Novelty value

James Kyle, Investment Director, Rathbones

In the late 1950s, three decades before the advent of Microsoft’s PowerPoint, two academics travelled the US with what was known as a flannelgraph presentation — a storytelling device consisting of an easel, a board and an array of adhesive shapes in the style of Fuzzy Felt. Given the simplicity of their equipment, it may now appear ironic that their task at every stop on their journey was to deliver a state-of-the-art talk about the adoption of innovations.

The pair, Joe Bohlen and George Beal, were researchers at Iowa State University. Their research was driven by the fast-changing face of post-war agriculture and the nascent need for the farming community to accept and integrate new ideas. They were experts in what they called “the diffusion process”.

Building on their work, Everett Rogers, a sociologist at Ohio State University, later formalised the classic bell-curve distribution of “innovators”, “early adopters”, “early majority”, “late majority” and “laggards”. Outlined in his seminal 1962 text, Diffusion of Innovations, this served as the undisputed model for the adoption of new technologies for more than half a century.

Yet today the pace of transformation is so frantic that most of us have already witnessed the introduction and obsolescence of numerous innovations. Remember VHS, electric typewriters, audio cassettes and Walkmans? Moreover, the churn is likely only to intensify. The innovation cycle is becoming ever more rapid and remorseless — so much so that some have even declared the bell curve dead.

Diffusion through the ages

To appreciate the extraordinary swiftness with which innovations now not only emerge but are adopted — and to understand why the bell curve might no longer be fit for purpose — we first need a basis for comparison. Since we are currently in the midst of what is commonly referred to as Industrial Revolution 4.0, it seems sensible to refer to the industrial revolutions of the past.
 

During the original industrial revolution, which occurred in Britain during the second half of the 18th century, innovation was not an especially scientific affair. It was more a matter of trial and error and relied on the efforts of individual craftsmen, many of whom guarded their discoveries jealously. In addition, the world was globalised only in so far as the ambitions of specific empires permitted.

In light of these and other constraints, adoption was at best gradual and at worst glacial. The spinning jenny, arguably the single most significant invention of the period, provides a telling example: created in 1764, produced in secret for several years and not patented until 1770, it was still finding new users in the early 1800s before its successor, the spinning mule, became dominant in around 1810.

The second industrial revolution, stretching from around 1870 to the start of the First World War, saw the likes of the US and Germany take the lead in innovation. These countries were able to move to the forefront for various reasons, including the contributions of their universities, the enhancement and organisation of research and development and the emergence of powerful corporations.

In large part thanks to the expansion of rail and telegraph networks, people and ideas enjoyed unprecedented freedom of movement. Even so, the speed at which new technologies were adopted was still far removed from what we know today. Alexander Graham Bell invented the telephone in 1876, but it was not until the early 1900s that its use began to extend across and between the US’s major cities.

Scholars are still quarrelling over the timeframe of the third industrial revolution. Some say it commenced immediately after the Second World War and encompassed the advent of information technology, computing and biotechnology; others say it began more recently and should be defined by the internet’s journey to ubiquity. Regardless, it seems safe to say that it was characterised by new industries and soaring levels of globalisation, interconnectedness and technological disruption.

The growth of Google dramatically illustrates the rate and reach of diffusion during this epoch. In late 1998, shortly after launch, what would soon become the world’s most popular search engine handled around 10,000 queries a day; within a year the figure had ballooned to 3.5 million; by mid-2000 the daily number of searches had topped 18 million; and by 2004, when Google announced its IPO, more than 200 million users around the planet were Googling every day.

The shark fin and beyond

Even Google’s meteoric rise could be portrayed as a bell curve. After all, adoption has taken place over a period of some years. There might even still be a few laggards out there somewhere. In 2014, however, two Accenture researchers finally proclaimed Rogers’ paradigm unsuitable for an era of near-perfect market information, knowledgeable consumers and relentless “creative destruction”.

According to Larry Downes and Paul Nunes, markets now take off either suddenly or not at all. Adoption therefore falls into one of two diametrically opposed categories: “all at once” or “never”. There are no early adopters per se. There is no early majority or late majority. There are no laggards. There are only developers and everyone else.Saturation point is achieved almost at a stroke, with interest subsequently diminishing almost as quickly as it once flourished. Thus the “shark fin” was born.

Writing in Harvard Business Review earlier this year, Downes and Nunes cited Pokémon Go as a classic instance of this precipitous trajectory. Exploding on to the market in July 2016, the multi-player smartphone game was downloaded by 7.5 million people in the week after its release; the shark fin hit its peak within a fortnight, with 28.5 million users playing for an average of more than an hour a day; and the fade set in after just 12 weeks, leading to 15 million players abandoning the game in the space of a month. This is the adoption cycle in super-compressed form — right down to the fact that Pokémon Go’s co-producer, Nintendo, had no “second act” up its sleeve and lost billions of pounds.

This last twist to the tale has always been a threat. Only constant innovation can ensure staying ahead of the curve. Britain’s own lack of a “second act” may help to explain why the country led the first industrial revolution but lagged thereafter. As Marks & Spencer discovered two years ago after admitting its supply chain had become seriously outmoded, resting on one’s laurels is often the most perilous course of all. The big difference now is that the dangers of inertia might be exposed within weeks — and maybe even days — rather than within years or decades.

Such a pattern of breakneck ascent and decline might not yet be customary, but it has definitely arrived — and it is a long way from the bucolic image of Bohlen, Beal, farmers and Fuzzy Felt. As technology continues to hurtle forwards in ever-greater leaps and bounds, everything suggests that the innovation cycle as we once knew it is destined to become increasingly unrecognisable.