One of the tricks that the internet regularly plays on us is that the revolutionary impact it has on our lives is so all-encompassing, and yet so fine-grained and fluid, that we almost don’t notice what’s happening until we turn and look at where we were just a few short years ago. The things we take for granted now would have seemed like science fiction to our earlier selves, and yet we barely notice them.
Of course we carry around incredibly powerful personal computers made out of glass that fit in our pockets, and of course we speak to them and they answer us—like something out of Star Trek—and do our bidding. Of course we let them tell us what route to take to get somewhere, or how to pronounce something in a different language. Why wouldn’t we? How on earth did people do these things before smartphones came along?
But that’s just the tip of the iceberg. We carry libraries filled with the world’s great books in our shoulder bags, stored on wafer-thin tablets that connect wirelessly to a vast, globe-spanning network. We can call up information on any event in recorded history and see photos or videos or painstakingly archived material about it—and when something happens half the world away we can instantly read what people there are saying about it, and see photos and videos they have taken within seconds of them doing so.
This ability to bring the entire internet with us wherever we go—combined with the tools that allow us to mix and remix what we see, interpret and share it with others, and then have them do the same—has changed the media landscape in as fundamental a way as the cooling of the earth changed the landscape for the dinosaurs. Many people like to compare the web to the Gutenberg printing press, but it’s actually far more revolutionary than that.
For some companies (you probably know their names by now) the arrival of the internet and the smartphone and distributed social networks is an extinction-level event, just like the meteor that did in the brontosaurus and the T. Rex. Much like Rex, these beasts evolved in ways that were well suited to their environment—but when that environment changed suddenly, they were left with arms that were too small to grasp tools and brains that were too slow to adapt to the quickening pace of the world around them.
Meanwhile, the tiny amphibians who were mostly a nuisance to the dinosaurs have evolved into nimble predators, and their skills are much more suited to the environment they both find themselves in. Most of the major players we see on the media landscape now were either unheard of or looked like also-rans only a decade or so ago. As disruption guru Clay Christensen has said, the next big thing often starts out looking like a toy.
That group includes companies like Facebook, which started as a time-wasting plaything for college students and now has a market value of $300 billion; and Google, which was a science experiment for two nerds from Stanford until it discovered the internet’s most profitable business model and is now (as Alphabet) worth $500 billion. Or Twitter, which started as a kind of joke and has since become a real-time news wire for the world. Or Amazon, the humble book-seller started by a refugee from Wall Street that now does more business than most brick-and-mortar retailers put together.
And what has become of the dinosaurs? They continue to stomp around the landscape, bellowing and roaring, but their power has been much diminished. Once-omnipotent media companies like the New York Times struggle to make money as advertising and readership moves online, book publishers and record labels scramble for whatever scraps are left behind by digital leaders like Apple and Amazon or streaming services like Spotify, and even movie studios find themselves lost in an industry they once ruled with an iron fist.
At some point in the not-too-distant future, we will look around and see vestiges of those once-powerful dinosaurs wandering around the landscape, in the same way that we can look at a crocodile or a shark and see traces of the prehistoric monsters they once were. Any fear they strike into our hearts now is just a shadow of the terror they used to command, and new beasts roam the earth. It’s not that these new animals are any less terrifying; they just have a different shape, and behave in different ways.
So a platform like Facebook may not look anything like Comcast or AT&T, and yet its power over the media we consume is no less strong—if anything, it is all the stronger because it goes almost unnoticed by so many of its willing users. Where will our increasing attachment to such platforms take us? Will the symbiotic relationship we have with them benefit both sides of the relationship, or will we find that Facebook looks like a friend only to realize that inside it is still an apex predator?
