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Letter from the Editor

From the Editor

The Rules of Innovation

  • This letter appeared in the May 2005 issue.
  • by Jason Pontin
  • May 1, 2005

Any sufficiently radical invention seems ridiculous to most people when they first encounter it. This is a rule of technological innovation.

In 1998, I ate lunch with an entrepreneur at a vegetarian restaurant in San Francisco. The entrepreneur, an ascetic and a yogi with startling blue eyes, spooned a lone bowl of bean soup and told me, “Software is a living tree.” He said he had invented a new kind of software called PowWow that “would allow people to run in tribes on the Internet.” He boasted that Tribal Voice, his new venture, would be the physical manifestation of what Indian shamans call “the golden thread.” I was nonplussed.

Yet Tribal Voice could not be immediately dismissed, because the entrepreneur was John McAfee, the founder of the antivirus company McAfee Associates, for some years the most profitable company on earth. In 1989, when McAfee Associates was starting up, its business seemed as ridiculous as Tribal Voice did in 1998. It gave away its most important program, VirusScan, and sold licenses and support to corporations. This idea had made John McAfee supremely rich.

This story is part of our May 2005 Issue
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McAfee conceived of his first company after posting free antivirus software on electronic bulletin boards. This “freeware” was very popular: computer users could download and use it without worrying about infringing copyright. Although information technology managers never planned it, the computers they managed were soon protected mainly by VirusScan. McAfee’s great insight was that corporations would buy expensive licenses and premium services for free software their employees were already using. This innovation became the business model of the Internet and today is employed by most software companies.

Tribal Voice was equally inventive. PowWow allowed computer users to instantaneously communicate with other users with similar interests. From 1994 to 2001, more than eight million people congregated in “tribes” using PowWow. Tribal Voice was arguably the first social-networking company and among the first to distribute a multiprotocol instant-messaging (IM) program-that is, software that works with multiple IM standards and providers so that anyone registered with Yahoo’s instant-message service, say, can exchange messages with buddies at AOL. Tribal Voice raised $10 million from Summit Partners in Palo Alto, CA, and TA Associates in Boston, MA; was purchased by CMGI, a services company, in Waltham, MA; and was distributed by AT&T and FreeServe as their preferred instant-messaging software.

But John McAfee’s entrepreneurial career suggests another, less happy rule of innovation: the first attempt to commercialize an invention almost never succeeds.

There are two reasons for this. First, the innovator is often early: the really important market for the invention does not yet exist. Second (the point is related), the innovator doesn’t know how to make money from the invention: the business model that will support the invention is imperfectly understood. Usually, therefore, another organization succeeds where the innovator failed. This is sometimes called the Second-Mover Advantage.

There are many examples of this advantage. Apple invented the Newton, but Palm successfully commercialized the personal digital assistant. Microsoft didn’t create the personal computer, but because the company controlled the “platform” for software, it benefited most from the PC.

John McAfee’s two companies nicely conform to this rule. McAfee Associates profited from the freeware movement where the first, countercultural freeware developers did not. But Tribal Voice collapsed in early 2000 when AOL, a mortal enemy of CMGI, blocked PowWow traffic completely, thereby isolating PowWow users from the largest community of IM users.

Tribal Voice was the innovator in two emerging markets, now much in the news, whose dynamics are still only partially known. The first is multiprotocol IM. The second is social networking. Today, thriving companies like Cerulean Studios and LinkedIn can be found in both markets. But John McAfee was there first, even if he didn’t know how to make money from Tribal Voice.

John McAfee’s inventions were maddeningly difficult to judge. This was not only because of their novelty. He was unable to describe his businesses except in New Age aphorisms. He liked to say, “Software wants to be free.” But Walter Kortschak, the venture capitalist at Summit Partners who invested in Tribal Voice, thought McAfee was a canny old hippie. He once told Red Herring, the magazine I used to edit, “John has an incredible appreciation of how to make money. The rest is just bull….”

Today, McAfee practices yoga at his several homes in Hawaii and Colorado. Do you believe in the Second-Mover Advantage? Write to me at jason.pontin@technologyreview.com.

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