What would Joseph Schumpeter (1883-1950) say about BCaster- the role of innovation in platform economy?

1. The question

BCaster is innovating a new type of business model and combining beyond state-of-the art technologies in order to create a new media platform. What would Joseph Schumpeter (1883-1950) say about BCaster? Going back to history one of the most influential economists of the 20th century, innovation researcher Schumpeter popularized the term "creative destruction" in economics, that surely has echoes to the new platform businesses.

2. The history of Joseph Schumpeter

The source of Joseph Schumpeter's dynamic, change-oriented, and innovation-based economics was the Historical School of economics. The theory of business cycles and “creative destruction” is the crux of Schumpeter’s work, i.e. entrepreneurs start new business cycles.

According to Schumpeter’s view in economics, the entrepreneur disturbs the “equilibrium” and is the prime cause of development, which proceeds in cyclic fashion along several time scales. Close to and before Schumpeter, Russian Nikolai Kondratieff's has ideas on 50-year development cycles, (Figure 2).

Kondratieff-waves

Figure 2. Successive waves of technological change- Kondratieff waves

Technology is seen to influence innovation life-cycles. In 2000s platform business and - economy is a potential candidate for the next wave, manifested in progress e.g. in data & AI management, mobile data capacity, cloud computing, development in smart phones. In Schumpeter's view, technological innovation is at the cause of both cyclical instability and economic growth.

3. Type I and II innovations

Schumpeter innovation types were later characterized to mark II and I. Schumpeter was probably the first scholar to theorize about entrepreneurship, and the field owed much to his contributions.

Schumpeter proposed two major patterns of innovative activities. The first one, is named Schumpeter Mark I. According to this view, the pattern of innovative activity is characterized by technological ease of entry in an industry and by a major role played by new firms in innovative activities. New entrepreneurs come in an industry with new ideas, new products or new processes, launch new enterprises that challenge established firms and thus continuously disrupt the current ways of production, organization and distribution and wipe out the quasi rents associated with previous innovations. (Malerba & Orsenigo, 1995)

The second one is labelled Schumpeter Mark II. This is about the relevance of the “industrial” R&D laboratory for technological innovation and the key role of large firms. According to this view, the pattern of innovative activities is characterized by large established firms and by relevant barriers to entry for new innovators. Large firms have institutionalized the innovation process with the creation of R&D laboratories filled with researchers, technicians and engineers. With their accumulated stock of knowledge in specific technological areas, their advanced competence in large-scale R&D projects, production and distribution and their relevant financial resources, they create barriers to entry to new entrepreneurs and small firms. (Malerba & Orsenigo, 1995)

How and why the mark I and II types are then reasoned to exist? The first, and oldest, tradition was centered on the firm. It attempted to describe the role of firm size and of monopoly power in innovation. A second tradition has placed Schumpeter Mark I and II models according to the specific stage of an industry life cycle. According to the industry life-cycle view, early in the history of an industry, when technology is changing very rapidly, uncertainty is very high and barriers to entry very low, new firms are the major innovators and are the key element in industrial dynamics. However, when industry develops and eventually matures, technological change follows well-defined trajectories, economies of scale, learning curves, barriers to entry, financial resources become important in the competitive process, and large firms with monopoly power come to the limelight of the innovation process. (Malerba & Orsenigo, 1995)

4. What does innovation mean in practice?

Schumpeter identified innovation as the critical dimension of economic change. He argued that the bull’s eye of economic change is innovation, entrepreneurial activities, and market power. He sought to prove that innovation-originated market power can provide better results than the invisible hand (Adam Smith) and price competition. However, the concept of innovation is multidimensional, according to Schumpeter (1934, p. 66), an innovation can be a new good (e.g., product), a new method of production, the opening up of a new market or a new source of supply, or creating a new type of organization.

5. Media platform- type I or II innovation, or a missing link to new type?

Media platform business has elements from type I and II innovations, in addition, it has elements of newness, proposing a type III innovation: start-up ideas and consolidation of innovation to a platform, economies of scale enjoyed that is typical for large companies.

Indeed, the idea of a platform is not new, the earliest platforms were market squares, matching buyers and sellers. Eisenmann, Parker, and Van Alstyne, 2006, p.2 say, “Products and services that bring together groups of users in two-sided networks are platforms”. Enabled by digitalization, however, these “market squares- platforms” are much more powerful than earlier, enabling a broker role and inviting other (adjacent or distant) businesses to use the focal platform. These technology platform ecosystems build on a shared boundary object, whether a standard, interface, technology or customer offering. Platforms are typically defined as combinations of technological enablers and interfaces that support a wide range of applications and services, often provided by third-party providers (Gawer and Cusumano, 2008). At the best, platforms enable companies to turn really large, a transformation from type I, to II, to type III?

6. BCaster innovation practices in the platform economy

Finding and converging 1) Digitalization and all digital technologies (e.g. Internet of Things [IoT], Artificial Intelligence [AI], Virtual Reality [VR], Blockchain) 2) to a new business system, 3) mobility, and 4) social communities and sharing economy are megatrends in 2018 and beyond. BCaster has identified a market niche among these trends. Bcaster’s crux is to change the rules of the game in the privacy and monetization of media platforms. Figure 3.

Innovation-BCaster

Figure 3. Innovation classification scheme with BCaster.

7. Capabilities needed in platform economy

Needed capabilities and values in the platform economy are straightforwardly derived from the nature of platforms.

Platform Suppliers need (consumers)

● new markets & business
● new digital technology tools
● new possibilities to use data

Platform Consumers need (business)

● new, better, easy to use services
● tailored solutions
● service solutions

Platform owner (e.g. BCaster) needs

● to be agile disruptor
● have networking capabilities
● partner management skills
● show a vision to network and be able to orchestrate it
● have a grip on consumer trends and branding
● to create a platform easily to join

In sum, BCaster creates potential for “creative disruption”, and uses the following value points to its advantage (McKinsey, 2016):

• Assets are underutilized due to inefficient signaling
• Supply/demand mismatch
• Data is siloed or fragmented
• Large value in combining data from multiple sources

In BCaster’s new type of business model, consumers have unused potential for video sharing, there is more demand than the supply of fast-shared high quality videos, mobile video data is not fully managed end-to-end, and there is room to data analysis in mobile video context. In addition, Bcaster will enable monetization between content creators and buyers.

8. What would Joseph Schumpeter (1883-1950) say about BCaster- the role of innovation in platform economy?

To conclude, BCaster offers both start-up innovation elements and cementing the R&D to platform, thus making large-scale business. In principle, this means a new wave of technological era and industry, i.e. a true media platform industry. Mr. Schumpeter would not perhaps turn in his grave but would perhaps be interested about platform economy and the potential role of BCaster manifesting in new type III innovation that has elements of disruption and incremental development, called ecosystem and media platform.

Selected sources:

Eisenmann, T., Parker, G., & Van Alstyne, M. W. (2006). Strategies for two-sided markets. Harvard business review, 84(10), 92.
Gawer, A., & Cusumano, M. A. (2008). Platform Leaders. MIT Sloan management review.
Malerba, F., & Orsenigo, L. (1995). Schumpeterian patterns of innovation. Cambridge Journal of Economics, 19(1), 47-65.
Schumpeter, J. A. (1934). Change and the Entrepreneur. Essays of JA Schumpeter.