The Disruption Economy

According to the Small Business Administration, every year more than 600,000 businesses close their doors. That’s one a minute. Obviously, it’s a normal, commmonplace event.

Entire industries and trades vanishing or, at least, becoming shadows of their former selves has happened regularly. The example most often given is buggy-whip manufacturers. I have not been able to determine whether a buggy-whip manufacturer was, indeed, one of the Dow companies in the 1900s but I suspect that was a line of U. S. Leather.

Printing is full of examples of whole industries vanishing practically overnight. Lithography was supplanted by photoengraving. Offset printing disappeared as digital imaging replaced it. Compare the number of printers shops today with the number forty years ago.

Now imagine a world in which not just individual businesses or even industries and trades vanish but in which complete business models, groups of industries, are failing and being replaced by new ones practically on a daily basis. I think that’s the world we’re in now and that’s what I think about when I read about companies like Aereo that are taking on the broadcast and cable industries:

For as little as $80 a year, his firm allows subscribers in New York City to record programmes and watch live broadcasts over the internet. Aereo rents each subscriber a fingernail-sized antenna, which it houses in a warehouse in Brooklyn.

Television companies loathe Aereo. It does not pay networks for the free-to-air channels it streams. It allows people to receive content without paying for the bundles of channels from which cable firms derive their profits. Broadcasters have sued Aereo for copyright infringement and filed a request to shut down the service (this was denied on appeal on April 1st).

“Aereo is stealing our signal,” grumbled Chase Carey, the president of News Corporation, which owns Fox, a broadcast network, on April 8th. Mr Carey has threatened that if Aereo continues, Fox could turn itself into a cable channel and charge viewers for carriage. Haim Saban, the chairman of Univision, a Spanish-language broadcaster, has said the same.

Why does a one-year-old firm with an undisclosed number of subscribers make media moguls so agitated? Aereophobes see Mr Kanojia’s firm as a pesky parasite that flouts copyright law and profits from distributing content that it does not pay for. Supporters point out these are free-to-air networks, and say Aereo has designed a clever and legal technology to give customers what they want: the ability to watch live programmes and recordings cheaply, and on devices other than a TV set.

That challenge was always inherent in broadcast’s move from analog to digital.

That’s not an isolated example and the professions are not immune. IMO higher education’s business model is not long for this world. The big law firms’ business model has already changed and there are hundreds or thousands of young lawyers standing dazed in the wreckage. One of the insufficiently remarked-on aspects of the PPACA is how much it changes physicians’ business model

Retail has been in ferment for decades. Soon there will only be online sales as exemplified by Amazon.com, boutiques (which are mainly a hobby business), and Wal-Mart. J. C. Penney’s problems, still being covered in the business pages, are that there is no room for yet another commodity retailer. Penney’s is not alone. Sears has the same problem.

The challenge for workers in this environment is not just that you don’t have the narrow skills needed due to the changes going on around us. That’s what’s we’re being told but I think it’s an error. The real challenge is when everything you’ve learned over the last five or ten or twenty years has become wrong.

6 comments… add one
  • TastyBits Link

    It seems that the networks could stream their content. This would not be commercial-free, and they would have numbers for advertisers. Am I missing something?

  • The networks have the same problem as the record companies have had: they don’t define their businesses that way. It would require a change of mindset, investing in new equipment and technologies, and undertaking responsibilities that are now foreign to them.

    Additionally, it would mean that they would have millions of customers rather than just a few hundred or a few thousand as is the case now. It would be a near-death experience for their marketing departments.

  • TastyBits Link

    The networks are different because their content is free. They may need to beef-up their servers, but many shows are available for download. Streaming real-time would be no different than broadcasting. They may need to create new marketing methods, but it could be a “goldmine”. Combined with Google ads, they could sell personal based commercials. The bandwidth of internet providers may not be able to handle the additional traffic, and I expect that to be a problem before long.

    Movies are like records, and the studios will need to learn the hard way. When VCR’s first came out, there was the “pulling hair and gnashing teeth” all the way to the bank.

  • Auto manufacturers could be selling direct to consumers as well. I pointed that out fifteen years ago. Most of their sales remain through dealers even though it would make sense. Why? Because that’s not how they think of their business.

  • TastyBits Link

    Many manufacturers do not want to compete with their retailers, and when they do, it is often at MSRP. Auto dealerships provide service as well as sales, and I think most people would want to kick real tires.

    I bought my truck through the internet sales guy. You can customize it or buy one on the lot. The salesman sends you back a quote. You go in kick the tires, and if you want it, you buy it at the quoted price. You cannot make any changes with that quote. It took me about 1.5 hours total.

    I would expect the networks to partner with the internet service providers, and there would be packages with the service. These services would not be included in the monthly bandwidth total, and the ISP could rent/sell media boxes with or without a DVR. Somebody will eventually figure out that there is a lot of money not being made, but it may not be the networks. Google may be on top of it already.

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