Bleeding Edge

What Is Bleeding Edge?

Bleeding edge refers to a product or service, usually involving technology, that is available to consumers but is so new and experimental that it has not been fully tested and, consequently, may be unreliable. Early adopters could experience design flaws and bugs that have not been observed by the developers. It is also a given that bleeding edge products may never gain mainstream acceptance.

Understanding Bleeding Edge 

Bleeding edge describes a product or service that is ahead of its time and potentially game-changing, but may not yet function properly or ever generate sufficient demand in the marketplace to achieve mainstream success. These types of goods are generally released to the public during beta testing to help companies smooth out any kinks, problems, and any other issues that go unseen when the technology is originally made. 

This process enables the company to quickly identify any problems and determine whether the item is popular and functional enough to merit further investment. Early adopters may be excited by the prospect of being among the first to try out a revolutionary new product. However, because they are still in the development phase, bleeding edge items can also result in significant frustration for their users, costing them time and money.

Bleeding Edge vs. Cutting Edge vs. Leading Edge

Bleeding edge is generally defined as newer, more extreme, and even riskier than technologies on the cutting or leading edge. For that reason, some companies prefer to play it safe by marketing products that fall under the category of bleeding edge as cutting edge instead.

Cutting edge, a term used to describe a technology that is a step ahead of its competitors, tends to convey a greater sense of reliability, rigorous testing, and desirability. The word "leading" also has much more positive connotations than bleeding.

Advantages and Disadvantages of Bleeding Edge

Businesses that purchase bleeding edge technologies get a first-mover advantage if the technology later becomes mainstream. In exchange, they run the risk of sinking money into something that might not function properly.

Moreover, there’s a risk that other customers may never buy the same technology, causing the supplier to go out of business. Another potential pitfall is that new and better technology comes along that becomes a far-bigger hit.

This presents businesses with difficult choices. Some choose to split the difference and instead invest in leading-edge technologies or newer, mainstream technologies.

Example of Bleeding Edge

The U.S. military uses bleeding edge semiconductor technologies in its newest warplanes, battleships, and missiles. The technologies tend to be very expensive to build, especially at first, although the chips typically are more powerful and advanced than those currently available. Over time, the military works out the bugs and, eventually, these technologies tend to find their way into consumer applications.

The internet more or less developed this way; the U.S. Department of Defense-funded a project called the ARPANET, which sent the first message over an internet-like network in 1969. At the time, internet networking was a bleeding edge technology.

Special Considerations

Investing in exclusively bleeding edge companies is difficult in some industries because many of them offer mature products by the time they are ready to go public. There are some exceptions, though.

Some very small-cap companies seek funding through the equity markets to develop untested products. Generally, these investments carry extraordinary stock-specific risk because it’s not clear their products will work and their balance sheets are often weak.

Preclinical drug development, which involves collecting some of the earliest drug-safety data, is very much on the bleeding edge. At this point in the process, there’s typically some evidence to suggest a compound may work. However, drug companies don’t know much about the side effects, or even the proper dosage for a prospective patient.

Pharmaceutical companies need to test far more, often many more years, before they even think about applying for a new drug application.