James Bessen - Understanding the Tech Paradigm

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May 31, 2024

James Bessen, Executive Director of the Technology and Policy Research Initiative at Boston University, discusses the impact of proprietary software on industry disruption and the shift from mass production to mass customization. The conversation delves into the challenges and opportunities in the digital age, reflecting on the future of value investing in a tech-dominated world.

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INSIGHT

Disruption Declines Despite Tech Growth

Industry disruption peaked in the 1990s and has declined since, despite visible technological changes.
Proprietary software investment correlates with increased industry concentration and less disruption among top firms.

INSIGHT

Proprietary Software Creates Complex Moats

Proprietary software grants large firms a complex competitive advantage by enabling them to manage massive product variety.
This complexity undercuts smaller rivals and reduces industry disruption.

INSIGHT

Slow Tech Diffusion Due To Licensing Reluctance

Firms today have less incentive to license innovations, slowing diffusion of technological advances.
Opening proprietary technologies like Amazon Web Services expands markets and can be highly profitable.

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In the third episode of Season 10, hosts Tano Santos and Michael Mauboussin speak with James Bessen, Executive Director of the Technology and Policy Research Initiative at Boston University. Delving into the intricacies of technological advancement and market dynamics, Bessen shares his insights on the evolving landscape of competition and innovation. The discussion highlights the impact of proprietary software on industry disruption, exploring the significant shift from mass production to mass customization facilitated by technology. This episode not only provides a deep dive into the challenges and opportunities presented by the digital age but also prompts a reflection on the future of value investing in a tech-dominated world and so much more!

Key Topics:

Welcome to Season 10 of Value Investing with Legends (0:20)
Exploring the concept of barriers to entry in value investing (1:05)
James Bessen discusses technology's economic impact (3:15)
Analysis of the decline in economic disruption despite technological growth (5:10)
Impact of proprietary software on industry stability and market concentration (6:35)
Historical perspective on technology's influence on the economy (8:25)
The role of proprietary software in shaping competitive dynamics (10:30)
The transition from mass production to mass customization in retail (12:05)
Walmart’s evolution and strategy in retail sector dynamics (14:20)
Discussion on the concept of skill premium and technological advancements (24:55)
Artificial intelligence’s influence on market dynamics and job skills (26:10)
Examining the pace and implications of innovation diffusion (31:00)
Regulatory challenges and tech dominance in the market (34:10)
Concentration of innovation and its economic implications (36:20)
James’ book recommendations (43:10)
And much more!

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