from Newsweek
Richard Bangs / Business Wire via Getty Images
The past decade is the era in which the Internet ruined everything. Just look at the industries that have been damaged by the rise of the Web: Newspapers. Magazines. Books. TV. Movies. Music. Retailers of almost any kind, from cars to real estate. Telecommunications. Airlines and hotels. Wherever companies relied on advertising to make money, wherever companies were profiting by a lack of transparency or a lack of competition, wherever friction could be polished out of the system, those industries suffered.
Remember all that crazy talk in the early days about how the Internet was going to change everything and usher us into a brave new techno-utopia? Well, to get to that promised land, we first have to endure a period of what economist Joseph Schumpeter called “creative destruction,” as the Internet crashes like a tsunami across entire industries, sweeping away the old and infirm and those who are unwilling or unable to change. That’s where we’ve been these past 10 years, and it’s been ugly.
Let’s start with newspapers. You wouldn’t think that in an information age the biggest victim would be purveyors of information. But there you go. Newspapers are getting wiped out in part because they didn’t realize they were in the information business—they thought their business was about putting ink onto paper and then physically distributing those stacks of paper with fleets of trucks and delivery people. Papers were slow to move to the Web. For a while they just sort of shuffled around, hoping it would go away. Even when they did launch Web sites, many did so reluctantly, almost grudgingly. It’s hard to believe that news companies could miss this shift. These companies are in the business of spotting what’s new, right? Yet they were blind to the biggest change (and the biggest opportunity) to ever hit their own business. Watching newspapers go out of business because of the Internet is like watching dairies going out of business because customers started wanting their milk in paper cartons instead of glass bottles.
Newspapers are getting wiped out because the Internet robbed them of their mini-monopolies. For decades they had virtually no competition, and so could charge ridiculous amounts of money for things like tiny classified ads. This, we are told by people who are wringing their hands over the demise of newspapers, was somehow a good thing. Good or no, it’s gone, thanks to Craigslist, which came along and provided the same service at no charge. Whoops.
TV is in the same boat. For decades we had three big broadcast networks. They weren’t exactly a monopoly, but close enough; with so little choice, the networks could aggregate huge audiences and charge outrageous fees for advertising time. Along came cable, which brought in dozens of competitors. This hurt a little bit, but when the Internet arrived, the dam burst. Suddenly the number of “channels” soared as high as you can count. There is no limit. It’s infinite. That sudden surplus has drained ad money from TV networks, which is why TV is now jammed with low-cost junk—reality shows, cable “news” that owes more to Jerry Springer than to Walter Cronkite, Jay Leno on five nights a week in prime time—taking the place of scripted shows, which cost more to make. Basically, TV is on a race to the bottom, cutting costs to stay ahead of the destruction. This may be a short-term fix, but simply putting out a worse product is probably not the way to survive.
The music business has suffered even more. First there was Napster, distributing music at no cost. Apple’s iTunes Store offered a path to survival, but it forced the music companies to cede control of their industry to Steve Jobs. As for music retailers—remember them? Yes, children, there used to be actual stores that you could walk into and buy music, on CDs and even on vinyl record. You don’t see many of those about anymore.
As for the film industry, Apple now offers movie studios the same Faustian bargain it made with music companies: “You just focus on making movies, and let us take care of digital distribution.” But the movie guys remain wary, and at the very least would rather deal with many different digital distributors and not let any single distributor get too powerful. The studios realize that the digital revolution is disrupting their business. The best they can hope to do is slow down the disruption.
But it’s not just stodgy old-fashioned companies that have been hurt by the rise of the Internet, even tech companies suffered damage. Before the Internet came along, Microsoft ruled the computer industry. Tiny software companies lived in Microsoft’s shadow, and they knew that if their business struck gold, Microsoft would offer them an unpleasant choice: either sell your company to us for a pittance, or we’ll create software that mimics your product and put you out of business. Microsoft bullied rivals and business partners alike, until the latter squealed to the U.S. Department of Justice, which brought an antitrust case against the software giant, resulting in a judgment against Microsoft in 2002.
These days nobody fears Microsoft. The company has become a stumbling, bumbling joke. That’s not because of the government, however. What really tripped up Microsoft was the Internet. Microsoft’s business model was based around waiting for others to innovate, then making cheap knockoffs of what others were selling. Microsoft copied Apple to make Windows. They copied Lotus and WordPerfect to make Excel and Word, then bundled those apps into a low-cost suite called Office. They copied Netscape Navigator to make Internet Explorer, and then gave it away free, tied to Windows, and killed Netscape. But then the copycat model stopped working. Why? For one thing, Microsoft got slower, while everyone else got faster. The new Web-based companies, like Yahoo and Google, needed little money to get started and could scale up quickly. Google figured out keyword-search advertising and got so big so fast that Microsoft could not drag it back. Apple rolled out the iPod and then the iTunes store, and by the time Microsoft realized that selling music online was a big market, it was too late—Apple had it sewn up. The same is true of Amazon with the online retail market, and the Kindle, and its cloud-computing services.
Now Microsoft finds itself racing to catch those companies, even as it invests resources and energy into defending its money-making products like Windows and Office. It’s a case study that could have sprung from the pages of Harvard Business School professor Clayton Christensen’s book The Innovator’s Dilemma. Microsoft is too big to get swept away. But it’s too wedded to the old world to make it across into the new one. It is quickly becoming irrelevant—maybe not as much as the average newspaper, but close enough.
The Internet has changed pretty much every aspect of our lives over the past decade. Is that for the better or the worse? Depends on who you ask.
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