Large Language Models are a Sustaining Innovation

In the Innovator’s Dilemma, Clay Christensen made a distinction between “disruptive” and “sustaining” innovations. Disruptive innovations favor new entrants and new categories of products because incumbents are harmed by adopting the innovation, and so they resist. Sustaining innovations favor incumbents because it improves their products and margins, and they have the resources and incentives to adopt them.

With this in mind, I think that Large Language Models will be readily adopted by incumbents who will be successful with them. To be clear, I’m not talking about OpenAI vs. Google, but their customers, mostly B2B SaaS companies who will be using LLMs to enhance their own software, not providing LLMs to others.

There are two advantages that incumbents have that will hard to overcome.

The first is that LLMs readily embed into established software. GitHub Copilot is the model. The “copilot” experience is being extended to Microsoft’s Office suite, and I think it fits well in almost any kind of software.

The second advantage is access to proprietary data. Incumbents already have customers and their data and can generate better content using that data in their training sets. A new entrant would be stuck with just public sources which is “ok” for some categories, but in the long tail of B2B SaaS companies would be anemic at best.

This is playing out for VSCode right now. Microsoft controls proprietary data (the private code in GitHub) and has the best content creating software. Their first iteration of enhancing that with LLMs is just a better VSCode. I use VSCode every day and adopting GitHub Copilot was seamless. It took seconds to install, see the benefit, and give over my credit card.

The case for a disruptive innovation is easier to make with things like Webflow, which obsolete the editor and establish a new proprietary datasource (their customers’ projects). This might happen to VSCode, but not to Microsoft, since it has its own no-code solutions (the Power Platform). So even this might not be disruptive.