Innovation is a strange word. It was abused by microsoft to mean "it's OK to abuse monopoly power" a couple of years ago, and it is probably never used correctly, so please excuse me here, and substitute a better word if you can, if you find I use it offensively.
I believe the web has broken innovation.
Ten years ago software was the last frontier. It was a system that allowed the lone inventor to capture his ideas in a framework, hone it over time, and present it to the masses in a production-ready form.
The internet broke that.
You cannot, in todays world, innovate to any significant extent. Every minor idea you have had. Every spark of genius you can possibly invent. It has already been blogged or discussed online somewhere.
The reason: blogging something is far easier than coding something up. So people just blog it.
On the last day of OSCon I attended a talk by Brewster Kahle of the "Wayback Machine" fame. He spoke about how he believed one of the next "big" internet projects could be a video browser, that allowed you to create the equivalent of HTML for video (similar to SMIL, but easier to cross-link), and that the person who creates such a browser will be the next Marc Andreeson.
Because now there are 5 developers working on that project. Or 5 projects and 20 developers. And none will create a monopoly like Netscape, because the internet has beaten monopoly.
And all of this is good. And probably controversial