
The Collapse of Complex Business Models - nathanperetic
http://www.shirky.com/weblog/2010/04/the-collapse-of-complex-business-models/
======
jerf
In passing, it contains a great description of why "creative destruction" is
not merely an interesting sidebar to our economy, but a critical element to
our continued success. Which is more disruptive, "creative destruction" or
"societal collapse"?

Efforts to politically block creative destruction out of economy should be
fought as if it were the matter of life or death that it is.

~~~
kiba
People often confuse creative destruction with societal collapse.

~~~
jerf
I'm not sure what you're getting at exactly, but I would suggest that such
people need to brush up on their definitions. Creative destruction is when an
obsolete industry or practice is allowed to fail. Some people lose jobs, and
find other ones later. It hurts.

Societal collapse is when we all starve to death because we are all critically
dependent on modern industrial agriculture. It _kills_.

There's a difference. Preventing creative destruction is choosing to avoid
pain now with death not-too-far-from-now. I am not being metaphorical. The
article cites examples where just that happened; all those collapses were
accompanied by carrying-capacity reductions, which is a rather dry technical
way of saying "lots of people died".

A society full of people who don't get this distinction is a rather scary
prospect, but alas, more people now than ever before get this and it's still
probably nowhere near enough.

(Questions about whether our society is facing just such an inflection point
right now left as an exercise for the reader, as well as what "pain-avoidance"
measures are currently floating around that might qualify.)

~~~
euroclydon
Really, I though creative destruction would be something more like, letting GM
fall apart, so that several new companies could buy the pieces, cheap, and
_creatively_ make new and innovative automobiles.

~~~
jerf
Yes. That's actually an important observation about the process; just because
a billion-dollar-practice (called "GM") has keeled over dead doesn't mean that
the economy automatically takes a billion-dollar hit. First, the billion
dollar value clearly wasn't there in the first place (and acting as if it is
is dangerous to the economy; the current economic crisis in a nutshell is "bad
valuations"), and second, assets remain in existence that can be reused by
more effective entities.

But people are hurt, jobs are lost (even if only temporarily and ideally with
more recovered in the end), and there's still displacement that occurs. It's
just that it's vital to understand that the alternative is far, far worse.

------
ekanes
If you're interested in this, you should check out The Innovator's Dilemma by
Clayton Christensen. He walks you through how large companies (most of his
examples are from the hard drive industry) are often _structurally_ incapable
of embracing the revolutionary change which will inevitably overtake them.

[http://www.amazon.com/Innovators-Dilemma-Revolutionary-
Busin...](http://www.amazon.com/Innovators-Dilemma-Revolutionary-Business-
Essentials/dp/0060521996) (not an affiliate link)

~~~
gamble
Seconded. The Innovator's Dilemma is a classic, and remarkably free of the
usual business press BS.

It's particularly interesting today, as we're waiting to see who will survive
the transition to SSD. Five years ago, who would have thought Intel would be
king of the hill?

~~~
jimbokun
They must have read that book.

~~~
michael_nielsen
I've heard that Andy Grove is a huge fan of the book. Forbes had a cover with
Grove and Christensen and the sentence: "Andy Grove’s big thinker: Clayton
Christensen tells how to survive disruptive technologies"

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Perceval
Mancur Olson made a similar point in his 1984 book _The Rise and Decline of
Nations_. His argument is that as time goes on, special interests and
entrenched bureaucracies take what was a simpler system and load it up with
exceptions and complexity. The more complex they become, the less capable of
collective action they become, leading to overall paralysis.

This is an extension of his argument from his Nobel Prize–winning 1971 book
_The Logic of Collective Action_.

~~~
michael_nielsen
Olson didn't win the Nobel Prize. You're thinking of Elinor Ostrom's book
"Governing the Commons", which extended Olson's work considerably, and which
led to Ostrom's prize.

