Why the F22 Crashed and the iPad Took Off

In the 20th century the majority of innovation started as evil nations wanted to destroy other nations.

As a result, the evil (and peaceful) nations devoted large chunks of their tax money to the defense budget.

The flow of research money was the following:

Public (taxes) -> Government -> Defense Agencies -> Universities -> Private Companies (implementation)

Research Budget Flow

Research Budget Flow

Many of the most important contributions to technology and science were created or commercialized through this path: the internet, GPS, atomic energy , satellites and plenty more.

The innovation flowed from the government to enterprises and only then into consumers.

Space and Aviation -> Military ->  Large Enterprises -> Civilian Government -> Small Enterprises -> Consumers

The early experiments or products were extremely  expensive  and sold in small quantities and required public financing.

In the 21st century the flow of innovation and new technology has reversed.

innovation Flow in a Consumer World

innovation Flow in a Consumer World

The recent launch of an iPhone into space with GPS tracking by civilians, is one amazing example.

The following stock chart provides more evidence. It plots the iShares Dow Jones U.S. Aerospace & Defense Index Fund compared to some major consumer oriented companies like Google, Sony, Amazon.

Chart of Defense Index Vs Consumer Companies 2006-2011

Chart of Defense Index Vs Consumer Companies 2006-2011

The new innovations are derived from consumer demand and consumer services or products : cellular phones, smart Phones, social networks,cloud computing, personal computers and online advertisement.

I believe this is the reason the Intel, Apple and Google are now the largest companies in the world, displacing companies like SUN, Nortel, Lucent, HP , IBM and similar companies more focused on enterprise and governmental markets. While IBM, Microsoft and Intel are still leading the patent table, one can claim it implies more on the inflation of patents , rather than true  innovation.

Top 10 Companies Patents ROI from MSN

Top 10 Companies Patents ROI from MSN

The reversal of innovation can be explained by multiple theories:

Moral – the global society has become more civilian and democratic. Individuals have more civil rights, more control of the public spend and therefore there are fewer wars, less dictators  and less weapons. Unfortunately , I’m not sure all of the facts support this theory. I have found some evidence. For example, from 1988 to 2009 the global military spending share of GDP has dropped by 34% from 3.5% to 2.4% , global average. The number of conflicts decreased by 40% from 1992 to 2009.

Share of Military Expenditure as Percentage of Gross Domestic Product 1988 2099

Share of Military Expenditure as Percentage of Gross Domestic Product 1988 2099

Armed Conflicts by Region 1946-2009

Armed Conflicts by Region 1946-2009

Economics – In the end of the day we are all consumers and individuals. Economics are driven by numbers and since there are about 1 Billion consumers with a high standard of living, it is the largest market for almost any product. Selling a $300 product to every consumer translates to $300 billion market, this is equal to the global IT market spend. Selling $30 of advertisement to one Billion people …. you can do the math on your own.  Compare that with the cost of design and manufacturing of a new stealth plane.

The R&D alone would cost Billions  of dollars, and each airplane would cost $336M million dollars , if it the project is not aborted during the 20 years of development. Programming an amazing computer vision system for smart missiles would only be relevant to 20-40 customers. Delivering an amazing face recognition for  facebook generates access to 750 Million customers. The OCR domain is one example I already bogged about.

Sociological Open source software has allowed sharing of innovation and technology with zero cost of patents, licensing and removing many anti-competitive habits , either explicit or hidden that were common in past years. It also allows sharing of development costs across organizations. Younger generations are used to great user experience, and would not “go back” when entering Enterprise office. Cloud computing is also helping to build start-ups in 50 dollars.

The fact that Google and Amazon are hosting funding challenged public database of bioinformatics, that used to be funded by the government is rather  provocative.

To summarize, while there are still huge budgets in defense and commercial enterprises, there is strong trend driving innovation from the individual. Do you believe the trend is real?

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2 Responses to “Why the F22 Crashed and the iPad Took Off”

  1. Ido Schacham Says:

    Fascinating post! There are probably even more factors at play, like Moore’s law and the dropping prices of technology. Everyone has a powerful computer in their pocket today that a few decades ago only superpowers could afford. I still remember how when I got my first IBM compatible PC in the mid-eighties it was quite a luxury. Having a tablet at an affordable price was sci-fi in the eighties, but it’s a reality today.

    Also, the Internet which allows fast sharing of information between everyone was quite a boost. Before that the knowledge was all stored and controlled by big organizations. If knowledge = power, this means more power and more technology to consumers and more drive and ability for new business in the private sector. Or something like that.

    About the conflicts, could it be the case that conflicts are not country vs. country anymore with the rise of terrorism and guerrilla fighting? Might one argue that war has been consumerized as well? Is it cheaper and easier to get some Uzis and RPGs today than before?

  2. ophirk Says:

    Ido, thanks for the great comments
    It seems most conflicts are actually within states http://www.pcr.uu.se/digitalAssets/20/20866_conflict_types_2009a.jpg

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