Markets Adapt

I have a number of partially-completed blog posts, and this is one I was reminded of while reading Ori Brafman and Rod Beckstrom’s The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations (www) over the past week… I hope to say more about the book in due course, but for now it has me thinking about the strategic flexibility of flat “leaderless” decentralized organizations vs. the relative inflexibility or unimaginatively of their monolithic counterparts. It’s an examination of piracy that had me thinking about something from Michael Raynor‘s book, The Strategy Paradox: Why Committing to Success Leads to Failure (and What to Do About It). See, it turns out that forgery trade losses are up to $200 Billion and not over $600 Billion as previously whined. Still, might as well blame Canada and not prescreen anything here. Piracy’s evidently a Canadian institution, but those trying to combat piracy through lawsuits and censure evidently underestimate adaptability, both their opponents and their own.  Let’s go back to the 70’s…

Betamax was released in 1974 as a bundle with a Sony Trinitron television, and was made available as a stand-alone device in 1975. Sony touted its invention as a way to time-shift broadcast television. Television and movie producers were profoundly concerned. Television advertising revenues were threatened because consumers would record programs and skip commercials. The movie business would collapse as customers abandoned theaters in favor of royalty-free bootlegged copies of movies. In an attempt to kill off the new device, Universal Pictures and Walt Disney Studios launched a class-action suit in November 1976 on behalf of their industry, seeking to have the machines declared illegal. In 1976, almost two years after Sony’s launch, VHS debuted with first-year sales of 110,000 units to Betamax’s 1976 shipments of 175,000. Through 1977 Betamax continued to hold on to a slim lead, outselling VHS 56:44 while enjoying a 58:42 lead in installed base.1

The point of that lesson is simply to illustrate that the home VCR was supposed to spell the demise of television advertising revenues and facilitate easy piracy which would shipwreck the movie industry as well.  Last time I checked, we still had both turning a fair coin for themselves and not in any grave danger of disappearing in a puff of smoke.  Is that a cry of “Wolf!” that I hear?  Haven’t we seen this before?

The motion picture industry has adapted, selling video tapes and now DVDs for rental or home use… it’s a huge business for them that they initially opposed.  After adapting, it accounts for a significant revenue base… one which they’re now trying to protect in the same way from the same perceived threat which spawned it in the first place.

As Brafman and Beckstrom describe in their book, the music industry attempted to sue music-sharing systems into oblivion, and met with some success.  At first.  Since Napster required a centralized server, it could be shut down… but in response to such threats, file-sharing decentralized further until it can’t be shut down — with no centralized server or database, there isn’t any one entity to sue with a silver-bullet lawsuit.  They can’t stop it, and all that’s left is to adapt.  It seems to me that the motion picture industry should take another look… if they spend half as much energy on adaptation to what customers are demanding, as they’re now spending on lawsuits to effectively limit what their audience-customers can have, they’d be profiting sooner in new ways with happier customers.

I’m not all that worried about them — they’ll adapt, they always do.  If they can’t adapt and survive, it’ll be because the technology and the world around them changed, invalidating the only business model they’re willing to explore.  Change is constant, and so must be review and adaptation to the way we do things.  What threats does your business model face through changing technology or cultural shifts?  How might you adapt?  Trust me, it’s worth thinking about ahead of time.

Footnotes:

  1. Raynor, Michael. The Strategy Paradox: Why Committing to Success Leads to Failure (and What to Do About It) ( p.23-24) [back]