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Why An Incubator Inside Your Company is Money Well Spent (as told by "The Wire")...

Everyone hates spending money on people not directly tied to revenue.  For most companies, true R&D budgets are a thing of the past.  Should they be?  For big companies, the answer has to be no - milking the cash cow box in the magic quadrant only works for so long.  Eventually, something's going to run up on you and take you out.  Just ask Kodak, and these days you could probably add Dell to that list, and I'm sure you can come up with others.

Another example of the need to figure out a way to innovate is Microsoft, which is now Billions of Wire-poster dollars into development of web services without much to show for it.  True, the Xbox division is a hit without question, but the whole PC monopoly thing is obviously on shaky ground.

Recently there was a great comparison in Slate - contrasting Microsoft with the crime organization that was the back-story in the cult classic HBO series "The Wire".  Even if you never picked up The Wire (widely regarded as the best series ever on pay TV), you have to appreciate the comparison.  

More from Slate:

"What does Microsoft in the Ballmer era have in common with drug kingpin Avon Barksdale’s organization in The Wire? For years, both of them had the strongest package. They owned their territory, owned their market, owned their users. They were untouchable. Then times changed, bringing new competitors with new, intense products. Their own product went weak. But they couldn’t let go. “We got a weak product, and we holding on to prime real estate with no muscle,” Avon’s cerebral second-in-command, Stringer Bell, complains to him. For the Barksdale organization, the product was heroin and the real estate was the drug-ravaged Franklin Towers housing project. For Microsoft, the product is Windows and the real estate is the PC.

“We fought for every one of them Towers,” says Avon’s loyal sister, Brianna, “and to give them up now would mark us as weak.” The Towers were their pride and their security. Likewise, Microsoft hung onto their PC towers. They fought for them, even took on a massive antitrust lawsuit for them. As David Bank wrote in Breaking Windows: How Bill Gates Fumbled the Future of Microsoft, after Internet Explorer displaced Netscape Navigator in the ’90s, a debate ensued within Microsoft between the “doves,” who wanted Microsoft to embrace the Internet with or without Windows, and the “hawks,” who wanted to make Windows a mandatory part of the Internet experience. The hawkish position refused to accept the inevitable: The Windows high—like any high—would fade. Desktop apps would give way to far more addictive Internet sites."

Go read the whole thing - it's a great pop culture/real world contrast.  

So incubators and looking for what's next make sense, regardless of the world you live in.  The question basically comes down to this - is it cheaper to fund R&D that's not directly tied to revenue or to write a big check to acquire whatever is threatening your hedgmony down the road (hello Facebook, meet Instagram)?

If you plan is to acquire whatever threatens you, you better do it before there are 5 other competitors chasing the same innovation, and hope you're not to late.  Just ask Avon Barksdale.  

Comments

LCIglesias

I work in an "incumbator" within an established recruitment company - we're building/experimenting with a service that could one day topple our bread and butter services. That takes guts on the part of the leadership and maybe when it's through, I'll have a story to tell on incubate vs. acquire.

Love the blog. Add a Tweet link.

LCI

MattL

The Innovator's Dilemma is an interesting read for those who want to explore further.

http://en.wikipedia.org/wiki/The_Innovator's_Dilemma

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