Evolution Trumps Revolution

Mature network industries are surprisingly resilient when challenged by new technologies. Newspapers, radios and TVs have challenged each other in succession but have ended up coexisting, morphing themselves to capture new niches. Airlines, railroads and motor transportation also coexist, catering to increasingly specialized customer needs. Not only do mature networks adapt and morph, they also improve faster than expected. Meanwhile, new network technologies arrive later than expected. These factors reduce the market potential for new network technologies.

Consider these examples from the communications industry. In 1986, ISDN service was heralded as a revolutionary technology, offering speeds nearly 10 times faster than the 14.4Kbps most modems then offered. By the time a few million customers had signed up for ISDN, modem technology allowed 56.6Kbps speeds. Within a few years, DSL technology had increased residential access speeds by another order of magnitude. Proponents of high-definition TV underestimated the advancements in digital cable and digital satellite networks, and overestimated the rate at which they could get broadcasters to offer high-definition programming.

Seen from the lens of the past, the future of third-generation (3G) wireless networks seems quite blurry. The 3G standard promises multimedia services at speeds up to 2Mbps. Now several years in development, its potential markets are rapidly being captured by adaptation of the existing second-generation networks. One example is wireless LAN technology based on the 802.11 specification family, which allows short-range wireless communications at between 1Mbps and 2Mbps.

Simple Innovations Create Radical Value

The human mind has a taste for remembering important milestones and glorifying a few people. We know that Gutenberg invented the printing press, and Edison the lightbulb. But in focusing on the great technological breakthroughs, we often fail to note myriad small inventions that unlock their practical value. And we focus so much attention on the highly touted killer apps that we often ignore the real killer apps that have more humble origins.

The telephone and the radio both started as modest attempts to improve telegraphic transmissions. The radio had been around for more than a quarter of a century when AT&T started WEAF?the first advertiser-supported station?in New York City in 1922, thus jump-starting the commercial radio industry. Similarly, alternating current, invented by Nikola Tesla in 1888 and ignored by Edison, enabled the transmission of electricity over long distances and without sparks. This simple innovation eliminated the risk of fire and made the mass production and distribution of electricity economically viable.

The Internet seems to be following a similar path. Despite all the fanfare about interactive applications and e-commerce, the killer app for the Internet is the same today as it was two decades ago?person-to-person communication. Although Web traffic is 20 times the volume of e-mail traffic, it is e-mail that delivers the highest value to consumers and businesses. And in the wireless data business, short-messaging service?used to send messages of up to 160 characters to mobile phone customers?is the unheralded killer app, not the fancy mobile commerce, news and entertainment applications that service providers love to talk about. The lesson is that value hides in the strangest of places, and killer apps sneak up on you from directions you least expect.