I was reading an article in the WSJ about how Microsoft had internal initiatives on ad supported search in the late 90s. Leadership within Microsoft chose not to support this initiative and has been playing catch-up ever since. Meanwhile, Google figured out a way to deliver on that idea. We have heard a similar story about IBM and PCs in the early 80s. Why is it that successful companies with smart business managers ignore such breakthrough ideas?

Despite repeated brush-ins with the ad subsidized search idea, Microsoft decided not to pursue it. In the late 90s they had an initiative called Keywords but it was killed because it threatened an existing revenue stream from banner ads. A similar fate awaited the idea of purchasing Goto.com (Overture) when it was available to Microsoft. Leadership felt that it would be cheaper to build the technology internally. While it is clear that Microsoft has lost the race for search related ads, they did not lose it for lack of ideas or capabilities – they simply failed to see it as a major opportunity in a timely manner!

While breakthrough ideas suffer this fate, incremental innovation has been mastered by many companies. A good example is Google. With their well established process for hearing and approving ideas and their 70/20/10 principle, they have mastered the concept of appropriating value from incremental innovation. A good place to look for ideas on harnessing breakthrough innovation would be the venture capital industry and its associated ecosystem.