Thanks for the tip on Olson's 1984 book, which I'd never heard of. Curiously
enough, while reading Shirky's article, my mind kept turning to Olson and
Ostrom, and their work on collective action.

~~~
Perceval
Right you are. I've read both, and knew that Ostrom got hers recently, but
thought that Olson had received one as well. Oh well, still a tremendously
influential book.

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thaumaturgy
I think _Avatar_ , and other popular films like it, make the best counterpoint
to this article.

It seems obvious to me that as more and more users find more content online,
there will be a "thinning of the herd". Some shows and networks will simply
fail to find a way to adapt to the new market; others will survive, or even
thrive. It's not really happening yet because traditional television
viewership still eclipses its online counterparts, but it's coming.

Anybody could have downloaded and watched Avatar while it was still in
theaters; yet, people paid to see it because it offered a unique in-theater
experience. Other movies get expensively produced only to get meager box
office results. They don't offer a modern theater experience, and customers
aren't motivated to do anything other than download it or wait for the DVD.
There must be at least a few entertainment executives that realize this, and
it's likely to affect what they're willing to produce.

~~~
barrkel
I don't think it's a counterpoint. Avatar relies on a whole infrastructure to
amortize its costs, specialisms that make it feasible to create. But that
infrastructure wasn't built to make Avatar. It gets by on regular fare - and
the profitability of that regular fare is fading.

~~~
thaumaturgy
Well, much of what made Avatar special was actually built just to make Avatar;
that's what Cameron does. But I get your point.

It's complicated, though, because while the budgets for movies continues to
climb, the individual production costs continues to go down. Businesses like
Industrial Light & Magic keep building blockbuster special-effects laden
movies, and the techniques that they use to accomplish that become a less
expensive foundation for future projects.

So, so far, I don't see that the profitability there is fading. Pixar is
certainly doing fine, and I suspect that Cameron can pretty much work on
whatever he wants after this.

And, as the technology continues to progress, the need for other aspects of
costly production will go down: movies will require less actor time, fewer
cuts, fewer sets, less props, fewer models...

~~~
chipsy
My thoughts concur. To restate it in my own words:

As digital technology becomes more complex it tends to commoditize.

You can see the phenomenon across both software and hardware. For example, in
music:

The Fairlight and Synclavier were monumentally expensive(priced in six-digits
during the late 70s thru early 80s), being the earliest commercial computer-
based synthesizers. By the late 80s multiple options existed to get similar
functionality at a fraction of the cost(new hardware synths, MIDI, and 16-bit
computers). And in the two decades after that, computer-based solutions grew
better and started dominating. Now you can do all your synthesis, sampling,
and processing "in the box" - and solutions with more flexibility than
anything in the 80s are available for free. If you want to produce
professionally and do things as quickly and reliably as possible, you can
splash out for the cutting-edge commercial software, but it absolutely isn't
necessary for amateur use. The most expensive stuff now is the analog bits:
the guitars and microphones and monitors and preamps. But for a fraction of
the old Synclavier's cost, you can now bury yourself in the top-of-the-line
equipment of 2010. Apart from a few artisan works and rare vintage pieces,
there's almost no "multi-millionare" grade equipment left to buy. Music-making
doesn't need capital anymore, just talent.

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kevinp
"Charlie Bit My Finger" is a specious example. It's a 56s clip like one you'd
see on America's Funniest Home Videos, a program filled with viewer-submitted
content and a counterargument to "By Moms, For Moms." Two questions raised
here: How does "Charlie" stack up against American Idol, Dancing With The
Stars, and the Superbowl in terms of total viewer- _hours_? More important,
how many of us are willing to sit through 1.5h movies with "Charlie"
production values?

~~~
krig
I'm not going to claim that you've missed the point since I can't speak
neither for the article or for you, but my take on his argument and example
was different.

It's not that Charlie is just straight off replacing Dancing with the Stars.
No one is saying that people will spend the same amount of time they do
watching TV now watching crappy youtube clips. It's that maybe, there just
isn't a market for the kind of entertainment Dancing with the Stars represents
- it's just becoming too expensive. I'm not sure that's true, but I do think
the market for traditional TV/entertainment in general is shrinking. That, I
think, is the core argument: That maybe, there is no way to answer the
question "so, how do we continue making this much money?" without letting
people down. Perhaps there is no way for these big organisations to make all
their money doing what they do. Perhaps people like the guy who posted
"Charlie bit my finger" will find some way of monetizing that, in small
scales. Perhaps not.

The thing that people don't like to hear is that things change. So maybe the
days of entertainment are over, maybe no one can work in show business, maybe
copying that floppy really killed the radio star - yes, maybe. That's what
progress does - new opportunities grow from the corpses of old businesses.

