Startups have been the innovators for the last 10 years. But they’ve only been solving the easy problems. The hard part is just about to come: Dealing with the Third Wave and the challenges it brings. Challenges for which big companies might be better fit. That is, if they double down on innovation.

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THE THREE WAVES OF THE INTERNET. | THE THIRD WAVE BY STEVE CASE

The Third vs the Second (Internet) Wave

‘The Third Wave’ is a term Steve Case coins in his last book. He states that, after the First and Second Wave the Third Wave is now to come, and it will change what will be important for companies to be successful.

The First Wave was about bringing the world online by creating the foundation and architecture for this, putting big companies with many resources at an advantage. The Second Wave was about building apps and services on top of the internet, making startups who can adapt and innovate quickly the winners. Now the Third Wave is emerging it’s all about disrupting the big traditional industries like healthcare, education and transportation. And it creates a whole new set of challenges.

In the Third Wave the internet is ubiquitous and as such we move from the Internet of Things to the ‘internet of everything’. Entrepreneurs will now start hitting hard on disrupting the tougher, more traditional or regulated industries.

Innovation vs distribution

Steve Case talks about the ‘Internet of everything’ when talking about the Third Wave: Connecting everything and integrating technology seamlessly in our lives. Of course this is connected to the Internet of things, Amazon dash buttons, you name it. From working in this field myself I can say that the main challenges don’t come from technology, but from having the right ideas and navigating all the regulations and gatekeepers in traditional industries.

For startups the main challenge is distribution. Alex Rampell from Andreessen Horowitz described this as the ‘TiVo problem’: If, as a company, you don’t have the distribution network yet to make your product work, you’re likely to become dependent upon others or become insignificant. Some startup founders realize that they won’t be fast enough by themselves. The startups in these industries partner with incumbents to get access to their distribution networks.

Take Nerdalize for example. This company is on a mission to heat homes with cloud servers. I’ve been their mentor a few years ago when they had to make some hard choices. They chose to partner with Eneco, a Dutch energy provider. Now finally, five years after the company was founded, they raised 750.000 euro of investment to scale up their business. In the past five years they relied heavily on Eneco for pilots and moved from award money to grant to stay alive.

Lots of Fintech startups collaborate with large banks to get access to their distribution network. Some of these banks run accelerator programs so they can learn from the startups and select opportunities. For large companies the main challenge is innovation. But big companies do have to step up their innovation game to make sure they disrupt themselves before startups do.

Summarised: It’s all about whether the incumbent gets innovation before the startup gets distribution.

Doubling down on innovation

‘Startups have been bragging about their methods for years. ‘ — Tendayi Viki

We think that big companies might be in the lead on this at the moment. Startups were very explicit on how they disrupted industries. And large companies have been listening. We’ve been working a great deal with innovation teams in several large companies, and although they’re still very much finding it out, they’re slowly but steadily getting there.

Steve Case’s advice is for large companies to double down on innovation, and to team up with startups so they have both the resources and the innovation needed to master this third wave.

We help large companies to do so. We help them to innovate at the speed of startups. We offer them the tools and services to ‘get’ innovation and to forge partnerships with startups.