How the Ultimate Middleman Fell off His Perch
It may be difficult to imagine now, but not that long ago, the media industry was a pretty quiet place. The newspaper business was still a reliable means to make a hefty profit, half a dozen record labels still controlled the bulk of the mainstream music business, movies were a rock solid enterprise, the book publishing game was still a cozy little oligopoly, and the TV business was basically a license to print money. Until recently, none of these industries had suffered anything even close to a major disruption.
Newspapers were shaken up somewhat by the launch of USA Today in 1982, in part because it took a different approach than most other papers: namely, it looked at the production of a newspaper as an industrial manufacturing operation as opposed to the kind of hand-crafted model others used, which had remained largely unchanged since the invention of moveable type. But in the end it was still a newspaper, more or less like any other, and eventually it was accepted into the fold and became part of the landscape.
The TV business got a similar kind of shake-up when new channels like CNN and MTV came along. The arrival of CNN in 1980 brought 24-hour news television into being, which many saw as somewhere between a revolution and an abomination. And MTV was one of the first "modern" TV networks in 1981, with a focus on younger viewers and constructed around what we see now as lifestyle product marketing. But both were still fundamentally similar to the TV that had come before, and so they were eventually absorbed by the incumbents.
The music business saw some upheaval in ownership during the 1970s and 80s, and the introduction of new formats such as 8-tracks and compact discs. But with a few exceptions, every new development allowed the existing labels to make even more money than they had before, as music consumers loaded up on all their favorites in the new format. New labels were formed—in some cases by musicians—but eventually they became part of the industry. As for book publishing, the last major disruption it experienced was the invention of the paperback in the 1930s, which was widely criticized but actually wound up boosting book sales.
Even one of the most disruptive media events of the past half a century, the invention of the videocassette recorder, didn't turn out to be as transformative as first imagined. When Sony invented the Betamax VCR in the 1970s, the movie and TV industries saw it as a giant hand grenade thrown directly into their businesses. They mounted a full-scale legal assault and fought the new invention tooth and nail, in a case that eventually went all the way to the US Supreme Court. But as it turned out, the VCR was one of the best things to happen to both industries, and they ultimately made hundreds of billions of dollars from it.
The key to all of these media businesses was simple: ownership of both the platform and the distribution model. A classic example was the newspaper business, where even the name was a combination of the product (the news) and the platform on which that product was delivered. Controlling the distribution channel—whether that was paper or compact disc or TV network or movie screen—was a critical success factor in each industry, since it allowed incumbents to control the means of monetization for all of those captive eyeballs, whether that was charging users directly or brokering the sale of their attention to advertisers.
Based on this control, each of these industries generated billions of dollars in revenue and market value. In the late 1990s, the US newspaper industry had revenues of $65 billion, and accounted for several giant family fortunes including the Knight family (Knight Ridder) the Sulzbergers (the New York Times), the Bancroft family (the Wall Street Journal) and the Grahams (the Washington Post). At about the same time, the movie business was worth about $40 billion and accounted for a large part of the value of companies like Sony, and the US recorded music industry was worth about $15 billion.
Their power made them the ultimate middleman in each sector: while there had always been independent newspapers, musicians who made their own records, authors who self-published and movies that existed outside the traditional studio system, in most cases those industries were controlled by a select few. In order to reach an audience in almost any medium, content creators had to navigate a massive labyrinth of rules and unspoken expectations, and with each step they gave up some element of ownership or control.
It wasn't all bad, of course. Those industries—particularly the music, movie and book publishing businesses—also invested time and resources in developing new artists and new creators, in much the same way that sporting organizations have farm teams. Investing in newcomers was a form of risk arbitrage: even if it failed to pay off in nine out of ten cases, the tenth might become a blockbuster whose success would make all the others worthwhile. Even so, however, it was still the existing players in the industry who decided which new entrants were worthwhile and which were not. And that meant that true surprises or authentically disruptive creators rarely got widespread attention.
