Generativity, uncertainty and digital entrepreneurship


This post has been submitted as part of an assessment for my master’s degree.


In 2006 The Harvard Law Review published Jonathan Zittrain’s seminal paper on The Generative Internet. In it Zittrain explains how technological generativity – put simply, technology’s capacity for unprompted change – has been a driving force behind many of the innovations we rely on today (Zittrain, 2006, p. 1980). Since its publication the concept of technological generativity has been discussed by a diverse field of scholars. However, it’s within the domain of digital entrepreneurship that it first caught my eye, no doubt a product of my own time as a digital entrepreneur.

One example comes from Nambisan’s 2017 paper paper that details how the generative nature of digital technology is one of the reasons digital entrepreneurship is uniquely affected by uncertainty. If networked technology is capable of unprompted change, it becomes harder for digital entrepreneur’s to control the trajectory of the products and services they create (Nambisan, 2017). This idea caught my attention as it’s widely known that tech startups are living through a moment of record investment (Tech Nation, 2021). And, if it’s common sense that greater uncertainty leads to a decline in the propensity for entrepreneurial action (McKelvie et al., 2011, p. 274), what then is enabling digital entrepreneurs to overcome apparent contradiction?

In this post I will argue that the generative forces contributing to this entrepreneurial uncertainty are also the forces that enable digital entrepreneurs to overcome it. In the first half I will briefly review the nature of uncertainty within entrepreneurship, before introducing the concept of generativity and explaining how it creates a uniquely uncertain environment for digital entrepreneurs. In the second half I will explain how generativity contributes to new affordances that motivates digital entrepreneurs and enables them to succeed.

The role of uncertainty within entrepreneurship

Uncertainty is the condition that arises as a result of the unknowable nature of the future (McMullen & Shepherd, 2006) and because action impacts the future, action is inherently uncertain (Mises, 1949 cited in McMullen & Shepherd, 2006, p. 133). The need for action and an uncertain future are at the heart of theories of entrepreneurship (Cunningham and Lischeron, 1991). Launching a new product requires action on the behalf of the entrepreneur (McKelvie et al., 2011). That same product will launch in an uncertain environment; and how it affects customers and how they respond to it is also uncertain (McMullen & Shepherd, 2006).

With all of this in mind it’s unsurprising that uncertainty is a regular feature in the discussions of entrepreneurship. Scholars have examined how uncertainty impacts the likelihood of entrepreneurial action (Herbert & Link, 1988); whether business planning can mitigate the inevitable uncertainty that exists when launching a venture (Brinckmann et al., 2010) and the extent to which uncertainty attracts certain people to the role (McKelvie et al., 2011). Zittrain himself alludes to this later point in an early article for the Harvard Business Review in which he claimed that:

The information technology explosion was set off by visionaries who thrive on uncertainty (Zittrain, 2005).

Uncertainty and digital entrepreneurship

This post is specifically concerned with the nature of uncertainty within digital entrepreneurship. With that in mind it’s worth briefly unpacking by what I mean by digital entrepreneurship before moving on.

In simple terms digital entrepreneurship is a sub-categorisation of entrepreneurship that differs from the traditional form in that a significant part of the business process has been digitised (Hull at al., 2007). However, a definition as wide as this would include companies who, for example, had digitised internal processes but not digitised any of their customer facing components. While there is no doubt that these companies should still be considered “digital” it’s important to clarify that for the purpose of this post I am concerned with ventures that produce digital products and services for use by their customers.

Digital entrepreneurship, in which digital ventures launch digital products and services, is a domain uniquely affected by uncertainty (Nambisan, 2017). At the root of this observation is the generative nature of the digital artefacts being created by digital entrepreneurs (Huang et al., 2017). Generativity means that they can evolve in an unpredictable fashion and outside of the control of their creator (Zittrain, 2006, p. 1980). Put another way, when a digital entrepreneur launches a new digital product, it’s underlying generativity will lead to change that the entrepreneur will not have been able to predict or control.

Nambisan (2017) synthesises these ideas and offers two observations about the nature of uncertainty within digital entrepreneurship. First, that the introduction of digital technology to the entrepreneurial process has made outcomes less bounded. This is driven by products that are “incomplete and in a state of flux”, themselves impacted by other digital artefacts and the capability of digital platform owners to infuse new generative potential into the products that make use of them (Nambisan, 2017, p. 1033). Second, that digital technology makes the role of the entrepreneur less predefined than traditional entrepreneurship, as it introduces a network of actors who have varying goals and motives and yet contribute to the same initiative (Nambisan, 2017).

