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Summary:

The Business Insider recently ran a well-argued, provocative piece entitled “Economy Will Be Back In Recession By Early Next Year” that takes into account the continuing job losses in the U.S. economy and the prolonged struggles within a number of industries, including finance, media, manufacturing (especially […]

iStock_000008107766SmallThe Business Insider recently ran a well-argued, provocative piece entitled “Economy Will Be Back In Recession By Early Next Year” that takes into account the continuing job losses in the U.S. economy and the prolonged struggles within a number of industries, including finance, media, manufacturing (especially the auto industry), advertising, big box retail and real estate. But as a longtime techie and a former bricks-and-mortar real estate guy before that, I can’t help but look at how the Internet has impacted the above segments over the past 15 years and wonder what it’s yielded more of: pain or gain.

It’s a difficult question. One on hand, we all love the concept of free markets, consumer choice, democratization of information and ideas, and disrupting big, bad, plodding incumbents. And “progress” is good, right? That said, with Amazon killing Circuit City and countless other retailers, Craigslist asphyxiating the print media industry, and Google whacking Madison Avenue, the answer is not necessarily black and white. In fact, I would argue that because the Internet is such a great creator, it’s also a brutally efficient deflator.

Case in point is the finance industry, where the power to transact anytime, anywhere, creates a burgeoning populace of amateur investors that leads to increased transaction flows, which — coupled with access to real-time information — leads to greater market volatility and a newly impoverished class of amateur investors. A similar example can be found in retail, where the power to research, comparison shop and source from multiple vendors leads to more demanding customers, rapid commoditization and lower margins. Is it any surprise that achieving durable success in this environment is harder than it appears?

And if in -– to borrow a term from Roger McNamee — the new normal there is a tendency of markets to move with near real-time speed to re-calibrate, re-price and re-purpose human talent, intellectual property and value chains, then when industries stumble, they’d better get up quickly and adjust, or they may never get up again. For while real change typically takes a lot longer to get underway than you ever expect it to, once it does, it happens in a more rapid and ruthless fashion than you could have ever prepared for — even with the best-laid plans.

This is the new normal, and it is changing the nature of jobs, business metrics, strategic planning and the tactical response process. As the truths it delivers are still too bitter a pill for many to swallow, I expect a lumpy recovery before we capitulate to this new reality and any real, sustainable job creation returns. In the worst case, this unwinding of the old and binding to the new will play out in slow motion, similar in chapter and verse to Japan’s Lost Decade.

That said, I would assert that the more likely scenario will be akin to when the defense industry collapsed after the end of the Cold War (2 million jobs lost). To many then, it looked like the beginning of the end.

But then a funny thing happened. The Internet grew to take its place, proving (once again) that everything old is new again.

Mark Sigal is a digital media and Internet platform entrepreneur who has done eight startups, four of them as a co-founder.

By Mark Sigal

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  1. I won’t critique the whole piece – because I found what I consider to be a lousy understanding of economic fact in the 2nd paragraph.

    You really think Amazon killed Circuit City?

    How about terrible service, ignorant, untrained staff, lousy purchasing and pricing decision – on the one hand? And Best Buy on the other?

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  2. I completely agree with this and blogged about back in April:
    http://www.pindropsoup.com/2009/04/will-amazon-inherit-world.html

    The Internet is destroying business model after business models – the first was likely travel agents which adapted so long ago we barely remember.

    On the other hand, I bought something retail for the first time in years – it was pleasant and because I bought something different than I set out to buy (with the aid of a good salesperson) I actually spent less. We also bought a hamster yesterday for my son… we didn’t like the cage and exchanged it easily and quickly for another. If I bought it online… I would still have it.

    Adaptation is a human quality, but the model changes are painful and disruptive. The hardest is the model of free.

    And yes, to comments above… Amazon (and newegg, and others) but Circuit City out of business. The consumer today is educated and armed with pricing and selection data – a classic storefront can’t compete. Costco and Walmart are thriving, but gone are the days of high prices and no sales expertise.

    Most distribution channels are woefully obsolete, and still don’t know it.

