Assessing the Internet: Great Creator or Destroyer?

25 Comments

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.

25 Comments

Mark Sigal

@First off, great comments, and a wide diversity of perspectives. Discourse is a good thing.

I will throw one thing into the mush that makes this topic so paradoxical from where I sit. As someone once said, it is (relatively) easy to manage for the short term OR the long term. It is very hard to do both simultaneously, and I see this as a societal question moving forward, sort of Capitalism 2.0.

Perhaps the topic of the internet, especially when multiple industries are made efficient, commoditized, forced to figure out what transformation REALLY means to their world is a case of 10 years after the fact, the answer will be obvious, that the pain was unavoidable and we are all better for having taken the medicine, but knee deep in it, it is just one big paradox.

On the one hand, the individual consumer is unquestionably better off for having greater choice, customization, the ability to connect with like minds and the knowledge to make educated decisions at their finger tips, but some element of human touch is lost in the process, and real communities are adversely impacted when their industry is being downsized (you’ve heard the quip that when your NEIGHBOR loses their job it’s a recession, when YOU lose your job, it’s a depression).

Not sure if this one is a question of safety nets, re-training or SOL cuz it’s a dog eat dog world, but it’s a paradox.

Cheers,

Mark

Air Hockey Man

Firstly, we are coming out of recession, and trust me; it will be back in growth by Q4 this year. Running a real business, we felt it before it was official news, and we are seeing the end before that becomes official news.

Secondly the internet is destroying old models. Who knows what the high st will look like in 15 years time? But new technology has always replaced old jobs with less new jobs, ask the Tolpuddle Martyrs. That why growth is important to create more jobs that the technology displaces.

DanM

Simply put, the internet is the great commoditizer! For any business that plays a “middle man” role, they need to constantly be looking at ways to increase efficiency and reduce cost. The internet has moved the game from one of marketing and sales to one of operations management.

Who wants to be a car salesman today? The internet has made it so simple to not only access information but also buy that car from 1000 miles away! I do believe people will pay a premium for value. The questions are, is that value real or perceived and what is the threshold of premium its worth.

Anonymouse

The caos present on the internet is indicative of the caos present in many peoples lives. The internet creates structure and harmony by allowing people to not only voice a large variety of opinions but also by allowing the author to immediately be able to hear others reactions.

abhe

its the twin. one side is great creator and other side is destroyer.
and now is the great time to show

Staceyface

The Internet has brought about the best, most exciting changes in human evolution, in my opinion. I feel fine to see the old world crumble and die. (ie The auto industry, the music industry, the retail industry etc etc)

I believe the new world is more about higher consciousness and communication. The Internet is a vehicle for worldwide communication, information, empowerment and opportunity to Anyone with access to a computer.

lifeaftereighty

Hey, Stacy, I’m with you. Somebody once said, “If we keep on doing what we’ve always done, we’ll keep on having what we’ve always had.” Time for a new start.

It’s a new century and a new millinium – let’s go for it. The internet is bringing us a real opportunity to recognize that all are one – and it’s actually working. Watch.

Nikole Hahn

Personally, I stopped ordering from Amazon because they took so long to get me a simple book order. I canceled the order and ordered from someone else. Amazon is annoying.

Satan sez

I HAVE TO COMMENT ON THIS …

The Business Insider recently ran a well-argued, provocative piece entitled “Economy Will Be Back In Recession By Early Next Year” …

We HAVE NOT recovered from the Recession – lol – this is INSANITY! It will be back by early next year – OMG – I am laughing hysterically as I reply!

spuriousme

I prefer going to the market than e-shopping, even with all the close-up shots of the product and assurances of durability, etc. I like to pick up and see on what I will use my money on..

I believe the internet, like everything else has both advantages and disadvantages. I have been working for three years as an English language instructor and I found that senior members of faculty are reluctant to handle a computer, let alone surf the net.

KDawg

Yeah yeah sure, but business is business and if it can’t evolve enough to remain viable then it should fail. I think even more important is not the capitalistic side of this issue but more the moral side. The Internet has changed the way the world communicates and it has helped erode the fabric that makes us all human – the way we interact with each other.

theprettyproject

Great points for both sides of the argument. I personally feel the internet provides more beneficial elements for the business environment than depressions but that’s coming from the stand point of a consumer, not a business owner. Regardless, great post! :)

http://www.theprettyproject.com

Mark Sigal

@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.

John Bartell

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.

Ryan

“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.

aaron

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.

Richard Johnson

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.

Mark Sigal

@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.

Dave Michels

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.

Eideard

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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