Technical Innovation vs Business Model Innovation

We invest in innovation; new ideas, new products, new services, and new approaches to the marketplace that result in opportunities to build new businesses.

Over the years, entrepreneurs have been mostly known for technical innovations. And there are many great companies that have been built on top of technical innovations like Intel, Cisco, Oracle, Apple, and arguably Microsoft.

But I wonder if business model innovation isn’t as powerful, maybe a more powerful opportunity to build a new business. If you think of Federal Express, Google, Netflix, these companies were built on business model innovations. Of course, there has to be some technical innovation around the edges, and in the case of Google, you can argue it was a combination of both technical and business model innovation that powered its rise, but nonetheless, these businesses have grown because they offered customers a new way to do something that had not been offered before.

You don’t always have to invent the new business model. Google didn’t invent paid search, Overture did, but they executed it better and reaped a large portion of the rewards for that innovation.

What got me thinking about this is a company that we heard about on our trip last week in Seattle.  The company is called Bag, Borrow and Steal and it is bringing the "netflix rental model" to the fashion accessory market, initially handbags, but over time possibly much more. That’s right, for a monthly fee, you can have any handbag you want for as long as you want it, then you send it back and get another one.

I have no idea if this business model will work in the fashion accessory market, but if it does, it would represent a new way to market fashion accessories. It could be a very large opportunity.

As the technology business becomes ever more competitive, with developers building things right and left, with less need for significant investment, and the globalization of the technology marketplace, I wonder if technical innovation is going to become harder to produce and if business model innovation is going to become more important.

We don’t have a strong point of view on this and look for both technical innovation and business model innovation in equal measure.  That said, if any of you have views on technical vs. business model innovation, I’d love to hear them.