It is evident that, when compared to the traditional image of an entrepreneur, the digital entrepreneur faces a significantly more uncertain future. And, if greater uncertainty leads to a decline in entrepreneurial action (McKelvie et al., 2011, p. 274), why is it that countries across the globe are seeing record levels of investment in tech startups (Tech Nation, 2021)?

Generative potential

For the remainder of this blog post I will argue that, as well as being a key contributor to entrepreneurial uncertainty, the generative nature of digital technology supports digital entrepreneurs in four important ways. However, before I introduce these observations, it’s worth returning to Zittrain’s paper briefly.

While Zittrain’s paper has informed to our understanding of uncertainty within digital entrepreneurship, the original intention of the paper was to point out the power of generative technology, a force that had contributed to the:

…rapid technological innovation to which we have become accustomed. (Zittrain, 2006, p. 1976).

And, how any attempt to centralise the Internet in the name of security and stability will dampen it’s generative potential (Zittrain, 2006, p. 2013).

This is significant for our discussion because, if we recognise generativity as an enabling force, we are closer to understanding how it can help digital entrepreneurs overcome the uncertainty it creates.

To expand on this point further I will use the rest of this post to argue that the generative nature of digital technology supports digital entrepreneurs in four ways:

  1. That digital products and infrastructure enable digital entrepreneurs to test and scale their concepts.

  2. That generative network effects help protect a digital entrepreneurs from competition.

  3. That digital networks create new sources of financing to support digital ventures.

  4. That generativity creates the outsized financial returns that motivates entrepreneurs to push ahead into the unknown.

Digital products and infrastructure enable rapid testing and scaling

Digital products are generative by virtue of their reprogrammable, recombinable and open properties (Nambisan, 2017, p. 1033). These features enable digital entrepreneurs to react quickly to the effects their products produce and the responses from customers (Nambisan, 2017). Huang et al. (2017 p. 302) highlight how the separation of function and form contribute to this process. With a digital product’s instructions (function) being independent from how the customer interacts with it (form), a digital entrepreneur is able to introduce new functionality without the need for a complete redesign of the product (Huang et al., 2017). Moreover, the nature of web-based applications in particular means that the digital entrepreneur can continuously release these new features with minimal effort required on the part of the customer (O’Reilly, 2005).

Digital infrastructure also plays a role in overcoming the uncertainty a generative digital ecosystem creates. Makerspaces and data analytics platforms, for example, enable digital entrepreneurs to find small audiences in order to test their products (Hatch, 2013, cited in Nambisan, 2017). By conducting a series of tests (as opposed to a traditional launch) they can search out product market fit before making use of those same platforms to scale rapidly (Ries, 2011). This same process is also supported by cloud computing, which allows for the horizontal scaling of the computing power necessary to support larger audiences (Nambisan, 2017, p. 1032).

Zittrain argues that generative technology has four features: capacity for leverage; adaptability; ease of mastery and accessibility (Zittrain, 2006, p. 1981). From my brief observations above we can see how digital products, platforms and infrastructure align with each of these features. They provide digital entrepreneurs with set of new set of tools that can be repurposed in a variety of ways; they are unique to the digital ecosystem; and they democratise the entrepreneurial process through their ease of use and widespread adoption (Aldrich, 2014). In short, the generative capacity of digital technology has created the uncertain environment digital entrepreneurs face, but also provided them with the tools to overcome it.

Network effects, disruption and moats

Many digital products benefit from the increasing returns to scale that are driven by network effects (Eisenmann et al., 2006). What’s more, these same network effects can build a defensive moat around the new business, one that can near on insurmountable for competitors (Schilling, 2002). As Mark Zuckerberg, founder and CEO of Facebook, explained in an email about mobile social networks to his Chief Financial Officer in 2012:

These businesses are nascent but the networks established, the brands are already meaningful, and if they grow to a large scale the [sic] could be very disruptive to us (Zuckerberg, M., 2012 [email] quoted in Newton, 2020).

This kind of network growth is a generative process – as users join a service their presence increases the likelihood that other users will join (Huang et al., 2017, p. 302). And while this is a process that digital entrepreneurs are not entirely in control of, it’s also one that they look to manage and influence through the strategies employed by their team (Huang et al., 2017).

Zuckerberg’s admission about network effects exemplifies the dual nature of generativity within the entrepreneurial process. It creates an uncertain, often disruptive, environmental force, while also acting as an enabler of rapid growth and competitive dominance.

Funding from the crowd

Despite the risk created by the generative power of digital technology there is no shortage of investment into digital ventures. Here in the UK, in the six years since 2015 there has been a 300% increase in investment into UK tech companies (Tech Nation, 2021).

