Proprietary Software Could Be to Blame for Slowed Innovation, Dominance of Big Companies

The proliferation of in-house software systems could be contributing to the limited disruption of the software industry and increasing income inequality, according to James Bessen, Executive Director of the Technology & Policy Research Initiative at the Boston University School of Law. Bessen, who is also a lecturer, economist, and former software CEO, makes the argument in a new book, “The New Goliaths: How Corporations Use Software to Dominate Industries, Kill Innovation, and Undermine Regulation.” He argues that through significant investments in proprietary software systems, major tech companies have increased their dominance of industries—challenging the so-called “disruption myth.”

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Bessen’s definition of “proprietary software” refers to investments made into the creation of custom software from dealers like Oracle and SAP, as well as applications made in-house. His analysis is based on government and industry data, supplemented by information on jobs and salary estimates from Lightcast, a labor market research firm. Large companies use these systems to manage complexity and gain competitive advantages, he argues. Banks use their software and customer data to create custom credit card offerings that smaller rivals can’t; Walmart and Amazon use them in marketing and logistics; and Facebook and Google use them in ad targeting.