We will be describing truly disruptive change hitting these markets. Some might question what is really different? Change is a constant. We have all lived with that mantra for a while. We have seen industries such as technology go through fundamental change many times. Financial services have been reinvented many times.
However something is fundamentally different this time around.
We have been used to linear change, when one factor changes. For example, Moore’s Law has roiled through the technology markets for decades creating the waves of change from mainframe to mini to PC to Internet, each with its own dominant players. But the arc of change was relatively predictable. IBM saw the mini and PC waves coming and Bill Gates saw the Internet wave coming. They might have had trouble adapting, but the direction and even speed of change were relatively predictable.
In some cases we see really wrenching change when two factors combine. For example, when regulatory change collides with new technology, the result is very hard to predict.
What is happening today is perfect storm, where all the components are in flux, where nothing is certain. In times of of non-linear change, markets go into a chaotic state for a while. Order does eventually emerge, but it takes time, the shape of that new order is hard to predict and the eventual winners won’t look anything like the current incumbents. Seeking safety by grasping at the old verities is like grasping at a straw. It won’t help. It is a straw being blown about by the same storm, not a lifeboat on a calm sea that can rescue the big ship that just hit an iceberg.
Here are the 7 winds in this perfect storm:
1. Digital economics. This is what Fred Wilson calls Bits Of Destruction. The two key aspects of digital economics are a) whatever can be digitized will be digitized and b) whatever can be digitized can be copied and distributed for close to zero cost. This fundamentally changes business models and erodes the competitive barriers erected over decades by the incumbents.
2. Generational shift in habits. These are the digital natives who work fundamentally differently than previous generations. You cannot sell to them, buy from them or work with them in the old way.
3. Globalization of markets. This is a huge positive. Literally billions of new people are becoming consumers. The bad news is that you will have challenge every assumption you learnt from western markets to sell to these emerging market consumers and businesses.
4. Globalization of competition. The cost of everything related to human labor is crashing down. Just when we learnt how to deal with digital economics (give free digits away for free and sell the services created by expensive humans), the other side of that equation is being changed. Just when we learned how to deal with offshore economics 1.0, we see offshore 2.0 kicking in with a mix of crowd-sourcing and direct to consumer models.
5. De-leveraging. This is an ugly word for an ugly reality. It means that consumers and businesses will use a lot of their excess cash to pay down debt. This will deepen and prolong the next problem.
6. Great Recession. This is the simplest factor. Any business executive making big decisions today has worked through at least one previous recession and knows the playbook â€“ batten down the hatches until the storm passes. This recession is worse than any most of us have worked through thanks to deleveraging. This makes the timing of recovery harder to predict than in previous recessions, adding yet one more level of uncertainty to the planning mix.
7. Regulatory change. Regulatory change can have dramatic impact on markets, for good or ill. As all these factors impact billions of people in different countries, the politicians will seek to protect their voters. This will add another dimension of uncertainty and change.
In our next post on Tuesday, Feb. 23, we will look at the 7 acts in the creative destruction play. If you work in any of these industries as an employee, entrepreneur or investor, recognizing the phase that your industry is in will help you figure out your own plan.