Some technology seems to improve gradually over time, and continuously get incrementally better through small steps.
We call this incremental innovation.
But what about technology which seems to be improving at incredibly fast rates?
Well, this might be due to exponential growth, and is especially likely to happen with newer technologies.
Exponential growth means that instead of a given metric (like “performance”, or “megaflops per dollar”) increasing at a steady pace (such as “improving by 20% every year”), it may reach an inflection point where the improvement improves by a factor of 10 or more each time.
In an incremental scenario, you might go from having 100 customers in one year, to 150 the next year and 250 the year after that.
In an exponential scenario, you might go from having 100 users in one year, to 1000 users the next year, and 100,000 users the next year.
Examples include the historic rise of cryptocurrency values, the number of people on facebook, the number of people with cellular phones, cost of laboratory-grown hamburgers or the proliferation of electrical lighting.
If you chart this progress, it often looks flat for a long time, followed by an inflection point where the graph rises steeply. It almost looks like a “hockey stick”.
This inflection point is often driven by technology which has been in development for a long time, eventually reaching a critical performance metric which or a perceived value threshold before people are convinced to finally buy it. For example, the iPod was enabled by a hard drive which was small and power efficient enough to carry 1,000 songs in people’s pockets, for a price which was affordable enough for consumers.
Every business would love to have an innovation or business unit grow at an exponential rate (unless the business puts its own limits on growth), but there are numerous challenges to predicting which technologies are going to grow at an exponential rate.
One challenge is that before the inflection point, progress may look stagnant while the technology is still in the development phases, especially from a price-performance perspective. Many technologies rely on public funding, and don’t ever overcome the innovation valley of death before a business model is found for them by private companies.
Secondly, it is extremely difficult to predict which innovations will actually be desirable by customers once the technology has matured. Each year, thousands of products are launched which end up not finding a market at all. Before the inflection point, it is almost impossible to predict which technology is guaranteed to be a success.
Finally, another challenge is that any innovation which does grow exponentially will almost undoubtedly attract the attention of other companies who quickly follow and launch their own versions. Therefore, the market can quickly become saturated with competition. If these are enough customers to go around, this might not be a problem, but if the market size is limited, then competition can quickly erode the first-mover advantage.
For some more insights into exponential technologies, check out this podcast interview I did with Duleesha Kulasoorya – Exponential Technology is already here
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