Venture capitalist Fred Wilson of Union Square Ventures, an early stage fund specializing in investing in IT enabled services 'that have the potential to change the structure of markets', blogged ideas yesterday about the internet's disruption of retail. This is epitomized by the sad state of 'bricks and mortar' (shopping in actual shops) retail this holiday season.
This downturn will be marked in history as the time where many of the business models built in the industrial era finally collapsed as a result of being undermined by the information age. It's creative destruction at work....
...The internet, now closing in on 15 years old in its mainstream incarnation as the world wide web, is in many cases the underlying cause of these business failures.
Bits of information flowing over a wire (or through the air) are just more efficient than physical infrastructure...
Fred goes on to detail industries that will be transformed by the internet - banking, the auto industry - and cites Jeff Jarvis's new book 'What would Google do?' which appears to be about applying Jarvis's concept of a Google style business model to other business sectors.
Wilson brings up the 100+ year old mainstays of corporate America on the brink of collapse: one of the strugglers is mid-range department store chain Sears who ironically were massively disruptive to the retail channel 120 years ago at their birth.
The US in the late 1800's was predominantly rural and people relied on their single local store for everything: the supply chain network backbone was the railroad system. Sears was a Minnesota railroad station agent who first sold watches to other station agents and then started one of the first volume mail order catalog businesses, a recently viable new sales channel.
By 1895 the company's 532-page catalog offered a huge variety of items. The 'King Road Drag' arrived in the early 1900's and transformed supply chains by creating relatively smooth dirt roads which enabled first horse drawn delivery vans and then the first viable mass produced automobiles. Over time these roads led to Sears Roebuck building physical stores people could drive to, and that business gradually superseded their mail order business.
Fast forwarding to today, Amazon, which just had its best ever holiday season, and now other web vendors are arguably the worldwide 'Sears Roebuck catalog/department store' of the internet generation enabled by broadband and efficiencies of delivery - but there is a crucial difference, and that is showrooms and product experience before purchase.
The farmers receiving their Sears Roebuck catalog from the horse drawn postman 100 years ago were offered a vast array of items they previously had no experience of or access to: today the reverse problem is arguably true. Buying a book from Amazon requires you to know what you are looking for. Go to a good bookshop and you will find sections on subjects containing other contextual book choices, and a much richer browsing experience. These options are still very limited online, but the semantic web will ultimately change this.
A fascinating example of online contextual aggregation came up yesterday: marketing guru @samlawrence shared 100 Cereal box cover designs on Twitter: I pinged him back Cereals the semantic way http://breakfast.freebase.com/.
This is a seemingly innocuous exchange, but the bigger picture is that in Sam's link Alan Valek shared some cereal box designs he found on 'The Imaginary world', a terrific web 1.0 destination site with an archive of cereal box imagery. The Freebase Cereal 'base' I shared is a platform of contextual information about all aspects of breakfast cereals, including packaging design. It is this kind of contextual grouping that is at the heart of the power of collaboration - making connections between things provides a much broader understanding, as is the case in the subject section of a bookstore, and gives a much richer choice.
The internet meanwhile drives the cost of everything down, and sales channels are going to become constrained in this business climate: physical infrastructure arguably needs to move to a showroom experiential model sponsored by manufacturers.
Where you ultimately buy physical things will be increasingly defined by where the cheapest warehouse and delivery hub location is (Internet deliverables such as music are a totally different paradigm). As you have probably experienced this holidays, we tend to identify what it is we want to purchase and then ruthlessly comparison shop on pricing and delivery online. The identification part for anything we need to evaluate physically - cars are an obvious example - is becoming an increasing problem.
Just as the Sears Roebuck catalog ruined many local stores 100 years ago, destroying their sales margins, the information age is driving away physical transactional locations, whether banks, auto dealerships or shops, and forcing us to conduct our lives through the screen you're reading this on.
It will be interesting to see how the print mail order catalog business has done this season. Perhaps a whole new showroom demonstration industry will spring up to replace bricks and mortar retail, but where you order online and wait for delivery?