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Ecosystem of innovations



Anyone interested in new technologies knows that the best technology is not always a winning one. We sometimes see new technologies emerge and quickly oust incumbents from the mainstream. In some cases though, it takes decades for them to take off, if they succeed at all. Inkjet printers quickly displaced their dot matrix counterparts, while HD television struggled for several dozen years to make its way into the mainstream. We also have innovative technologies like the Segway, which, though commercialised, have never really gained widespread popularity. Finally, there are those that have never even been commercialised. What then determines the success or failure of a new technology?

This knowledge is vitally important not only to businesses and consumers, but also to governments, which actively back new technologies. For many years, mainstream research focused on the question whether an innovative technology was better than an existing one. It was believed the crucial aspect that can make or break a technology. It was not until recently that researchers discovered that an advantage of one technology over another, though certainly significant, does not fully explain the underlying reasons for its potential success.

Latest research suggests that the explanation for a rise or fall of innovative projects should be sought in the technology ecosystem. To better understand its role and definition, a couple of questions must first be posed. How is a new technology created? What various elements are needed for it to work? How is it used in the context of these elements, or complementary technologies and services? Take an e-book reader as an example. It requires an e-book store, a wide selection of e-books and a method of delivering them to the reader. The same goes for electric cars, which need charging stations and dedicated garages to repair them.

But that is not all. Such ecosystems should be perceived from the perspective of both new and existing technologies. The former often require an entirely new ecosystem: while the technology is ready, its ecosystem still requires certain investments (such as charging infrastructure for electric cars) before it can reach mainstream adoption. Norway is a case in point. The Norwegian government put public funds into building such infrastructure and now 23% of all passenger cars on Norwegian roads are electric. While no electric cars are manufactured in Norway itself, the descendants of Vikings have adopted such cars en masse, which only early adopters have dared to do elsewhere. Despite various incentives for electric cars, there is no other country in the world where the share of such vehicles in all passenger cars would significantly exceed 1%.

As I have already mentioned, when thinking about ecosystems surrounding new technologies, we should not lose sight of the incumbent ones. Sometimes their lifespan can be greatly extended by improving their components or complementary elements. Take cars running on petrol. Ten or fifteen years ago, no one seriously entertained the thought that cars could consume 6-7 litres of petrol per 100 km. Yet improvements in engine efficiency and fuel quality have paved the way for this progress, with further gains expected in the future.

Now, let’s look at hybrids and compare them with electric vehicles. Hybrids are gaining market share much faster than electric cars. The main difference between the two in terms of growth rate is that hybrids are plug&play technologies, which can interface with the existing petrol car ecosystem. The hybrid drive technologies never had to overcome the challenge of having to build a separate ecosystem, an obstacle faced by electric cars, which require a charging station network.

To better understand what determines the probability of a new technology quickly entering the mainstream and upsetting the market status quo, in contrast to technologies which will have to wait longer for their lucky break or will never make it, we should turn to analysing ecosystems. Whether the ecosystem for a new technology is already in place or still poses a challenge, or whether the ecosystem of an old technology leaves room for expansion and adjustment. The combination of the two factors will tell us whether we are dealing with an up-and-coming technology or one that will never gain widespread traction.

Autor: Adam B. Czyżewski, hlavní ekonom PKN Orlen

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