~~~
jimbokun
Maybe, perhaps, possibly, or maybe, perhaps, possibly not. Without data, it's
all just speculation.

"It's that maybe, there just isn't a market for the kind of entertainment
Dancing with the Stars represents."

The irony there is that Dancing with the Stars represents an extremely
successful attempt on the part of television networks to cut costs and
increase profits. "Reality TV" costs far less to produce than dramas or sit-
coms with real actors and directors, but remain perplexingly successful at
attracting viewers and profits.

What I find more interesting is the remaining opportunities for dis-
intermediation. I went back and forth between the TV and the computer for the
NCAA basketball tournament games. The online version allowed you to pick any
game at any time, including previous games. Why should watching an NCAA
basketball game take me to the channel of the local CBS affiliate on my cable
system, instead of ncaa.com? Why are there bidding wars to carry the
Superbowl, instead of the Superbowl being broadcast at nfl.com and the NFL
taking all the revenue for themselves?

I'm curious if there are still any reasons for networks to intermediate
between content producers and consumers, or if it is just an anachronism we
have not yet moved past.

~~~
krig
Oh, absolutely.. it's impossible to predict the future. But yes, looking at
the current data the whole argument seems to fall apart: As far as I know, the
movie industry is doing better and better each year, and I think the same is
true for TV. Reality TV shows certainly represent successful change.

I agree that the middlemen are the ones that _should_ be in trouble, just like
in the music industry. If successful TV and music can be produced without
studios or actually distributing anything physically, the result should be a
more direct system. It could be that the change is happening while at the same
time the whole entertainment market is growing hugely (more and more people
living comfortable lives, devices that make it easy to grab entertainment time
where available), so that even failing businesses are growing, just slower
than the whole market is expanding.

------
helwr
this is most visible in 20th century architecture, think of gradual
elimination of everything external, ornamental, unnecessarily complex in order
to scale.

A long way to simplicity: from Gothic cathedrals to Woolworth building to WTC

~~~
Splines
Is it happening in the computing devices world as well? Is the move to the
iPhone/iPad a shift to simplicity?

It's interesting to note that your architectural example and Apple's devices
are similar - the iPhone, to outward appearances, is quite simple to use. The
innards however, are probably just as complex as any other modern operating
system.

~~~
Periodic
The interface and outward appearance is simple, but the internals most
certainly are not. There are still hundreds of components from dozens of
manufacturers combined to make a physical product. In the case of the iPhone
there's one of the largest mobile operating systems on there.

Computer chips are getting more and more complex as well, now with more levels
of caching and inter-core communication.

I think we have a long way to go before we get simpler computers, but that
does cause us to wonder if we will get to the point that they are just too
complex.

~~~
rbanffy
> In the case of the iPhone there's one of the largest mobile operating
> systems on there.

Still, it's a lot simpler than a desktop computer - fewer parts, no moving
ones... Splines' idea makes a lot of sense.

~~~
pyre
I think that he meant complex in terms of inner structure, not user interface.
Many of the previous mobile operating systems were pretty complex (from a user
interface level) even though they only had a limited number of tasks you could
do with them.

------
MikeTaylor
See also: _The Collapse of Complex Computer Programs_ , at
[http://reprog.wordpress.com/2010/04/01/the-collapse-of-
compl...](http://reprog.wordpress.com/2010/04/01/the-collapse-of-complex-
computer-programs/)

~~~
mojuba
Nice post, Mike.

