How 'Bout a Little Whine With That Innovation?

Technology may be neutral, but innovation comes with a freightload of human nature.  It's enough to cause more than a little whining now and then.

Just ask Uber, the app that lets people order a taxi or car service from their smartphone.  "Cutting-edge start-up companies are crying foul," says CNNMoney, "claiming they're being blocked from entering local markets by established businesses."

In Uber's case the locals have resorted to all kinds of malevolent tactics to protect their established businesses.  In Miami, for example, there's a regulation that calls for a minimum hour wait between ordering a black car service and climbing in, as well as a $70 minimum charge.  In San Francisco, airport officials have been making citizen's arrests of ride-share drivers, claiming they don't have the paperwork necessary to transport riders.

Unfair competition?  Insider dealings?  Regulatory favoritism?  Thuggery?

The truth is, they're not called "entrenched competitors" for nothing.  

Few incumbents are likely to roll over to a new technology, and fewer still are likely to follow Marquess of Queensbury Rules when they respond to the threat of lost customers and profit.

Technology is very powerful, but rarely does it trump human nature.  Innovative transportation in particular--often a massive infrastructure play with enormous stakes--has historically brought out the worst in people, or the best in competitive malevolence, depending on your point of view.

In 1883, for example, Chicago's butchers began dressing beef and placing it in new-fangled refrigerator cars, proving that it could compete in quality with local beef.  Whose ox did that gore?  The railroads, the biggest ox in the country, which stood to lose 40% of the bulk freight by not shipping livestock.  The response: the railroads simply refused to ship dressed beef.  Swift Brothers could get 15 to 20 loads per week shipped along the Erie Canal, but the railroad stonewalled all shipments to New York City, the nation's largest market for beef.  The whining could be heard from the Hudson to the Mississippi.

Of course, transportation's strong-arm tactics had already been demonstrated in January 1867 when Cornelius Vanderbilt, intent on knocking out a rival, used his powerful New York Central and Hudson River line to completely block all rail shipments coming into New York City--essentially isolating America's largest city.

The railroads had been well-schooled in the lessons of incumbency when their own early growth was slowed by canal-owners and turnpike companies anxious to preserve tolls, tavern-keepers worried about lost business, and farmers who saw the market for horses and hay at risk.  Jacksonian Democrats even invoked motherhood and apple pie, arguing that corporate railroads backed by "moneyed powers" were elitist compared to "people's roads" with no tolls or monopolies.  At some points, legislation could turn not on technology or public convenience, but on whom might offer the larger bribes.

When the automobile appeared the railroad had become, like Miami's taxis, an entrenched competitor with aging investment to protect.  Word went out that nobody (especially women) had the skill to pilot an auto without the guiding intelligence of a horse.  Wall Street, anxious to protect its railroad investments, exaggerated the imperfections of the early cars, stressed the absence of good roads, highlighted the early patent wars, and amplified the criticisms of politicians (autos were below their dignity) and clergyman (autos were deleterious to morals).  Financiers even slowed bets on internal combustion engines by talking up Thomas Edison's likelihood of inventing an electric car.

The modern shorthand for such tactics is FUD--Fear, Uncertainty and Doubt--which can often slow innovation, no matter how powerful the technology.  Incumbents become masters of FUD, especially if their technology happens to be a half-step behind.

Sometimes entrenched interests wield patents like a bludgeon, the most famous in transportation being that of George B. Selden, granted a patent for an automobile in 1895 (without ever having built one).  While a consortium led by Henry Ford would finally overturn the patent, Ford opined that Selden did nothing but slow the industry.  More recently, when Apple went after Samsung (and others) on patent violations, many of their ardent fans cried "sellout."  After all, technology companies should compete on technology.  More likely, Apple's move was simply a sign that, at least so far as smartphones went, the company had gone from innovator to entrenched incumbent.

Other times, incumbents simply practice plausible denial.  When the first iron barges floated down American rivers, shipbuilders working in wood continued insisting--despite proof to the contrary--that iron would not float.  (The first plan for the Monitor was rejected by the U.S. Navy on the grounds that an iron battleship lacked stability.)

Fear.  Loyalty.  Values.  Democracy.  Patents.  Uncertainty.  Public safety.  Economic disruption.  Regulations.  Hell and damnation.  Motherhood and apple pie.  Bribery.  Thuggery.  Plausible denial.  Sheer stonewalling.  The many tools of the entrenched.

If tradition holds, Uber will eventually win; good technology usually does.  But one day, in the not-too-distant future, Uber will suddenly find itself the entrenched competitor.  So, while a little whining now might feel good and even be justified, carefully studying the tools of the entrenched for future use might serve them even better.

Posted by Entrepreneur Generations

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