There is an essential conflict between market conservatism and people’s need for novelty. Markets have an inertia that acts against innovation; it takes a good deal of energy, time, and even luck, to establish a significant innovation. We are far from “business at the speed of thought.” On the other hand, if we look beyond basic needs, people’s need for novelty demands innovation.
What are the origins of this market inertia? To oversimplify a bit, the underlying reason is our old friend fear. In a commercial transaction, big or small, both sides harbor a fundamental fear: will the other side take advantage of them? When we multiply this fundamental fear by the enormous number of transactions taking place every hour of every day, we see how the collective conservatism emerges. A new product, service, organization, or even person, has to overcome a natural collective skepticism. Those engaged in market ventures recognize this instinctively, they understand that they need to “establish trust.”
One can analyze this underlying fear more closely and see that it has components: “Is the other side competent?” “Is the other side honest?” “What will my friends think of me?” and so on. But the more interesting questions have to do with the evolution of this fear over time. As the overall number and quality of commercial transactions increase, the fear should subside. People should feel braver and experiment in their commercial transactions, especially the small ones. This should reduce the “friction” for innovation and benefit us all.
The rise and popularity of online rating sites makes one wonder if we’re moving along the right trajectory. If you engage only in the transactions endorsed by a small circle of people, then you’re exhibiting the fundamental transactional fear in a fairly extreme way. So beware of overusing these services.
On the innovator’s side, taking people’s potential fears into account early pays back. One of the ways this has been done recently is to lower the price of new, presumably innovative, online services to zero. When buyers are giving up “nothing” in the transaction, then their initial fears are essentially eliminated. Of course this approach has the well-known problem of converting the “free” customers to paying ones in some way, the “monetization” problem.
I believe a fertile field for “business innovation” is to tackle this transactional fear problem in new ways. The Sears and Roebuck “lifetime guarantee” was probably the first attempt to address the problem.