The software complexity realm is a bit more enduring compared to other
industries. Complexity here survives better and lasts longer probably because
the demand for software in general is so huge that even the ugliest dinosaur
can live a long and happy life: think Microsoft, Oracle - still the richest
companies despite overwhelming complexity of their software and the process
itself. The death of Netscape, I think, can possibly be explained by the
incredibly poor quality _on top of_ complexity. (Which is a hint as to when to
expect the death of Microsoft and Oracle.)

~~~
ippisl
I think it's more enduring because complexity is recognised as the core
problem of software development , and a lot of smart people work on this
problem.

Also it's much easier to change a complex piece of software than a complex
organization.

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donaldc
From the article: _Against that background, though, they were worried about a
much more practical matter: When, they asked, would online video generate
enough money to cover their current costs?_ ("They" are the network
broadcasters.)

Sounds from the article like the correct answer is "never", or at least "not
until after your organization is dead", though the author didn't come right
out and say it.

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rbanffy
The question then is not whether to run to the mountains, but when to run to
the mountains.

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netcan
This is very true for public companies.

If the correct solution (say, maximum profits over the next 100 years) for
newscorp is to become 1/3 its current size, it probably can't do this. As a
public company it would probably collapse completely instead. The best it can
do is keep taking chances on growth even if they are less rational then
alternatives.

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dmoney
If a society has a complexity threshold, why is ours so much higher than, say,
the Romans'? Perhaps scientific and technological development keep pushing the
threshold higher, or mitigate the effects of smaller collapses.

Or maybe societies just collapse with some set probability, and we've been
lucky so far.

~~~
chipsy
Technology is definitely a factor in allowing more complexity.

We didn't have the idea of "total war" until the 1850s and the Crimean War -
nations in prior eras didn't have the resources to conscript the bulk of their
fighting-able population, equip them, transport them, supply them, and command
them. Industrialization allowed for en-mass conscription, the railroad made
transportation and supply chains efficient, and the telegraph and refined
clockwork made it possible to run a war on an intricate schedule.

Today our big change is in information technology, allowing the government to
enact more powerful policies with less overhead. If we can do this right,
we'll enjoy both the smallest and most efficient governments in history.

~~~
smallblacksun
Has any government ever gotten smaller without a revolution/foreign takeover?
Honest question.

~~~
ippisl
doesn't the trend to outsourcing many governmental services makes governments
simpler?

~~~
dmoney
The government has to outsource in a governmenty way. So in the US, they're
not allowed to unfairly favor one company over another (at least there are
rules trying to prevent it). This makes the steak and strippers kind of
selling illegal, and employees of contracting companies are legally required
to go through training on how not to bribe officials. Companies have to re-
compete for contracts they've already won. Then you have subcontracting, which
leads to situations where your boss works for a different company than you and
isn't allowed to know your salary.

Maybe it makes things simpler for the government itself, but probably not to
the extent that it could.

------
moultano
This is one of the few blogs which I always feel smarter for having read.

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JCThoughtscream
Current business models reach their complexity specifically because of the
technologies and social pressures they've evolved into - it may be that the
only way to adapt to new technological paradigms is to start completely over.

A critical rupture from the status quo seems necessary. Right now, what we're
doing is trying to attach a rocket engine to a canvas-and-balsa biplane when
we really should be designing around the engine instead. And the design for
that only superficially resembles the Kitty Hawk glider.

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pquerna
really good insight into the media industry, I've worked more on the inside of
it under IAC, and I totally see this expectation that people will pay these
media mogels for content -- I also worked at Joost, on the relative outside,
trying to provide media in new ways, and the inability for the current
generation of content owners to adapt is still staggering.

Even look at the recent moves of content owners and Hulu, trying to add pay-
per-view charges, instead of being advertising supported. They have made a
'good' platform for viewing the content, even owned by one of the old players,
NBC, but they are still looking to force the choice upon the consumer, rather
than adapting their cost structures.

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ThomPete
In some ways that seems to be what Clayton Christensen talk about in his
"Innovators Dilemma" although he speaks of products development.

This is in many ways what the "good enough" paradigm is all about.

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resdirector
To anyone who found the themes here interesting, I'd recommend Brave New World
by Aldous Huxley.

------
kiba
The government is like a train going full speed to their doom as chaos is
introduced into their system. When they die, they often explode spectacularly,
like a violent revolution in China.

~~~
sp332
If the USA didn't have a functioning democracy at the time of the industrial
revolution, there would have been a Marxist uprising here as well.

