Innovation and Open Sandboxes
Traditional economic theory and policy, focused on a simple model of economic efficiency, usually undervalues what happens at the edge, which is where disruptive potential emerges. We’ve noted here, again and again, about the power of Professor Christensen’s theory of disruptive innovation in describing how game-changing customer value is created by companies jumping into markets that look already occupied, often with products that can be dismissed as toys or marginal when first introduced. See here, for example. We have also noted how policy often does not understand how important this innovative force is, and how policy must protect space for that innovative dynamic to take place. See here, for example.
One way to think of this is making sure there are open “sandboxes” in which small entrepreneurs can play.
Fred Wilson has a hugely important post by Professor Yochai Benkler about how important keeping open sandboxes is in spectrum policy, which has been dominated by the flawed theory that the most economically efficient way for society to give access to spectrum is to one-time auctions to raise money for the Treasury. The problems with that approach include that unless you are an incumbent (or come with a cash hoard like Google), you cannot play in this space because entry is billions of dollars, much of this spectrum in practice is hoarded and unused, and most importantly, actual empirical evidence is that disruptive entrepreneurs have created enormous economic evidence through playing around with “junk spectrum bands.” Professor Benkler writes on AVC:
These dynamic markets are telling us something new: The future of wireless will likely be mostly unlicensed, with an important, but residual role of auctioned, licensed services. And yet the drive to auctions simply ignores the evidence from actual markets in favor of an outmoded regulatory ideal that is the opposite of what cutting edge radio engineering and dynamic markets show.
Most of these applications were developed using junk bands, where regulators dumped industrial equipment and microwave ovens. They thrived even in these harsh conditions, but in an effort to open up new, less wasteland-like areas for these dynamic, innovative technologies, the last Republican and current Democratic FCC chairs presided over the bipartisan creation of TV White Spaces, a policy that permits device manufacturers to expand the capabilities of unlicensed devices by sharing the TV bands with broadcasters. The TV Band auctions being pushed through the supercommittee threaten to displace these white space devices. As we look at the enormous success of unlicensed wireless strategies across the most dynamic markets, we see that doing so is penny wise, pound foolish.
There is a related (albeit slightly different take) on the problem of one-time spectrum auctions, and their effect on crowding out smaller entrepreneurs in this BusinessWeek article.