Xes Will Replace Ys! Sell your stock in Ys!

Just read a blog post outlining the eventual "decline of tangible and analog media". Its premise is essentially that digital distribution of media is better than tangible and print media on many inescapable levels, and that the decline of paper newspapers, music on physical disks (of any kind), and analog phones are inevitable.

First of all, the gist of this post is 100% correct, even if it is a little bit late. Nicholas Negroponte eloquently made this observation in his book Being Digital way back in 1996 (which, I am quite happy to say, is now available in its "vintage" edition). When it comes to media, content is far more important than its distribution system. It was never about the pulp, it was about what the words printed on the pulp meant. Bits trump atoms.

The post itself acknowledges this by saying up front: "It isn’t really an argument ... it’s one of the clearer long-term trends." Fair enough. And the post does a good job articulating both statistics and details to support its basic premise (although honestly, people - if you want to be an erudite new media thought leader, learn not to put apostrophes into words that are just plurals. "CD’s replaced tapes ... MP3’s replaced CD’s" just makes you look silly).

But what got me thinking about this one enough to response-blog about it is how it seems to suggest three things that I've been saying about about "X will replace Y!" prediction pieces since they became mainstream media staples in the 1990s.

Xes never completely replace Ys. The "all or nothing!" mentality of these pieces seems to suggest that the transition is going to be total, and anyone caught napping is going to be sorry. A fair reading of history should confirm that the Xes never completely replace the Ys. In many many cases, Xes just shove the Ys into specialty layers of the economy. Many aficionados (my father was among them) insist that stereo systems using vaccum tubes and needles playing vinyl disks sound better than digital ones - so there's a niche market for specialty stereo equipment using those technologies, and a thriving secondary market for old equipment.

Even the iconic "buggy whip" tale (automobiles replaced horses, so buggy whip manufacturers were left without a market and disappeared) is simply untrue. First of all, buggy whips are still made today, in service of those communities (like the Amish) and other specialty groups who still need ways to urge horses without hurting them. Further, it turns out that a few buggy whip manufacturers adapted their businesses to focus on other markets for their products, and *gasp* are still around: Westfield Whip, established in 1884, still makes whips for the equestrian and specialty riding markets, and, yes, buggies. The argument that buggy whip manufacturers clung irrationally to their businesses while the automobile eclisped them is historically inaccurate, as this New York Times article relates. Apparently the whole metaphor was started in 1960 by a Harvard Business School professor using the example to illustrate his premise that businesses should focus on customer needs, not products per se.

Okay so this is largely a historian's quibble over a rhetorical point. Yes, technology moves on, and businesses would be wise not to equate technology-specific product formulations as forever immutable. True. Or at least "truthy," to borrow a brilliant word from Stephen Colbert. But that brings me to my second quibble.

Xes almost never replace Ys immediately. In fact, if the history of technology illustrates anything, it's that clearly superior Xes don't replace obsolete Ys anywhere near as fast as they should. The fax machine was first demonstrated as an adjunct to the telegraph in the 1840s, and yet widespread fax usage didn't occur until the 1980s. Markets have a certain inertia to them, especially when the obsolete technological formulation of a given product is not terrible about accomplishing the market need. The telegraph worked far better than the technologies it replaced, and the market quite happily exploited its benefits for a century or more before other solutions presented themselves.

Even when technology produces demonstrably superior products, there is often plenty of money to be made during the time the transition occurs. For years while I was in the website hosting business, those familiar with the cutting edge of the Internet would shake their heads, predicting that shopping aggregators or blogs or Facebook Fan pages had already made "traditional" websites obsolete. Their implication was that I might as well give it up now, before I woke up one morning and found that all my customers had migrated to some superior solution. Ten years later, my old "traditional" website hosting business is still a juggernaut, growing hugely, making shareholders quite happy with their returns. The overall market size continues to grow, despite the presence of cheaper, better alternatives, and lord knows how long it will be before the overall market starts to decline in size, let along become reduced to niche status. Even in declining industries, the firms that play their cards right can quite easily provide profits and jobs and services for a generation or more. Which brings up my final observation on this subject:

The first version of the X is almost never the one to replace the Ys. In the mid-90s, it was common knowledge that web-based search would eventually eclipse telephone directories, classified ads, library card catalogs, and any number of other information-pointer services. The examples used at the time to make this point? Hot Bot, Alta Vista and Excite. If they had listened to the hyperbolic predictions of Wired magazine back then, anyone in the directory business should have just thrown in the towel and signed their shares over to Digital and Yahoo. By the way - the yellow pages industry is still huge - I haven't looked at one in a decade or so, but someone still delivers them to my house without my permission.

Invariably, great ideas that render existing businesses obsolete are almost always run by folks who don't really know how to capitalize on their brilliance. Eventually they figure it out (or someone does), but just because the lightbulb goes off for some self-important journalist about the inevitability of obsolescence doesn't mean that the idea they're citing will be the one to do it.

At the conceptual level where most journalists and consultants and analysts (and investors, in my experience) play, the "X will replace Y!" narrative is easy to formulate, predict, and even 'prove.' But in truth, these replacement curves are neither total nor immediate, nor are the exact players or products that will ultimately dominate obvious at the outset. During the time when those inevitable transitions are underway, there is plenty of money to be made - often for years and years - through the old technologies, for those savvy enough to do so. Overall markets may decline, and old business models exploded, but on a firm-by-firm, technology-by-technology basis this doesn't have to be the case.

The key, probably, is not to act like the rhetorical buggy-whip manufacturers, but like Westfield Whip:

• Seek new uses and new markets for your product, developing it where necessary to cater to niches. Go upscale or downscale as market reality dictates, and follow your market savviness to adapt. Be sure not to compromise too much, too fast, on what you know well.
• Always be seeking ways to cut costs and operate better, and don't be afraid to shrink to meet reality. Shareholders are conditioned to want growth, and ever greater returns. - seek capital, therefore, that can be comfortable with steady returns instead. And finally:
• Take the hyperbolic prediction pieces with grains of salt. They're inevitably written by those with more interest in a smoothly-written narrative than anything approaching reality.