Monday, August 1, 2011

Disruptive Wealth Creation Happens Disruptively

In my opinion, there's a little bit of foolishness here, but it's mostly dead on:

Most popular web-based businesses are deflationary. They substitute expensive forms of content consumption for cheap ones, they make it logistically easier to deliver discounts to people who will respond to them, and they create numerous financially cheap forms of social status. As more activity moves on to the web, the main effect on the economy will be broadly lower prices and less need for employment.

A related note: tech and biz journalism assumes that all forms of new technology give birth to gigantic corporations. However, what about technologies which are so fundamentally disruptive that they obviate corporate structures? Look at Y Combinator and taco trucks.



Y Combinator swoops and scoops venture capital by starting companies with much, much less money. The Internet made this possible, venture capital was slow to adapt, and Y Combinator nabbed it. Cities had taco trucks for a long time before the Internet, but Twitter made them fashionable. You don't actually need a physical location to launch a successful restaurant; you only need a long line of people eager to eat your food. (Quote from lafoodie.com: "Is a Kogi BBQ taco worth an hour's wait? Yes.")

In either case, the web made a winner out of a smaller company with more immediate, less expensive goals. For business, the web is a fat-trimmer more than anything. Combine that with the aforementioned (or actually aforequoted) blog post's notes on web economics:

The web makes entertainment cheaper...

The web makes it easier to access non-traditional employees at much lower salaries...

The web offers cheap social status: In the long term, this may have a bigger effect than the web merely making digitizable products cheaper. Social status games drive a huge amount of economic activity...

Internet companies have higher revenue per employee, which can be restated to note that they need fewer employees to get a given level of revenue.


(My emphasis.)

The blog post I'm responding to here is a bit over-optimistic in my opinion. Consider an unbalanced situation: 10% unemployment or more for the technologically illiterate, and annoying recruiters everywhere begging to hire anyone with high levels of technological literacy. At my favorite local café, the baristas have Etsy stores, but I don't think they're pulling in six figures. Disruptive economic phenomena disrupt economies.

This employment imbalance may be a short-term fluke, but it may persist until education re-orients to accomodate the modern requirement for technological literacy. Either way, it presents both enormous risks and enormous opportunities. I like to think that the end result will be more democratic, since social media and related technologies disaggregate corporate structures and make smaller businesses possible.

At the same time, however, the web's fueled a lot of new aggregation. Amazon's eaten Borders, and for some people I know, it's also replaced Target, IKEA, Staples, Home Depot, and entire shopping districts. Facebook represents the most audacious virtual land grab in history - an attempt, ultimately, to charge people rent for their own names - and for myself personally, Apple's iOS and TV have replaced HBO, AMC, Showtime, NBC, ABC, CBS, Fox, Comedy Central, Tower Music, Amoeba Records, etc., etc., etc. Pretty much every company in entertainment distribution which made money from me in the past has lost me to Apple.

But again:

Most popular web-based businesses are deflationary. They substitute expensive forms of content consumption for cheap ones...

The web makes entertainment cheaper...

Internet companies have higher revenue per employee, which can be restated to note that they need fewer employees to get a given level of revenue.


In the case of Apple vs the entire pre-Internet entertainment distribution industry, they also need fewer employees to deliver superior value at a lower price point. The average US monthly cable bill is $71 according to one study; I pay $8 per month to Netflix and $15 every two weeks to Apple for The Daily Show and that's pretty much it. In return I get content I can take anywhere I go. I can't tell you the number of times I've used iOS devices to watch movies or TV on a plane or a bus, or in a hotel or on a friend's sofa while on a trip somewhere my cable TV access wouldn't have followed me.

(I do go on occasional binges which quirk those numbers - I think I watched the entire first season of True Blood inside a single 24-hour period - but amortize the $20 to $40 I paid for that on iTunes across the several months it would have taken me under the pre-Internet model. Then compare it to the pre-Internet model's requirement that I watch on somebody's else schedule instead of my own and subscribe to unnecessary "channels" broadcasting loads of additional crap I don't want. It's still an easy win.)

Anyway, long story short, most popular web-based businesses are deflationary. It's a crucial insight.