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  3. @Eideard, I think that you miss my point. I am not arguing that in some cases the death isn’t at least partially self-inflicted; or that in others, it isn’t a case of a competitor building a better mouse trap; or that in still others, it isn’t a case of changing consumer behavior. My point is that the net of effect of these changes don’t occur in a macro-economic vacuum.

    When Amazon, et al kills the consumer electronics retailer, the book retailer, record stores, print media, often it’s not as simple as jobs move from one industry and one gorilla to another. The Internet is so efficient that it’s more like ten jobs are replaced by four, and those six newly unemployed are suddenly pulled out of the consumer spending pool. When 70% of the economy is consumer spending driven, I think that the paradox is a meaty one, as evidenced by how the collapse of finance/banking hit Main Street every bit as much as Wall Street.

    @JT, thank you for flagging the broken link. Hopefully someone will fix that ASAP.

    @Dave, thanks for putting some more meat on the bones on this one, and I will check out your post. It’s funny how those of us living in Silicon Valley (Alley, etc), get so comfortable throwing around terms like “creative destruction” that we have no connection to places in the country that were one company, one industry towns, and are thus, wiped out no differently than if a natural disaster occurred; an event, which we’d of course be a lot more compassionate about.

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  4. Richard Johnson Sunday, September 13, 2009

    And thus proves the point that not all all entrepreneurs are good business people. This is completely lacking in any factual basis. Further, what scares me is that some users will scan this article and re-distribute without any critical thought whatsoever. I suggest you keep this simple at first…with pictures. http://www.charlierose.com/view/collection/9388 Then do a bit more research, look to Gaussian Copula, David Lee and credit default swaps, then move on to more advance theories. Further suggesting “Craiglist Killed Newsprint” (that explanation is too easy) demonstrates again that you have no idea what’s causing the meltdown in the news reporting industry and how long it took us to get here. If you really want to research that particular topic *strictly* form a tech perspective (ignoring the all rest) try http://scobleizer.com/2009/04/19/the-newspaper-industry-just-gave-away-another-free-meal-er-twitter-do-they-have-any-left/ he’s a blowhard but makes a number of valid points from a tech perspective. Then when you’re done, stop thinking for a few hours.

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  5. “Every act of creation is first an act of destruction” -Pablo Picasso

    This statement has never been more true. You can’t innovate and change the world without getting rid of the old ways that have obsolesced.

    New innovations tomorrow are also definitely helped out by destruction today. If 10 jobs are replaced by 4, and 6 people out of work, it increases the supply of available labor. From basic economic supply and demand, when supply increases, prices go down and quantity goes up. When the price of labor drops, it makes it easier for new innovation to purchase the labor it needs. As scary as it is, obsolence of jobs helps innovate the economy; innovation leads to more innovation.

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    1. Props to you for being the first one here (including the author of the article) to understand real economics.

      Those lost jobs are actually good for the economy as they free up labor to be used elsewhere.

      Yes this may temporarily suck for those who lose their job and must learn new skills, but the benefit to every one else on the planet who is a consumer far outweighs this loss.

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  6. Undoubtably, the Internet is disruptive. Personnally, I have seen the trade show market suffer tremendously because of the Internet. When I began my career 20 years ago or so, trade shows were really the only source of concentrated product info. Now, I can get virtually everything I need over the Internet. Trade shows are still around, but they are now smaller and for the big customers to meet with the vendor executives and product managers.

    But, realize this has made our economy more efficient, what with the savings on travel, print costs, etc.

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  7. @Richard, I would respond to your arguments, but you didn’t make any, save for giving me your recommended reading list.

    @Ryan, in the long run (3 to 5 year timeline), I agree with you wholeheartedly. In the short run, it may be dicey as all of this efficiency obsoletes a whole heck of a lot of sectors/employees. Hard to have a real recovery until unemployment rates start shrinking.

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  8. It sounds a lot like the industrial revolution for some reason…

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  9. The whole thing blows my mind. Thank You for Your take.

    May All Beings Be Happy.

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