Assessing the Internet: Great Creator or Destroyer?

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.