INNOVATIVE CONSUMPTION
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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