As well as being able to access traditional forms of venture capital and angel investing to finance their startups, digital entrepreneurs are able to access crowdfunding, a new investment vehicle that is itself a product of the generative power of digital platforms (Nambisan, 2017 p. 1033).

Reward based crowdfunding platforms like Kickstarter and Indiegogo allow consumers to support nascent ventures with seed capital through the advanced purchasing of products (Mollick, 2014). Much like the digital infrastructure discussed in the earlier section, crowdfunding platforms enable digital entrepreneurs to test a market for their product (Mollick, 2014, p. 3) while also making their first customers part of a more collective entrepreneurial process (Nambisan, 2017, p. 1030). Similarly, equity based crowdfunding platforms like Crowdcube and Seedrs enable entrepreneurs to gain access to a new type of investor, one previously unable to invest in companies at such an early stage due to regulatory limits (Mollick, 2014, p. 3). Like reward based platforms, this process contributes capital to finance the future development of the venture, and presents a new route for entrepreneurs to secure funding. Investors in equity crowdfunding platforms have been shown to be motivated by the potential for financial returns, but also by some consumption utility that arises from the support of a given project (Agrawal et al., 2011 p 19).

Again we see how the generative features of leverage, accessibility and the ease of use of crowdfunding platforms is directly contributing to a venture’s chances of success. Critically, this provides entrepreneurs with another source of financing for their projects, but also the opportunity to test their ideas and observe market effects and responses, strategies which are vital to overcoming the otherwise uncertain nature of digital ecosystems.

A billion dollars

In The Social Network, the 2010 movie dramatisation of the creation Facebook, Sean Parker, Facebook’s first president, meets the two founders of the nascent social platform for lunch. The scene is best remembered for the quote about Facebook’s future revenue:

SEAN PARKER: A million dollars isn’t cool, you know what’s cool?

However, it’s the line before this that I find more interesting:

SEAN PARKER: You don't even know what the thing is yet. How big it can get, how far it can go. This is no time to take your chips down.

NB: You can watch the entire scene on YouTube.

It’s hard to imagine a scenario in which an entrepreneur would happily admit to not knowing what their company was with a would be investor/advisor. In the traditional view of entrepreneurship business plans and strategy are considered critical to the likely success of a venture and that means having a clear understanding of your product, market and the size of the opportunity (Brinckmann et al., 2010). And yet in this scene it is Parker, the more experienced digital entrepreneur of the group, who is most comfortable with this state of uncertainty.

This is unsurprising.

As the founder of Napster, a music sharing website that gained tens of millions of users within 12 months of launching, Parker had seen first hand the generative power of digital technology and the potential for it to yield significant financial returns (Kirkpatrick, 2010). Viewed in this light, “you don’t even know what this thing is yet” is a positive, not something to be ashamed of. In the words of Yoo (2013, p. 230) it has been, “designed without fully knowing the ‘whole’ design”.

Fast forward to 2021 and this idea is supported by the fact that, at the time of writing, Facebook is the sixth largest company by in the world by market capitalisation, and in total eight, of the ten largest companies, benefit from the same underlying generative forces (TradingView, 2021). Generativity may make the world of digital entrepreneurship uniquely uncertain, but it also contributes to the creation of huge financial returns.

Summing up

My aim for this post was to provide an explanation for a counter intuitive observation: that digital entrepreneurs are undeterred by the increased levels of uncertainty they face when starting a new venture. I’ve argued that there is a duality to Jonathan Zittrain’s theory of technological generativity that explains both where this uncertainty comes from, and how digital entrepreneurs are empowered to overcome it.

I should note that observing generativity’s duality is not a new idea. My argument was informed by the work Choi (2013) who when writing about anonymity noted that online abuse is both enabled and remedied by generative forces. Or, in more general terms, generativity’s “versatility is a double edged sword” (Choi, 2013, p. 505).

One of the challenges I have faced while researching for this post is finding many notable criticisms of Zittrain’s work. On one level this in itself is a criticism of his ideas, a good theory should hold against critique after all. But this too may be a byproduct of the theory’s simple elegance, as David Post notes in his review Zittrain’s 2008 book:

“Stating the obvious”—articulating a proposition in such a way that (pretty much) everyone involved in the discussion agrees that obvious—moves discussion and debate forward in constructive ways (Post, 2010, p. 104).

I wouldn’t expect this blog post to be met with such high praise, however, I too hope that the strength of my argument lies in the relative simplicity of what I have observed.


References

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Daniel Bower

Blogging about platform regulation: algorithms, interoperability, kill zones as well as other bits and bobs. Read about my research, or read more about me.