Tuesday, September 3, 2013

A Reason of Why the United States Consistently Turn-out Success Stories in Startups.


by James Surowiecki

In September, 2008, a company named Dropbox opened for business, marketing a simple innovation: it allowed you to upload your files, via an intuitive drag-and-drop method, to remote servers, and to then synch those files with other computers. Dropbox grew quickly; a year after starting, it already had two million users, and today it has more than twenty-five million. A typical account of Dropbox’s success might focus on the usefulness of its service or the entrepreneurial drive of its founder. But, to understand why the U.S. regularly produces companies like Dropbox, you also have to look at who is interested in buying and using new products. It turns out that the U.S. has a particularly large number of people who are willing to do something like hand over their precious data to a brand-new startup—the kind of people the economist Amar Bhidé calls “venturesome consumers.”

You might think of consumption as a fairly passive activity, but buying new products and services is actually pretty risky, at least if you value your time and money. It’s hard to know in advance whether a new product will be useful: behavioral research shows that we’re surprisingly bad at forecasting our needs and desires, which is why our homes are cluttered with unused gadgets and exercise machines. On top of that, new products often still need the kinks worked out, so early users serve, in effect, as beta testers. It’s common for consumer-electronics products to be much more expensive and much less powerful in their early versions compared with later models. There are scary examples, too: a number of British Airways’ first passenger jets crashed or exploded.
Given the risks of early adoption, it’s rational for consumers to just wait and see what happens. But Bhidé, in his book “The Venturesome Economy,” shows that American consumers, businesses and individuals alike, are inordinately willing to take a gamble on new products. American farmers, for good or ill, have been the world’s most ardent adopters of genetically modified crops, and American businesses have consistently been avid adopters of new technology. They were among the first to use electric power to run their factories. They made air-conditioning ubiquitous in the corporate world. In the nineteen-fifties and sixties, they purchased tens of thousands of mainframe computers, even though I.B.M. had initially thought it might be able to sell only twenty-five. And when the minicomputer and then the P.C. were introduced, businesses invested heavily in them as well. This embrace of technology has not diminished: a 2005 study of businesses in the U.K. showed that those owned by American multinationals invested far more heavily in information technology than those with non-U.S. ownership, and were more productive as a result.
The American public, meanwhile, has thrown caution aside in its desire for novelty. Automobiles were dangerous, polluting, and, even after Henry Ford pioneered the assembly line, pricey. But by 1920 Americans were buying more than two million of them annually, and the American market accounted for ninety per cent of the world’s cars. Appliances like electric irons and vacuum cleaners were commonplace in American households in the nineteen-twenties, when they were still rarities in most European countries. Early jet travel was both perilous and expensive, yet by the mid-fifties American airlines were carrying fifty-five million passengers a year, and by 1960 they were handling nearly sixty per cent of global air travel. Television, the personal computer, the DVD player, the iPod: all became very popular here very quickly.
From a business perspective, the willingness of consumers to take risks means that new technologies can see profit faster here than they can elsewhere. That encourages inventors to invent, and investors to pour money into startups. (It’s no coincidence that the modern venture-capital industry got its start here.) And the speed with which successful products are taken up also allows companies to benefit from economies of scale sooner, bringing prices down and making it easier to reach even more customers. But it isn’t just a matter of speed. Venturesome consumers also provide companies with feedback that helps improve products, and often even repurpose them, in ways their inventors hadn’t imagined. In the process, the value of the innovations themselves increases. In that sense, our culture of innovation depends on consumers as much as on entrepreneurs.

That might seem to bode ill for the immediate future, given that the weak economy has made businesses and consumers save instead of spending. But the curious fact about venturesome consumption is that Americans tend to keep doing it, even in tough times. The P.C. was introduced during the recession of 1981-82. The iPod débuted when we were still recovering from the bursting of the dot-com bubble. Most striking, according to an extraordinary new book by the economic historian Alexander Field, American businesses in the heart of the Great Depression continued opening R. & D. labs and putting money into productivity-enhancing technologies, all of which laid the groundwork for the postwar boom. True, businesses did clamp down on spending in 2008, but for the past two years they’ve been investing heavily in information technology, while consumers, who have supposedly rediscovered the virtues of frugality, are snapping up smartphones and iPads. The venturesome-consumption habit, it seems, is hard to kick. And that’s good news, since they also serve who only shop and buy.

This is a repost of an article that appeared in The New Yorker on May 16, 2011

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