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In our discussion of ideas, pricing signals, and the jungle of the agora, it is important to understand what distinguishes an idea from a true innovation. Thomas Edison is best remembered for bringing us the lightbulb, affordable and plentiful lighting to humanity. But at least 21 other individuals could plausibly lay claim to the idea of electrifying a filament in a bulb prior to Edison. Edison’s genius was not invention so much as it was innovation. Edison brought all of the pieces together into an affordable and revolutionary product. Despite often being used interchangeably, the terms “invention” and “innovation” are not the same. Ideas often languish for years before catching on. It takes innovation to realize their true potential.
The GM EV1: Tesla before the Tesla
In the mid-1990s, GM began to produce a revolutionary new car called the EV1, the first modern production electric vehicle (EV). Available for lease only, the EV1 introduced many groundbreaking features that would later become standard on vehicles. These features include low-rolling-resistance tires, electrohydraulic power steering (the forerunner of pure electric steering), an electric-defrost windshield, keyless ignition/entry, electric brakes, temperature preconditioning, tire-pressure sensors, regenerative braking, and even an early form of HVAC heat pump!
The two-seat EV1 also featured a groundbreaking aerodynamic design, with a grill-less front facia that gently sweeps air around the vehicle, a smooth underbody, and a teardrop shape, enabling the EV1 to achieve a drag coefficient of just 0.19. In fact, the EV1 still holds the record for the lowest coefficient of drag of any production vehicle, even lower than the Tesla Model 3 at 0.219. With (at that time) cutting-edge nickel-metal hydride (NiMH) batteries, the EV1 could achieve a driving range of some 120 miles, more than a decade before the first Tesla rolled off the assembly line.
Despite the vehicle's promise, the EV1 was admittedly not ready for mass adoption. The range was unacceptably low in cold weather, its battery durability remained unknown, and demand was simply too low given that it could only seat two people. As a consequence, GM literally and figuratively pulled the plug on future iterations of the vehicle, including a planned Lithium-Ion powered version, and unceremoniously crushed almost all of them.
In retrospect, GM probably should have kept tinkering. Upon seeing Tesla’s first vehicle about a decade later, GM executives decided to explore EVs again. But it soon became evident that they had fallen woefully behind Tesla, BYD, and numerous other upstarts in China and the United States.
Innovation vs Invention
Stories like the EV1 are not at all uncommon and illustrate the key distinction between invention and innovation. Invention involves the discovery of something new, while innovation engenders the utilization of a new idea. Many inventions and novel ideas percolate for years, if not decades, before an innovator, be it a company or an individual, finally figures out how to make the technology workable and affordable for mass acceptance by the market.
In the case of electric vehicles, Tesla was able to take advantage of steady improvements in lithium-ion batteries thanks to the growth of the mobile electronics industry after 2000. But Tesla went further, instead of merely swapping an engine and gas tank for a motor and battery, Tesla reimagined how vehicles were designed entirely. Placing the battery under the floor, for example, lowered the center of gravity, improved handling and reduced the risk of a rollover. Further, by moving the motor out of the front to under the seats, they could add a “front trunk” for more storage space, while also increasing the size of the front crumple zone for better safety in collisions.
With a large battery, Tesla could introduce features that couldn't be added to internal combustion vehicles, such as active video security monitoring, over-the-air updates, and an app store. A large touchscreen replaced the buttons and knobs found in other vehicles, simplifying production, lowering cost, and enabling upgrades via software over time. They even re-imagined the car buying process, mostly eschewing advertising and selling directly to consumers rather than through dealerships, reducing inventory bloat and cutting out the middleman.
Tesla illustrated to a stodgy industry that EVs are not only practical, but they can also be superior to internal combustion vehicles in most applications. Sales figures bear this out; Tesla sold just 3,000 cars in 2012 but 1.8 Million in 2023. The GM EV1 may have been chock full of great ideas, but GM failed to realize the full potential of those ideas and turn them into true innovations that would be accepted by the market.
How Innovation Works
According to How Innovation Works, by Matt Ridley, what we call "innovation” is just improbable arrangements of atoms and information powered by a “crystallized” concentration of energy. As we have seen, innovation is counter-entropic, running against the grain of a universe that always seeks out higher entropy. Innovation is beneficial order created from disorder. It is because of innovation that we humans are not in danger of exhausting our planet’s resources; there are limitless ways of combining and reorganizing atoms to suit our needs.
Innovation is rarely defined by “eureka” moments but instead arises in the wake of hard work and painstaking trial and error. Edison had no particular stroke of genius when he developed the incandescent lightbulb. He merely tried thousands of filaments until he happened across one that lit in the way he needed. As Edison famously stated, “Genius is 1% inspiration, 99% perspiration.” Innovation is hard work; it’s finding that one improbable arrangement of atoms amidst an entropic universe.
Serendipity plays a significant role in innovation. In many cases, new ideas come about by accident, or several old ideas come together at just the right time. The smartphone is a good example, where computing power, capacitive touch screens, lithium batteries, GPS, and a number of key technologies had matured just enough such that they were waiting for someone to come along and bundle them together into a useful product.
And like the smartphone, new innovation is often immediately subject to scorn and dismissed, even by those who should know better. The CEO of Microsoft, Steve Ballmer, had this to say about the iPhone when it was first introduced, "... [the iPhone] is the most expensive phone in the world…it doesn't appeal to business customers because it doesn't have a keyboard.” He further went on to say that there was “no chance” that the iPhone would gain significant market share. How wrong he was, as the iPhone would set the standard for smart devices for years to come.
Ballmer can be forgiven. Innovation is notoriously difficult to predict or foresee. Roy Charles Amara, an American researcher, futurist, and president of the Institute for the Future, coined what came to be known as Amara’s Law. He said, “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” That is, many technologies appear to hold great promise early on, only to apparently fizzle out, before gradually realizing their forecasted potential…and then some.
For example, the internet hype of the late ‘90s led to the “dot com” boom, only to burst in the early 21st Century. But ultimately, just ten years later, the internet had transformed our lives in ways that few had imagined. The same happened with GPS, a military-led network of positioning satellites that held great promise for the future of warfare. The GPS network was on the edge of failure in the ‘80s, but ultimately prevailed. When the technology spilled over into the civilian world, GPS became an indispensable part of the modern economy.
Innovation brings incalculable benefits to humanity. Its why fewer women die in childbirth, polio is rare, smallpox is no longer a threat, and why you can flick a switch and see clearly in the darkness of the night. It is important that we understand what innovation is and how it comes about, whether through luck, perspiration, or a tiny bit of inspiration. The future does not come to us, we have to go to it. We have to keep tinkering, failing, and experimenting. We must build the future we want or be swallowed by the one we don’t.
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Nice analysis. I would add that innovations are profitable inventions. Free markets are essential in determining if value has been created or not. No markets, no knowledge about value. Based on patent analysis, only about 3 percent of inventions become innovations.
I like to use the following terminology:
Invention is creating the first instance of a technology. It is usually a prototype or an idea.
Innovation is the early process of iterative improvement so it becomes a useful product that you can build a company around.
Diffusion is how the product spreads through society.
And about Edison, I find it ironic that he invented and innovated the first electrical grid, which is far more important than a light bulb, but no one remembers that! They always think that all he did was invent a light bulb.