All of this was predicated on control of the platform and the engines of distribution, a control that seemed unassailable even as recently as the 1980s. Every new entrant or technology that came along seemed only to enhance the dominance of the industry leaders. Within a decade, however, virtually every media market would be shaken to its foundation, and many incumbents would be toppled from their lofty perches at the top of the food chain. Billions of dollars in revenue would vanish almost overnight as the levers of power slipped from the grasp of the incumbents, seized by new competitors with strange names. And their power would come from something that looked like a toy when it first appeared: namely, the web.
Careful Now—The Next Big Thing Looks like a Toy
When the so-called "World Wide Web" first appeared on the scene in the early 1990s, it's safe to say that only a handful of people even appreciated what was happening—and most of them could never have predicted what this science project run amok would become. The web was barely a speck on the radar for anyone who wasn't a computer programmer, but that tiny meteorite would eventually destabilize the entire media ecosystem. Glaciers would melt, continents would be torn asunder and giant dinosaurs would starve to death in the relative blink of an eye, leaving new species to thrive in the new digital climate.
By the time the web arrived, the internet had been around for several decades already. But no one outside of the computer departments at various universities and government institutions paid much attention to it. And why would they? It was mostly just nerds typing in green letters on a black screen, using arcane commands to communicate with faraway computers the size of a school bus. The web was clearly different, since it had rudimentary images and these strange things called "hyperlinks." But it wasn't clear what it was supposed to do, or whom it was supposed to be for. Apart from nerds, of course.
The first web pages reinforced the idea that the network would never appeal to anyone without thick glasses and a pocket protector. They paid tribute to Star Trek and accordion music and other such ephemera. And even after larger entities started to offer their services on the web, it was seen as a digital ghetto of sorts, not something to be taken seriously at all. The images were terrible, everything took hours to download and in order to create a "website," you needed to teach yourself an arcane computer language.
True technological disruption requires a combination of factors. It's not enough for something to be better in some abstract sense—it also has to be paired with an exponential advancement of some kind that helps to fuel the disruption. In the case of the web, the fact that any two computers could be connected together and share data quickly and easily via a tiny piece of free software was only part of the equation. It didn't become truly disruptive until it was combined with cheap computers and high-speed telecom lines. That's when it became a true global communications network, with rich images and video.
This process happened so slowly, in relative terms, that it lulled many leading media companies into a false sense of security. How could this nerd-fest possibly become a real threat to existing media giants like the movie industry or the major record labels? It seemed almost farcical to suggest such a thing.
Some media companies saw the web not so much as a toy but a threat—but even then, they often misunderstood exactly how it was going to be a threat. When Napster arrived in 1999, the record labels saw it as a massive exercise in copyright infringement (or piracy, as they preferred to call it) and they unleashed the same legal onslaught against the company and its users that the movie industry aimed at the VCR. But all that time and money distracted the industry from the crucial realization that even if they won against Napster, their entire business model was doomed. And by the time it became obvious, it was too late.
The exact same process occurred in the book publishing industry: When a former Wall Street broker named Jeff Bezos started an online bookstore called Amazon, the idea that his tiny company might become a competitor to the giant publishing business seemed absurd. He had earnings of zero and a brand that no one had ever heard of, and the publishers had billions of dollars and hundreds of years of history behind them. Only a handful of years later, Amazon would be worth $25 billion, and soon it would have a stranglehold over electronic books unlike anything the publishing industry had ever seen. And instead of competing with existing publishers, it would be dictating terms to them.
The newspaper and magazine industries made exactly the same kind of category error that the book publishers and record labels made: from their point of view, the web was just a place to put some leftover print content. And then these strange things called "blogs" came along, where men typed madly into their web browsers while sitting in the basement in their pajamas. How could this be any kind of competition for the massive engines of the New York Times or the Washington Post? And meanwhile, they missed the tectonic change that was occurring directly under their feet, especially with respect to advertising and the changing attention patterns of their audience. By the time they realized what was happening, the New York Times had lost more than two-thirds of its value and the Washington Post was for sale.
