The economic pie is up for grabs. The way I imagine it, it's as if business models were picked up from Planet A and deposited on Planet B. A few models fit the new planet, but most don't and some will have to be radically reconfigured. Have at it boys. Oh, and by the way, the rules have changed. Some rules we haven't even figured out yet.
It's a free for all. And because of it, we're going to see massive wealth redistribution in common shares over the next decade or two. Big winners and devastating losers. Investors are right to be wary. Disruptive change can sneak up on your positions. I warned about IBM (NYSE:IBM) one year ago; there are many disasters-to-be like it. The action is likely to mirror Hemingway, from The Sun Also Rises:
"How did you go bankrupt? Two ways. Gradually, then suddenly."
Here are my thoughts on three large verticals - cars, television, and IT - where disruption is underway and there's no turning back. Expect a redistribution of trillions of dollars of market value affecting most companies in these verticals. (Ahem, stock pickers? Giddy up.)
Cars: Vrooomm! Vrooomm! Vrooomm!
Let's go straight to the finish line, shall we? Tesla's (NASDAQ:TSLA) disruption is just the beginning, car fans, a staggering redistribution of wealth will occur toward the end of the decade as self-driving cars take over. (I hope we don't need to debate the inevitability of self-driving cars? One million injuries per year, cherubs, 40,000 lives; it will be all-electric, and a trillion dollar upgrade over what we have now. Check out Chunka Mui's superb series on the topic.)
The winner in this vertical, long-term: Google (NASDAQ:GOOG). And, well, that's about it. Seriously, the way this vertical will evolve - to a centralized, intelligent self-driving system - is consistent with a natural monopoly. What about Tesla (TSLA)? Is there a place in the Google self-driving ecosystem for Elon Musk and Tesla? Glad you asked ...
Sergey, call Elon. Twenty b's is awfully high, but think about it. With Elon and the Tesla team joining Google, you'd be vertically integrated with the world's safest, most advanced all-electric cars.
Another reason to call: You're going to get hit with a massive wall of resistance from vested interests and lobbyists when your technology is ready. Hurricane-force resistance. Not that Larry would do a bad job, but Elon would make a great point man. And having the whole package, the entire solution under one house obviously makes it easier to sell. The green thing (all-electric), it'll help too.
Elon, take the call. Then take the deal. Yeah, I know you were gonna kick some tail, and you still can. But when self-driving takes over, car production drops 80%. You know it's going to happen. And you know the value is in owning the network.
Um, Elon, one more thought. The choice is oblivion or world domination, really.
Disruption is about to blow through television-land, and it's going to be messy. Television's distribution model seems like it was designed with a we-hate-viewers mindset. You watch when we say, not when you want; yes, we know you hate commercials, but we need 30% of your viewing life to pay for all of this.
Bullshit. Eighteen minutes of commercials per hour is way, way too much. (To say nothing of being offended by the dumbed-down nature of the average commercial.)
Something's got to give, and soon. Viewers want to be untethered and now that it's possible, it's happening: Internet TV. Content owners, your audience is subject to massive upheaval in the transition. Intermediaries, it's fair to expect a lot of pain. Advertising, same thing. All up for grabs.
Internet TV begins with the viewer in mind (because it has to!), so you typically get a "skip ad" within a few seconds. The reason: data show the viewer is gone if you push him. Did you hear me? GONE. If you push him. Even a little. One ad is the new norm. At the other extreme, television was designed to maximize profit, with 30% of your time allocated to unrequested ads dictated to you in top-down autocratic fashion. Like I said, bullshit.
There is a huge pie here, and it's going to be divided up anew, though it's not yet clear who the big winner is. (Working on it. You should be too.)
This is a vertical I've done a lot of work on, and I've written about it, so I'll try not to repeat myself (e.g., see my last piece, AWS and the Amazon Phone: The Next Big Thing?)
Here's what you need to know: The $4 trillion IT industry is a free for all. I'm not going to argue the case for the cloud again, because by now you should have figured it out: The bulk of compute will be centralized.
There is, in fact, a really big winner in the IT space: AWS, a division of Amazon (NASDAQ:AMZN). Everything starts at the foundational, compute layer, and AWS is far out front in this natural monopoly (like Google in the self-driving car space). In my last piece, I went into detail about AWS and how it leverages its scale economies. Yowza, what a moat. Game might be over, already.
Disclosure: I am long AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.