By Kevin Werbach Where will innovation come from? That's always on the minds of those whose livelihood depends, directly or indirectly, on information technology. Visionary entrepreneurs and brilliant engineers are always out there, building solutions for markets others don't even see. Yet most of those markets are hypothetical today for a reason. The majority of innovation occurs because it solves identifiable problems. As the saying goes, necessity is the mother of invention.
Precisely because computers and digital networks are so powerful, pervasive, and inexpensive, however, few applications truly call for breakthroughs. Corporate and government research and development once drove significant innovation, but both have been cut dramatically in recent times. And even research operations with generous funding, such as Microsoft's (MSFT), have produced nothing comparable to the legendary output of Xerox' PARC and AT&T's Bell Labs. Some other drivers must take up the slack.
Anthropologist Jared Diamond tackled a similar question for the planet as a whole in his Pulitzer-prize winning book, Guns, Germs, and Steel. He showed how the three elements in the title, plus other surprising variables, explained why certain parts of world attained a much higher level of development than others. Hidden conditions of the local environment, rather than innate capacity differences, produced extraordinary innovation in regions such as Europe while retarding it elsewhere.
PRACTICAL TASKS. In today's technology industry, the three hidden factors shaping the innovation environment are guns, games, and style.
"Guns" means the military and the vast associated intelligence and homeland security apparatus. From battling distributed global terror networks to providing soldiers with real-time information on the battlefield, the military faces a plethora of challenges that call for cutting-edge technology. And with an annual budget in the hundreds of billions, it has the resources to pay for it.
This isn't the kind of blue-sky military research that created the Internet. Surviving a massive Soviet nuclear strike is much less a priority for today's military than getting fuel trucks and parts to tanks in the field, or linking critical information already present in incompatible FBI and CIA databases.
Think of the Defense Dept. as an enterprise, with millions of employees, operations throughout the world, and a business that epitomizes the term mission-critical. In areas ranging from real-time collaboration to knowledge management to sensor networks, the military is pressing technology vendors to push the envelope, spawning innovations that will diffuse to other markets.
PLAYER POWER. Something similar is happening in the gaming world. Computer games are a big business, rivaling the movie industry in revenues. Moreover, they're the most demanding application most users have for their PCs and other devices. A machine that can browse the Web in its sleep will still strain at the three-dimensional rendering demands of today's games.
Massive, multiplayer virtual worlds, such as EverQuest, The Sims Online, and World of Warcraft, collectively have tens of millions of regular users, who put as much, if not more, stress on their technical infrastructure as customers on eBay (EBAY) or Amazon.com (AMZN). It's no accident that perhaps the world's most sophisticated microprocessor, the Cell chip developed jointly by IBM (IBM), Toshiba, and Sony (SNE), was designed primarily for gaming.
Games are also creating new markets in their wake. Online transactions in "virtual assets" (selling objects such weapons to other players) may soon exceed $1 billion annually, and in-game advertising -- for real-world products -- is expected to hit that level within five years. You no longer have to be a player or maker of games to feel their economic impact.
LOOKING GOOD. Style, the third element, may seem particularly incongruous in a technology discussion. Yet it's an ever more significant driver of innovation. As the IT industry matures, raw technical specifications become less important. The baseline level of functionality is usually good enough. That puts a premium on aesthetics, buzz, usability, and other "soft" factors.
Style is a big reason why Nokia (NOK) became the world's leading mobile-phone vendor. And it's the reason companies such as Samsung and Motorola (MOT) are now nipping at Nokia's heels.
Famously, it's why Apple's (AAPL) iPod is such a hit. And style isn't just surface appearance. There's an aesthetic appeal to products that "just work," even if other offerings have the same or better features.
That, ultimately, is why Skype, which makes a free piece of Voice over Internet Protocol (VoIP) software, will likely be the world's biggest phone company, in terms of customers, within a year. It's a big reason why Google (GOOG) became the Web's dominant search engine. And it helps explain why Firefox is challenging Microsoft's browser dominance in ways Netscape never did.
SYNERGY BURST. Particularly interesting innovations occur when guns, games, and style intersect. Army uniforms may never become haute couture, yet the military is extremely active in using massively multiplayer online games as training, recruiting, simulation, and collaboration tools. Participants in some games, such as Second Life, have organized fashion shows to display their virtual clothing. And gaming-focused PC makers such as Alienware are gaining market share not just because their boxes perform better, but also because they look cool.
Investment bankers, scientific researchers, and their ilk have long set bar for technology companies. Those markets aren't going away. Yet if you're interested in the business of technology, you would be wise to pay attention to a different set of customers: the generals, gamers, and fashionistas. When it comes to innovation, their decisions may be the ones that matter. Kevin Werbach is an Assistant Professor at the Wharton School, University of Pennsylvania, founder of the Supernova Group, and the organizer of the Supernova conference >