Fundamental Restructuring Is Underway

Fred Wilson says what I’ve been thinking: that we’re in more than a financial crisis, we’re in a fundamental restructuring.

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 worldwide 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.

Fred outlines fundamental changes in retail, banking, and auto sales, to name three industries, and then is kind enough to plug my book for more.

I also argued in a recent Guardian column that not only will specific industries be overtaken by this change but so will the structure of the economy as - post-crisis, post-Google - companies and sectors will no longer grow to critical mass through vast ownership funded by vast debt but instead, Google-like, by building networks atop platforms. Industries will change and so will the structure in which they operate.

The point in any case is that it would be a mistake to think that we will come out of this financial crisis soon, wounded but still seeing the world the way we saw it before. In the graveyard of camels with broken backs, we will see a new world newly structured and we’re only beginning to figure it out.

In this sense, media - music, newspapers, TV, magazines, books - may be lucky to be among the first to undergo this radical restructuring. Communications was also early on because it - like media - appeared close to the internet and Google (though, as I say in the post below, it’s a mistake to see the internet strictly as media or as pipes; it’s something other). Other industries and institutions - advertising, manufacturing, health, education, government… - are next and they, like their predecessors, don’t see what’s coming, especially if they think all they’re undergoing is a crisis. The change is bigger, more fundamental, and more permanent than that.

Comments

[Teutonic Kn...:]

Good thoughts, lots of generalities. So are those specific changes coming our way that you called: "Restructuring". No meat, just spaghetti.

2008 Dec 26 04:51 PM

[bosun.j:]

Perhaps the author is attempting to put a "compassionate" face on the NWO?

2008 Dec 26 10:28 PM

[John Lounsbury:]

I don't think Prof. Jarvis has made any suggestion regarding a new world order. I see him saying that there be a new order of business models. He is suggesting that building on revenue growth rather than on massive debt will become more prevalent. His implication is that business plans based on brick and mortar concepts will become passe (media and advertizing the first sectors) and a new model (like Google, You Tube, Amazon, etc.) will become dominant. He reinforces that argument with the Fred Wilson quote.

It is interesting that today I heard that Amazon has had record 4Q sales and expected profits, while traditional retail has been faltering.


On Dec 26 10:28 PM bosun.j wrote:

> Perhaps the author is attempting to put a "compassionate&amp...
> face on the NWO?

2008 Dec 26 11:56 PM

[John Lounsbury:]

PS:

See Felix Salmon's article just published
www.seekingalpha.com/1...

2008 Dec 27 12:01 AM

[Jason Rines...:]

The fundamental restructuring is back to 'Save and Invest' economy from Efficient Market.

2008 Dec 27 10:11 AM

[Ricard:]

I sincerely hope articles like this get more attention.

"The internet, now closing in on 15 years old in its mainstream incarnation as the worldwide 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."

This type of change takes time, and given the setback tech underwent in 2000, now seems a good a time as any to retool the economy.


eBay is probably a great example to cite as to how the "new economy" cited in the dot com boom is evolving in reality. eBay was a novelty site, the world's biggest garage sale when it first came out -- compared to retailers that have set prices and distribution channels, it is now appropriately shrinking and taking what I think is its true place in this new retailing atmosphere. Sites like Amazon deserve more business, because in the end, their model is more efficient, and sells what more buyers want - new products at low prices. eBay's recent strategies are making it more Amazon-like, which robs it of its own identity, unfortunately.

Sorry if that was slightly divergent - I wanted to demonstrate how the process of businesses adapting to the Internet is still in its early stages. My main point is that this article, and those like it, are probably prescient in predicting the outcome of the current turmoil. To that end, I'd say that once employment settles to a comfortable range, Obama's stimulus package may shift from supporting roads and interstates to supporting the information superhighway and the internet. I've been long tech since 2002 (luckily went defensive two years ago), and think that eventually, the restructuring stated in this article will come true, with a second large spending spree to boot. Tech is generally cheaper now than it was in 2002...something to think about, as the retooling continues.

BTW great article, if I haven't said so already.

2008 Dec 27 12:03 PM

[CLH:]

Very good article Jeff. A crisis with total changes in business after something new appears seems to always occur. Railroads 1880s--autos 1930s--and now the internet.

2008 Dec 27 12:54 PM

[Ricard:]

BTW, if anyone has a subscription to the Wall Street Journal, here's a link to a related article:

"Retailers Brace for Major Change"

online.wsj.com/article...

For those without one, it mainly highlights store closures and a whopping 25% of retailers subject to bankruptcy risk, up from 7% in 2007.

Unfortunately, the "change" has more to do with economic realities, and less on technological change.

2008 Dec 27 01:43 PM

[Joyful Alte...:]

Re Ricard's:
> eBay is probably a great example to cite as to how the "new economy"
> cited in the dot com boom is evolving in reality. eBay was a novelty
> site, the world's biggest garage sale when it first came out -- compared
> to retailers that have set prices and distribution channels, it is
> now appropriately shrinking and taking what I think is its true place
> in this new retailing atmosphere. Sites like Amazon deserve more
> business, because in the end, their model is more efficient, and
> sells what more buyers want - new products at low prices. eBay's
> recent strategies are making it more Amazon-like, which robs it of
> its own identity, unfortunately.

Truly foolish moves by eBay management. eBay should have been enhancing its excellent niche with an infrastructure that consistently works instead of trying to become the KMart of the Internet. There's room there now for someone to take over the old one-of-a-kind, junque, heirloom, not-quite-antique auction space that eBay is vacating (or rather, crowding out with buy.com and other purveyors of WalMart mass market goods).

They're making their money from PayPal now, but one of these days regulators will catch on that PayPal is functioning as a bank.

I hope someone will structure a new-and-improved auction site for trading attic contents.

2008 Dec 27 02:19 PM

[Did U Think...:]

If this means that the Internet finally gives up on thinking that click through adds are of any value whatsoever then I'm anxious to see it.

LOL.

2008 Dec 27 03:08 PM

[Jolly_Rancher:]

"Restructuring" is a nice way to put it. I call it downsizing because when it's over, employment will never recover, corporate profits will never recover in nominal value, and total per capita output is long finished.

2008 Dec 27 10:01 PM

[secmaven:]

Massive retail facilities paid for by equally massive debt coupled with a transformation of buying to the internet creates one serious problem for our economy.

2008 Dec 28 12:51 AM