When industries fail to see change coming on the kind of scale we've seen with the media business, there are usually all kinds of aggravating factors—hubris and inertia being two of the big ones. But one of the other things that made it so hard for incumbent media companies was that the web looked so similar to their existing businesses: it was just a different place to put print content or books or movies, and so that's what most companies did. But those similarities disguised the fact that the web had completely altered the fundamental underpinnings of their businesses, in ways they had only begun to comprehend.
One characteristic of successful companies who reach the apex of an industry is that the skills and attributes that allowed them to get there are the same ones that prevent them from seeing a disruptive force approaching, even when it’s obvious.
What would the world have looked like if some of those traditional media incumbents had realized what was happening sooner, and had seized the opportunities that the web presented to them? Would they have been able to avert disaster, or would it have just slowed down the inevitable shifting of power? We'll never know, of course, but it's unlikely much would have changed. One characteristic of successful companies who reach the apex of an industry is that the skills and attributes that allowed them to get there are the same ones that prevent them from seeing a disruptive force approaching, even when it’s obvious.
How the Internet Finally Made CX Matter
In almost every case, the havoc that the web eventually wreaked on the traditional media industry was fairly obvious long before its effects were felt in a financial sense. Just as the massive "thunder lizards" who once walked the earth could see all around them the mammals that would one day replace them at the top of the food chain, the signs of disruption were equally visible to the record labels and book publishers and newspaper companies. But they didn't take them seriously, and as a result they failed to adapt. Why?
If the web and the internet have accomplished one thing, it's been to demolish the barrier that exists between consumers and what they want.
In most cases, they didn't understand what their business actually was, or what their users actually wanted. And so when someone else came along that did a better job of both of those things, their destruction was almost guaranteed. And if the web and the internet have accomplished one thing, it's been to demolish the barrier that exists between consumers and what they want.
The music industry is a good example of how an entire marketplace worth billions of dollars can misunderstand its purpose on a fundamental level, and as a result wind up misdirecting its resources. Most record labels and other entities within the industry thought their job was to deliver music—whether in the form of LP records, 8-track tapes or compact discs. And so that's what they spent the bulk of their time and money doing.
The music industry is a good example of how an entire marketplace worth billions of dollars can misunderstand its purpose on a fundamental level, and as a result wind up misdirecting its resources.
What the arrival of the downloadable MP3 file made clear was that the actual physical product itself was largely irrelevant, and that what users wanted was the experience of music, whenever and wherever they could get it. For the first time since the invention of radio, the MP3 file gave them that ability in spades. And so millions of music fans willingly traded a higher-quality music format (the CD) for a lower-quality one—all because of the flexibility that having it in that format gave them.
Newspapers are another example of this principle at work. Most large media companies got that way because they delivered the news to people in print, either on the newsstand or through subscriptions. And so the physical product became the focus, and that's what most newspaper and magazine publishers came to believe was their business: selling a package of media contents with their name on it, whether it was the New York Times or the Washington Post. How could anyone compete with that?
This was like the railway industry thinking that they were in the business of operating railways, rather than the much larger business of transportation. That's what allowed the industry to be so blindsided by the trucking business. And in the same way, newspapers and magazines forgot that they were in the business of distributing information or of entertaining people, which made it that much easier for someone else to come along and do it better.
BuzzFeed and Vice were both dismissed as cheap and tawdry entertainment with no redeeming value. After all, one traded in clickbait, and the other just parachuted tattooed millennials into various war zones and called that journalism. But within a few short years, BuzzFeed would be hiring reporters and editors away from the New York Times to start a full-fledged news operation, and Vice would sell chunks of itself to two mainstream media entities, giving the company a market value of more than $2.5 billion.
