Bits Of Destruction

The news is full of stories this year end about the impending bankruptcies of retailers, newspapers, auto manufacturers, banks, and a host of other businesses that have been the mainstay of corporate america for the past 100 years or more.

Clearly the economic downturn is the direct cause of most of these failures but I believe it is the straw that broke the camel’s back in most cases.

The internet, now closing in on 15 years old in its mainstream incarnation as the world wide web, is in many cases the underlying cause of these business failures.

Bits of information flowing over a wire (or through the air) are just more efficient than physical infrastructure.

I’m typing this on my blackberry in a hotel lobby in berlin, I’ll hit send, and it will be published and read by roughly 5,000 people today. Compare that to what it takes to get the Tom Friedman column ‘Time To Reboot America‘ which is sitting in front of me in the International Herald Tribune newspaper printed and delivered to me. Printing and distribution infrastructure cannot compete with bits on a wire and we are going to see that infrastructure end up in in bankruptcy a lot in the next 12 months.

Let’s look at banking. Money is information too and is increasingly flowing as bits. I can’t think of the last time I walked into a bank branch. I use a debit card wherever I can and I can’t wait until I can tap my blackberry when checking out like many people in Japan and Korea already do. These bank failures have more to do with risky lending and owning securities that are toxic than anything else but we also know that a bank today is very different than a bank 20 years ago and I am positive that we’ll see entrepreneurs reinvent what banking is in the coming decade and it won’t look a thing like Bank Of America or JP Morgan Chase.

And what about retailing? I had breakfast last week with a person who has been in retailing for more than 30 years and has been operating at the highest levels of the industry. He said that he expects every category to be winnowed down to one dominant retailer with all the others going by the wayside. This too has the internet as an underlying cause. comScore says that online holiday shopping this year has been flat with the year before and I’ve seen reports that offline retail is down 6-10pcnt. The fact is that consumers have finally come to the realization that shopping online is easier, cheaper, and often a better experience. Physical retail will survive, but it will be a smaller industry in the next decade and those that do survive will need to give consumers a very strong rationale to get in the car and come to their store.

The internet has also made the auto dealer model of distribution a questionable approach in this day and age. Consumers can research a car, use auto lead gen services to work one dealer against another, and totally commoditize the dealer channel. I remember back in 1998, ten years ago, the Gotham Gal and I bought a car that way over the internet and had it delivered to our house. We never even went to the dealer. I’m not active in the auto market and barely drive a car these days, but I have to believe the dealer based distribution system is not the most efficient model for getting cars into consumers hands any more. I hope that any restructuring of the auto industry that happens takes advantage of a newer more efficient distribution model.

I could go on and on but will stop here. If you want to get a longer riff on these ideas, get Jeff Jarvis’ book, What Would Google Do?, where he imagines Google operating in many different industries and thinks about how they would approach them.

This downturn will be marked in history as the time where many of the business models built in the industrial era finally collapsed as a result of being undermined by the information age. Its creative destruction at work. It’s painful and many jobs will be lost permanently. But let’s also remember that its inevitable and we can’t fight it. Technology and information forces are unstoppable and they will reshape the world as we know it regardless of whether or not we want them to.

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