Will Incumbents Stifle Innovation?

[qi:006] Earlier today, I spent a delightful hour with Vinnie Mirchandani, a well respected analyst in the enterprise software industry, mostly because he knows how to figure out the impact of big technological trends on software. Accompanying him was George Gilbert, formerly an enterprise software analyst with Credit Suisse First Boston, a Wall Street firm.

While the conversation flitted from topic to topic, the main question they asked me was this: Can innovation survive against the backdrop of a broadband duopoly? Can we innovate when the plumbing of the network is controlled by only a handful of players, even when it comes to selling connections to corporations? Those are the very same questions that I have raised on numerous occasions, and you very well know that I am quite alarmed by new impositions such as silly bandwidth caps and attempts to do away with Net Neutrality.

The answer to that question isn’t that simple. However, as I told Vinnie, the incumbents are fighting a losing battle. It is obvious that Comcast’s 250 GB cap is a blatant attempt by the cable company to save its own video-on-demand franchise. It wants to make sure that video watchers buy video from Comcast (CMSCA), instead of Netflix (FLIX), Apple (APPL) or anyone else.

But Comcast has an indefensible position. Why? Because the innovators are going to figure out a way to beat those caps. Take Roku, which is making a special video player for Netflix. Tim Twerdhal, Roku’s VP of consumer products, told Chris Albrecht over on NewTeeVee, “We’ll be introducing same visual quality at lower bitrates in the future….There are lots of things going on with codecs and bitrates that make caps not as relevant as they may appear to be.” What will Comcast or any other incumbent do then? Lower their bandwidth caps even further? In all likelihood that is how they are going to react — a futile exercise, in my opinion.

Of course, you might have an entirely different opinion on the question. Will incumbents stifle innovation? Care to share with me?