Even Apple was dismissed at first, in part because all it gave people was music—no packaging, no marketing, no real brand names (except the artists'). That wasn't what consumers wanted! Except that it was. And ultimately, streaming became the preferred method of consuming music, a format in which there was no packaged experience of any kind, just a personalized radio station. The music industry had always competed with radio, but over the decades many of the record labels had forgotten this.
In every case, the incumbent players in the market came to see the structure and process and physical product as the point of their business, rather than their ability to serve the customer. And that attitude was perfectly reasonable when physical products were the only way to consume most forms of media, whether music, movies, books or news. Once the internet came along and all that content was atomized and digitized, however, the structure of those businesses no longer made as much sense any more, and the glaciers started to melt.
The Problem with Getting Comfortable
It’s not a big stretch to see the similarities between what the media giants of today have gone through and what happened to the actual dinosaurs—a sudden and dramatic change in climate, creating an environment that favored small, warm-blooded mammals over large, cold-blooded lizards. But what’s interesting is where that analogy diverges: in the modern media sphere, what’s followed the initial disruption is the creation of a new breed of giants, many of them just as dominant as the ones they replaced, if not more so.
What many expected to happen when the internet came along was a democratization of media of all kinds—an explosion of individual creation and content distribution, thanks to the lowering of technical barriers to entry. And that’s more or less what did happen: blogs and social networks and e-books allowed anyone to write and publish; YouTube and Vimeo and other networks allowed anyone to create video; musicians and other artists were able to distribute their own work far and wide, and so on. But that was just the beginning.
What happened next was that the power that traditionally belonged to old media players—the record labels, the movie studios, newspapers and magazines and book publishers—was gradually transferred to a handful of large social networks and platforms. It happened so slowly that many traditional media companies were taken by surprise, and didn’t realize how much the balance of power had shifted.
In the music industry, to take one example, Apple became an early platform with iTunes, and is now trying to continue that dominance with its new streaming music product. It was able to amass a considerable degree of power simply because it owned a crucial distribution network—namely, the millions of iPods it sold, and then later the millions of iPhones that replaced them. For a time, Apple effectively controlled the music business worldwide, until streaming came along, and now it shares power with other platforms like Spotify.
The news and entertainment industries have been through this process once already, and are now going through it a second time: first it was Google, which became the default channel through which many people found content online because of its search engine. But as social sharing has started to take over from search as the way people discover content, Facebook is becoming the new default platform.
Facebook is now flexing its muscles by asking publishers to post their work directly to the network instead of just posting links—something it argues will serve readers better by making the content load faster. But the result of this campaign is that existing publishers will become even more beholden to the social network. Not to be outdone, Apple is also trying to become a default platform news content with its News app, and is even hiring editors to help curate and aggregate content from different sources. This is something that newspapers and magazines used to think of as their key function in the media world.
Google also happens to be a large and growing player in the video market, thanks to its ownership of YouTube. When it first arrived on the scene, the video-sharing network was dismissed as a platform for piracy that would never become a real business—but under Google’s ownership it has become a streaming-video behemoth, with annual revenues in the $4-billion range. And when it comes to TV content, Netflix has grown from a second-rate streaming service to a multibillion-dollar player that creates its own content.
In book publishing, Amazon became the market’s 800-pound gorilla fairly quickly, with so much control over the e-book industry that the major traditional publishers felt forced to collude with Apple to try and blunt its power, and were found guilty of anticompetitive behavior. Amazon’s key bargaining chip is its Kindle platform, as well as the fact that the more it dominates the book business, the cheaper e-book prices get, which consumers love.
In each of these industries, the company that has become the dominant platform got that way by understanding the shifts in the ways people find and consume content, instead of remaining attached to existing models. But will these new dinosaurs themselves be disrupted by new players who can adapt more quickly to a changing market? As media continues to shift to embrace virtual reality and 3D, who will become the new platforms and distribution channels? If there’s one thing the last decade or so has taught us, it’s that dominance in one market shift is no guarantee of success when the next tectonic shift arrives.