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The threat of a discontinuous innovation is what we are always in fear of as investors.

This little snippett is from one of Bruce's earlier replies on this board, and it just didn't really seem right to me. Technology represents progress, and a discontinuous innovation (DI) is the instrument used to further technology. And the ability to progress using technology is what separates humans from other, perceived to be lower forms of life. How profound of me.

Anyways as it relates to investing, I see a DI as having many more positive ramifications than negative. To start with the negative:
A good DI (easily popularized) means the death of a gorilla. The gorilla's unique solution and surrounding value chain will cease to exist in short order, as it has been replaced by the newer, more efficient DI. Investors in the unseated gorilla must come to grips with the fact that it is no longer a desireable investment, and move on, perhaps to the newly ascendant gorilla. And that is all I can come up with for negative results, although for some the above may be quite significant. If there are more, as I'm almost sure there are, or if I'm underestimating the consequences of the one I listed, by all means let me know.

Now, for the positive results of a DI, here is what I've identified:

A DI indicates the birth of a potential gorilla. By definition a gorilla cannot exist without the benefits of a DI, and therefore any DI has the inherent capability to become a gorilla, dependent of course on execution.

A DI also signals the beginning of a high tech market development. With the high tech market development comes the tornado, where within its confines a company experiences hypergrowth, and the returns available to holder of its stock increase sharply as well. So every new DI has the potential to be developed into a product (line) and reach the tornado phase and generate huge returns for early investors. So, each DI presents investors with an opportunity for huge returns. All they have to do is recognize a DI and follow it, looking for indicators of its progression into pre-tornado status.

Finally with each DI, a new gorilla is potentially born. In other words all gorillas, by definition, begin in the form of a discontinuous information. Eventually a value chain is constructed around this DI, assuming the gorilla candidate executes properly. In some cases the company becomes a verifiable, established gorilla. But not without a DI in the beginning. It could be said that each DI represents a possible new full-fledged gorilla. I, for one, would welcome the opportunity to own a few more SEBL's, ORCL's, CSCO's, QCOM's, MSFT's, INTC's and the list goes on. But it doesn't! There are a finite number of gorillas that sprang from a finite number of DIs. Not that more DIs assures more gorillas, but it does assure the prospect of more gorillas, and, of course, their well-documented returns.

So I don't think DIs are bad or to be feared, in fact I think they're a pivotal part of the GG, and our role in it as investors. Properly identified DIs can lead to larger returns when discovered pre-tornado. So don't be afriad of DIs, be on the look out for them. A few that may be among us:

LHSP (speech-recognition)
ELON (networking/automation systems)
MVIS (RSD, one of my favorites that may or may not pan out, see a prevoius post)
RBAK (SMS ..?)
GMST (TV stuff) <-- need to read, sorry :(

So there are a few that I believe have been discussed here. I may be totally off the market here, but that's what I see a DI as. And remember, they're what separates us from the apes ;)

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