Thursday, July 23, 2009

The Knowledge Economy That Isn't

The online revolution really is just that: A Revolution.

For 15 years now, we've heard the phrase "The Internet Revolution" so often that it's a cliche, but most times, the authors throwing about the phrase didn't realize how right they were.

They never saw this coming, and many still don't. The hype about social media today sounds just like the hype about "multimedia" of 15 years ago. Is multimedia huge? Absolutely! So much so that it's practically ubiquitous today, and we don't even need to reference it as it's own entity anymore. Social media (and the Internet as a whole) will travel this same path. But what did we learn from multimedia and the dot-com bubble of the late 90's?

The Internet has greatly increased the power of the consumer, it has greatly benefited the consumer, and it has destroyed many traditional businesses in the process. I've been obsessed with this "Innovation Deflation" for weeks now, since Jeff Jarvis wrote this piece, and all the gears fell into place.

All the flap these days about how much Twitter or Facebook is worth is probably going to look pretty silly a decade from now. The answer will likely be "not much" in terms of dollars, even if it's profoundly valuable to it's users, much like the Internet itself.

So what are the signs of Innovation Deflation? They're pretty easy to spot. Look for industries that are suffering from contraction, losing revenue, cutting jobs, all while the end user or consumer is being better served. Craigslist and iTunes are the classic examples. They may be making a pretty penny, but they are supplanting entire industries that were worth tens (if not hundreds!) of times what these companies are worth.

Here are some more signals I've seen in just the last few weeks:

Marketing: Josh Bernoff at Ad Age writes:
Spending on digital marketing will double in the next 5 years, but ad budgets won’t. [...] Six out of ten marketers we surveyed agreed with the statement "we will increase budget for interactive by shifting money away from traditional marketing." Only 7% said "we have no plans to increase our marketing budget."

Unlike the last recession, digital marketing is no longer experimental. Now it looks more like advertising is inefficient, relative to digital.
(H/T Joe Trippi)

Music: Brad Stone writes an article in the New York Times titled, "Artists Find Backers as Labels Wane":
The major labels — Sony Music, Warner Music, EMI and Universal Music — no longer have such a firm grip on creating and selling professional music and minting hits with prime placement on the radio.

Much of that has to do with the rise of the Internet as a means of promoting and distributing music. Physical album sales fell 20 percent, to 362.6 million last year, according to Nielsen, while sales of individual digital tracks rose 27 percent, to 1.07 billion, failing to compensate for the drop.
Markets: James Altucher write for the Wall Street Journal, The Internet Is Dead (As An Investment):
Let's face it. Electricity greatly improved our quality of life. But I'm not going to get excited about buying a basket of utility companies. Same for the Internet. Can't live without it, but can't live with it (in my portfolio).
More importantly?
Don't just ask me. Ask the best. Nobody can figure out a business model.
It may simply be that there isn't a business model to be found. Have you run across any more examples of these efficiencies that benefit the consumer by deflating bloated and inefficient old markets? Share them in the comments!