The dictionary says friction is ‘a force resisting the motion of surfaces in contact’, but I think there is another type of friction – the friction between capital and great ideas. I think this latter kind of friction is key to economic growth and it’s about to undergo sigificant transformations.
In 1720, if you were bright and ambitious (and free), the only legal way to make money was to either to have rich parents or to spend a life toiling away - and if you were lucky you just might be able to provide for your family. The situation was so bleak that even Ben Franklin, about the brightest those times had to offer, found his best choice was to run away from home and apprenticeship. Fast forward 200 years, friction drops a little with the aid of low tax rates and democracy, and the industrial revolution takes ahold. 
In the 1990’s we saw the second drop – an even larger decrease in friction aided by the internet and a rich ecosystem of venture capital – that democratized entrepreneurship. No longer was a life of toil required first – and the world changed so much that a kid named Michael in his dorm room, revolutionized how computers were made and capital found its way to his door step – or students like Larry and Sergey changed how knowledge is indexed and shared. Now, these guys toiled plenty – but there was much less toil finding capital or customers – they toiled perfecting their business models. Ben Franklin would have loved this world.
I predict in 2010 we will see the 3rd, and largest drop, in the friction between capital and good ideas. What are the first signs?
The adoption of ‘Open Innovation’ and the liquidity in the patent market.
Who would have thought, 10 years ago, that companies would spend million to look externally for ideas? When we founded yet2.com 10 years ago, most thought companies would never look externally for ideas and technology. Patents being bought and sold? Are you crazy? We got this response more than once. I dont want to claim to be a genius here, Google was founded about the same time and let’s just say, they are modestly more successful 
But liquidity in ideas – is happening – patents and technologies are being traded, and over the next 10 years we will see a rich economic boom as a result. You heard it here first.
What will happen?
1) Technologists will get rich, a few will get really rich. Michael Dell, Larry and Sergey, and all of the others, still had to build companies around their ideas. They needed 2 skill sets; the idea and the ability to form a company around it. How many inventors don’t have the 2nd skill set? Lots. How many great ideas/technologies are out there – that we could all benefit from? Lots. I know, becasue yet2.com sees these every day as we connect companeis with TechNeeds with inventors.
2) Companies that embrace Open Innovation will get rich. I think most large companies are still only 1% effective at OI. What happens when they get to 10%? Economic growth. 85% of the Fortune 500 are already experimenting with OI. When they start to perfect their models over the next few years, this will drive #1.
3) VC’s are watching these activities closely, A few big examples of #1, will drive investment into pure play technology development. This, of course, is already happening. Which is why yet2.com has started venture investing.
4) Consumers will benefit from this friction reduction, getting better products at a lower price (with less harm to the enviornment) - but there will also be fewer steps and less time spent. Think for a moment how much friction there is in scheduling a meeting? A lot less than there was, but we’re on 50% there. How much friction is involved in planning a trip? Sending a birthday present?
Ironically, Ben Franklin invented the ‘free library’ but it took 2 centeries of friction reduction for Larry and Sergey to make money at it. Old Ben would have loved this. Where else is there a lot of friction?
January 17, 2010 at 2:14 pm |
Hi Ben: Again, a well written post. Like you, I hope that your predictions come true! An additional change that I think will occur over time is a variant on your first prediction above. That is, I believe that individuals who develop technologies will actively be thinking about how to leverage these across multiple markets, even as they create a businesses around a particular application in a specific market. We shall see.
Best regards,
Michael
January 17, 2010 at 2:25 pm |
Thanks Michael
January 18, 2010 at 4:12 pm |
Ben, these are very good points. The concept of friction is very real for those who have started business’ from scratch. It also raises a question for me. The reduction of friction in the 90’s was a combination of technology and the existence of extremely cheap capital, too cheap to be sustainable and often merely barrowed vaporware, as in the liquidity produced by the subprime scheme. So what are your thoughts about friction in the next 10 years assuming the cost of capital returns to a rational and sustainable price, not requiring government subsidies and possibly requiring real underlying value?
January 18, 2010 at 6:50 pm |
Ben, well said, and provocative has hell too! As a kid on the farm we had to keep a focus on greasing the bearings and gears or the dirt and muck would gum up things and the “friction” would cause breakdowns. I am more concerned than ever that the “friction” from governmental intervention could (will) gum up things and cause serious challenges. Let’s hope good old fashion capitalism and good old fashion entreprenurial thinking keep the pipeling of new technology growing!
January 18, 2010 at 6:58 pm |
Roger, Thanks. Taxes and government spending are the worst kind of friction. With any luck, in 24 hours, our government will get seme clear direction from Massachusets voters!….Ben
January 24, 2010 at 11:28 pm |
Ben,
I could not agree with you more.
Here in Canada, we are seeing many new clean tech companies waking to the fact that building the next RIM(Blackberry is the tech benchmark in Canada) from scratch may be much more difficult than they first thought. Taking on an incumbent that controls assets needed to deliver value may sometimes mean crossing the valley of death with no bridge. Embracing open innovation can shorten time to market. The larger firms benefit by staying agile and the smaller firms get multiple entry points which leads to higher a probability of success. To VCs that are tapped into these networks it creates a buffet of really good deals that are happening in real time vs funding really cool research projects.
March 3, 2010 at 9:36 pm |
I’d look at distribution; everything non-digital will always have a lot of friction from idea to delivery.