The New Industrial Revolution

Preview of the 2015 Investment Innovation Conference

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Smart PhoneAs a speaker at the 2015 Investment Innovation Conference in Palo Verde, CA (October 28 to 30),  author and consultant Ben Thompson, the Taipei-based technology blogger and founder of Stratechery, will explore how aggregation theory points to a radical shift for Internet businesses. In advance of the conference, we asked Ben a few questions about how disruptive technology is giving way to new customer relationships as successful companies become platforms aggregating goods and services — without losing sight of the consumer experience. To find out more about Ben’s presentation and the Investment Innovation Conference, click here.

How did you shift from focusing on the disruptive effects of the Internet to aggregation theory?

I certainly had the broad sense that the Internet was very disruptive and my thesis was that in the long run it will be on par with the Industrial Revolution and will remake society. Aggregation Theory coalesced those thoughts.

You’ve identified three components in the aggregation process. One of them is the user experience (along with supply and distribution)

I’ve written about the user experience and how in some markets it’s more important than others. I’ve written a lot about publishing – it’s that canary in a coal mine aspect because publishing is text and digital and analogue are the same thing,

Actually my blog is kind of the disassembly of a book. It’s the breaking apart of the book to get at the idea.  My subscribers are paying me to spend at a minimum an hour a week. It’s $10 a month that is not being spent on books. Not all books. There are many different kinds of books. Some books — theory books, strategy books, business books – can be broken down.  Other books are unique entities unto themselves.

The whole reason it works is because of the ability to aggregate tons of customers as well as because you don’t have transaction costs. An ebook, for some companies, sells for about the same price as a printed book

But not all media companies are affected in the same way by the disruptive effects of the Internet.

I’m trying to understand Apple and why they seem to have defeated a lot of the traditional criticism. I think aggregation theory, and a lot of what I do, is a response to that disruptive theory. Too many think it explains everything and it doesn’t. It fails in certain areas.  It was focused on business applications where cost-benefit analysis rules the day and was less applicable to consumer markets than people realized, because of the user experience.

I think the difference between Apple and some of these other companies is that Apple still has transaction costs: they actually have to make the phone. An Internet company like an Uber or an Airbnb or Netflix, because they have zero transaction costs, they can serve, at least theoretically, everyone in way that a physical product company never could. That’s new with the Internet: this idea of one company actually being able to serve everyone. That’s why valuations are seemingly crazy – because there’s the idea of winner-take-all.

Being able to modularize – reduce a car to a ride or a hotel to a room – how crucial is that?

I think the more that gets modularized — the more of the commodity that can be altered — the faster it affects the user experience. Uber is probably the big example. They’re just obliterating the taxi industry at a far greater velocity than anyone else. The other companies, they’re less of a commodity; there’s other things that are going on. It’s a little bit slower.

The thing about Uber that is so transformative is not just the potential to replace the taxi industry, but to be a car replacement. That’s where you get into the idea of the Internet remaking society, not just remaking certain sectors. If we actually got to a world where most people didn’t own cars, but there were cars to take you wherever you want to go — that would be a pretty radical transformation.

You’re not talking so much about new products as new relationships?

Certainly. A key thing with Airbnb and Uber is that there’s a much more efficient allocation of resources. It’s not that people are going places less, it’s that a car is sitting idle much less — the same thing with a room. That’s the big thing.

Where you make money is wherever there’s friction. People will pay to overcome friction and the biggest friction in almost everything used to be in distribution – how do you actually get it to the customer, beyond the costs of production?  Now the key point is more discovery: that just gives the advantage to the Internet companies.

To learn more about the Investment Innovation Conference, please visit the conferences section of the CIR website. If you are interested in attending this event, please email Alison Webb to be considered, as limited space available.

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