Big innovation and small innovation

Yesterday at one of our bi-monthly team deep dives at USV, we got into the conversation of essentially “Big Innovation” vs. “Small Innovation”.  Those who have followed USV for some time know that at the core of the investment thesis is a belief in “decentralized”, “bottom-up” innovation — the kind that really became possible with the advent of the web.

Given that, one of the market condition / policy issues that we care about is consolidation and excessive market power — the potential for small players and new entrants to get blocked from a market by entrenched incumbents.  For example, this is why we care about the Open Internet and have supported the FCC’s rules to prevent ISPs and telcos from blocking or throttling web-based applications and content.

This issue, of course, is not limited to ISPs and telcos — there is also a similar concern at the application / platform level: when does Google / Apple / Amazon / Facebook / Uber become too big?  What does too big mean?  What are the risks to “bottom up” innovation when that happens?  What should be done about it?

Which led us to the flip side of the bottom-up innovation argument: the value of “big” innovation — innovation that’s possible because of size and scale.   For example, Uber is able to offer an incredible customer experience because they have invested in building a big, liquid, network (currently at a big big loss, but that’s part of the strategy at this point).  In this case, “big” enables a kind of innovation that wouldn’t be possible otherwise.  The whole world now knows that it’s possible to summon a ride immediately at the push of a button.  That’s a real innovation, with real practical implications for lots of people.

Or take Amazon: their bigness means that I can get almost anything delivered to my house, for free, in 2 days or less.  Embodied in that are huge consumer innovations (I shop very differently than I did previously, and it’s way more convenient), and huge organizational innovations, in terms of supply chain management, logistics, etc.

Or AWS: perhaps Amazon’s greatest achievement has been turning their e-commerce platform into a developer platform.  This was not only a huge innovation for them, process-wise and business model wise, but it has also (as Brittany pointed out) been a total boon to “bottom-up” innovation, by drastically lowering the cost and complexity of building and deploying a web application.  Practically every new startup begins by using AWS for their infrastructure, and some large degree, we can thank Amazon for this gift to the startup sector.

And on and on — it’s relatively easy to find examples of “big” innovations that add up to huge consumer benefit.

Where it gets a little tricker, though, is when you flip the perspective and look at these same big platforms, not from the consumer perspective, but from the supplier perspective.

If you’re a marketplace seller on amazon, or an uber driver, or an app developer trying to get distribution through the App Store or Facebook, you are keenly aware of the perils of relying on a big platform for distribution (e.g., not “being your own bitch“).  The bigger the platform, the more they can offer you in terms of access to customers, but the more control they can exert, regarding pricing and terms.

This is where the tension between big innovation and small innovation lives.

What to do about it?  It depends.  When things become grotesquely anti-competitive and anti-consumer, the government steps in with regulations or antitrust enforcement this is not ideal, but sometimes it’s necessary.  Alternatively, sometimes there’s a market opportunity to serve the supply-side on better terms, as OpenBazaar is trying to do for marketplaces, and as are all of the companies looking to serve workers in the Gig Economy.

What really stands out to me, as I write this, is the tendency for “big” to be great for the demand side, but bad for the supply side.  So, where “bottom up” innovation depends on a thriving and diverse supply side of the market (whether that’s gig workers, content creators, app developers, or users in a social network contributing their content), we need to be on the lookout for ways to make sure that “big” doesn’t get in the way and squelch that.  While at the same time, recognizing that “big” can bring lots of direct benefits to consumers.


  • Sebastien Latapie

    Very interesting topic. To what point is this self regulating – i.e. does the supply side eventually stop participating once the value they receive is too small therefore decreasing the power of the big platform? I’m guessing that is highly dependent on how healthy / competitive the supply marketplace is – e.g. Uber driver isn’t getting enough value anymore on that platform and can seamlessly switch to Lyft.