I just saw an engaging blog post by Paul Tyma titled Unlike some other industries like film photography, Your business model called; its leaving (and its not coming back). He's picking on the music industry a little by pointing out the natural order of events for an industry in the throes of a technical disruption. Basically if you have a cash-cow that is being threatened by distruptive technology, many times you take your massive quantities of cash and try to prevent the disruption. This often involves the government and laws, sometimes by buying up the disruptive competitors and killing them off, or maybe through false advertising. He uses the poignant example of the recording industry trying to slow the demise of their industry by the digital age through legal action. He then goes on to drive home the point that this applies to absolutely every industry and if you are young it probably applies to the job you have right now during your lifetime.
He's right of course, I've seen it. Tag-Board was my cash-cow for a time because it was hard to create a web application that would scale easily, work well in a host of browsers, allow push-pull communication, etc. Now everyone knows how to create web apps, there are much better frameworks out there that scale far more easily, and push-pull browser communication exists in technologies from your web email, flash, phones, etc. I would be surprised if in 5 years the tools didn't exist to let anyone couldn't create a completely scalable implementation of tag-board in 30 minutes for free. Things like Amazon's Elastic Computing and competitors are working in that direction now.
Some industries encourage the dominant player to change with the times, for example: AT&T moving from selling land lines to cell phones. For other industries the dominant technology is so much more profitable than the disruptive technology that industry leaders who push towards the disruptive technology will see a faster loss of profits in the short term than they would see by trying to defend the dominant technology through legal and political systems. Companies in these industries don't evolve, they fight hard to keep the status quo. The recording industry seems like an example of this second world. There is no obvious business model in the disruptive music industry that will support companies the size of the RIAA.
Of course the industry I'm thinking about alot these days is Renewable Energy. Thesis: I think that the dominant industry (fossil fuels) and the disruptive renewable energy industry are similar to the RIAA and the digital industry in the sense that one will not evolve into another. The short-term profit loss is too large. Let me give some data to support that claim.
- Exxon-Mobil is the world's 2nd largest company (after Walmart, it was #1 last year) and the world's single most profitable company. #3, #4, #7, #9, and #10 are all fossil fuel companies. The remainder of the top 10 (#5, #6, #8) are all automobile manufacturers. [Fortune Global 500]
- Exxon Mobil has 22.2 billion barrels of oil in proven reserves [Businessweek
]. Crude is roughly $100 USD / barrel [Crude Price], which means their reserves are worth 2.22 trillion $USD. Their market cap is only $500 Billion reflecting the extraction costs of the crude. If energy could be produced for the equivalent of $90/barrel (10% less), Exxon Mobil's reserves would (overnight) be worth 200 Billion less. BP, Chevron, etc are the same deal but they have smaller reserves.
- Several *nations*, including the United States own large Crude Oil reserves which actually provide treasury money. The same analysis as applied to Exxon can be applied to them
- "During the first three quarters of 2007, Venture Capitalists poured $2.6 billion into clean tech startups, compared to $1.8 billion for all of 2006, and a mere $533 million in 2005." [TechCrunch]. Clean Tech now counts for 10% of all venture capital investment. Internet technology accounts for 15%. I'd bet the crossover point will be reached in 2008. There is alot of investment moeny going into renewable energy.
If the US passes even light carbon taxes, the renewable energy industry will probably surge in market cap overnight. Right now, renewable energy still costs more than non-renewable, but carbon taxes (or cap/trade) would change the ratio instantly. That is what the VC's are betting on. If this happens, Exxon Mobil will similarly lose billions of dollars off their market cap. That means if Exxon Mobil can slow that progress even by a few years at the cost of a billion dollars in lobbying, it is a steal for them. By embracing clean tech, they will sink like a rock. That leaves a big gaping hole for new companies to fill the gap, and there aren't any really huge leaders at this point. The technology is still new, but breakthroughs are coming. If someone produces renewable energy at scale for cheaper than non-renewable (without government help), then they are going to win big. Hence Google's RE<C effort.
I am excited about this industry. In my humble opinion it will be the disruptive technology that is the "Next Big Thing" like the internet was. Alot of venture capitalists would agree with me.