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Communications of the ACM


How Software Stifles Competition and Innovation

origami boats fall off a waterfall into a chasm, illustration

Credit: Lightspring

Innovation is not what it used to be, and software is part of the reason. In many industries—industries well beyond Big Tech—dominant firms have built large software-based platforms delivering important consumer benefits, but these platforms also slow the rise of innovative rivals, including productive startups.5 Because access to these platforms is limited, competition has been constrained, creating a troubling market dynamic that slows economic growth.

To be sure, the advanced economies of the world continue to generate new ideas at an impressive pace. The numbers of scientific publications and the numbers of patents are growing robustly, although these indices are not necessarily good measures of the economic importance of new ideas. Perhaps more economically relevant, entrepreneurs are creating technology startups at a healthy rate, down a bit from the heady years of the dotcom boom, but robust, nevertheless. Tech startups have been a bellwether of industrial dynamism. In the classic Schumpeterian story, innovative startups enter an industry and grow rapidly until they "disrupt" incumbent industry leaders, thus bringing more productive technology to society. While tech startups are still being created at a healthy rate, it is the latter part of this story that shows troubling signs. Innovative startups are not growing as fast as they used to, they are not disrupting industries as they used to, and productivity growth is slower than in the past as a result.


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