner. Information is also sticky when it is hard to absorb into existing knowledge pathways. In other words, firms may have neither the technical expertise to understand the information, nor the required channels to disseminate information to corporate divisions that can act on it.298

Stickiness creates information asymmetries — asymmetries that innovators often draw upon more efficiently and at lower costs than large companies. In the case of innovative Internet technologies, stickiness is often related to an awareness of which application or content end-users desire (or will desire) and this awareness — for example, the realization that people will love YouTube, eBay, and/or Facebook — is largely dependent upon localized knowledge resources that the intelligence and R&D structures of large firms lack.299 Those who innovate to create the next Big Thing are often leading users or individuals who push the envelope and think outside the box. If large companies’ parochial understandings of market desires limit imagination in certain countries — not only by limiting access to capital but also by restructuring the very nature of the Internet as an imaginative platform — other countries that discourage such technical and cognitive restrictions are more likely to become the birthplaces of future Big Things.300

Since its inception, the Internet’s guiding values have been based on its openness to accept almost any kind of application and device, and its guarantee of neutrality for all traffic transmitted between ends of the network.301 The engineers and regulators responsible for maintaining the Internet have historically safeguarded these values.

As we will argue in the following sections, in order to be competitive in this novel and revolutionary technological space, Canadian innovators must know that they can compete on the same playing field as their international counterparts.

Infringing upon the ability of leading users and innovators to decide how to use the network would significantly reduce the value of the Internet. 302 Integrated architectures are characterized by the ability to identify and control applications, protocols, and physical connections to the network.303 As incumbent ISPs transition towards integrated architectures, they challenge the decentralized nature of the Internet and threaten the capacity for users to choose how to use the network. And this centralized architecture is what ISPs in Canada are undoubtedly moving towards as they deploy technical subsystems that discriminate between different applications.

Endnotes

293. Van Schewick, B. (2010). Internet Architecture and Innovation. Cambridge, Mass.: The MIT Press.

294. Qiang, Z, Rossotto, C., & Kimura, K. (2009). Information and Communications for Development 2009: Extending Reach and Increasing Impact. The World Bank (p. 37). Retrieved from http://issuu.com/world.bank.publications/docs/9780821376058

295. Berners-Lee, T. (2010, November 22). Long Live the Web: A Call for Continued OpenStandards and Neutrality. Scientific American, Retrieved from http://www.scientificamerican.com/article.cfm?id=long-live-the-web

296. Lawford, J., Lo, J., & De Santis, M. (November 2009). Staying Neutral: Canadian Consumers Fight for Net Neutrality. PIAC. Retrieved from http://piac.ca/downloads/NN_Report_MASTER_FINAL_website.pdf at p.4.

297. Von Hippel, E. (2005). Democratizing Innovation (p. 22). Cambridge, Mass.: The MIT Press.

298. See Ibid., pp. 66-70. For more information, see Cohen, W.M., & Levinthal, D.A. (1990). Absorptive Capacity: A New Perspective on Learning and Innovation. Administrative Sciences Quarterly, 35, 569-596. See Henkel, J., & von Hippel, E. (2004). Welfare Implications of User Innovation. The Journal of Technology Transfer, 30(1), 73-87. See Babe, R.E. (1995). Communication and the Transformation of Economics. Boulder, CO: Westview Press.

299. Coase, R. (1937). The Nature of the Firm. Economica, 4(16), 386–405.

300. For more information, see Arora, A., & Gambardella, A. (1994). “Evaluating tecnological information and utilizing it” In Scientific knowledge, technological capability, and external linkages in biotechnology. Journal of Economic Behavior and Organization, 24, 91-114. See Henkel, J., & Von Hippel, E. (2004). Welfare Implications of User Innovation. The Journal of Technology Transfer, 30(1), 73-87. See Melody, W. (1987). Information: An Emerging Dimension of Institutional Analysis, Journal of Economic Issues, 21(3), 1313–39. See also Hayek, F. (1945). The Use of Knowledge in Society. American Economic Review, 35(4), 519–30.

301. Goldsmith, J., & Wu, T. (2006). Who Controls the Internet? Illusions of a Borderless World. Oxford: Oxford University Press.

302. Van Schewick, B. (2010). Internet Architecture and Innovation (p.10). Cambridge, Mass.: The MIT Press.

303. Ibid., p. 217.

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