Lately, I've found myself in several debates with various people on what exactly constitutes innovation. The debate has largely been around two areas - (1) improvements cannot be classified as innovation and (2) not all technology successes have been due to a technology innovation
Per wikipedia, "Invention that gets out in to the world is innovation". In other words, if it's already out "there", it cannot be termed as innovation. The key here is the word "there", which could mean the entire world or just your country or may be your neighborhood. If a phone is unavailable in your city, and you make it happen, its an innovation - not technological, but business innovation for sure.
However, if a feature is missing in your product and your competitor has it, then adding it is far from innovation. Apparently, not every thinks so when they say we have brought in a couple of innovations - and then they talked about how you can now search hotels by a hotel chain name. wow! - that's awesome and its only been 10 years since Expedia has it.
Second, most successful technology companies have been wildly popular thanks to marketing innovations rather than technology innovations. Twitter, for example, is a viral innovation done at the right time (many people attribute SXSW as the tipping point for Twitter), Youtube was a widget marketing innovation, Google was more of a usability innovation than an algorithmic innovation and Facebook's innovation was the walled university driven social network that provided exclusivity to its users (admittedly though, Facebook's second tipping came from its applications which was a technology innovation), Dell's was a business model innovation, Apple is a master at design and buzz innovation and Microsoft has been largely successful for its execution innovation.
As much as we'd like to think that cool propreitary technology would make a strong barrier to entry, the reality is that marketing, execution and infrastructure edge provide much stronger barriers than technology. We observe it all over, but we refuse to see it.