Why traditional businesses are screwed

Business bloodbath: Study reveals most of today's companies won’t exist in a decade. Here’s why.

A little while ago, the John M. Olin School of Business at Washington University released a study estimating that in a decade, 40 percent of today’s Fortune 500 companies won’t exist.

You read that right.

Not that they’ll have simply dropped off the list, but that they will no longer exist.

Around the same time, former Cisco CEO John Chambers made a similar prediction. He declared that in 25 years, two-thirds of today’s companies will not exist. Likewise, CNBC proclaimed that the S&P 500 faces mass extinction within the next 10 years.

Furthermore, a couple of other interesting — albeit subtler — things have happened. Though distinct from the doomsday predictions above, they are related nonetheless. Here they are:

• Companies that own (almost) nothing and have but a handful of employees have received multibillion-dollar valuations.
• Phrases such as ‘sharing economy’ and ‘collaborative commons’ have become buzzwords.

The objective of this article is to examine the driving forces behind all of this and to take a look at what it means for the future of business.

Power is Everything

Everything’s about power — especially business.

It’s the reason traditional businesses have succeeded on so big a scale for so long, and now it’s the reason they face imminent extinction.

Power is defined by the Oxford Dictionary as “the ability or capacity to do something.”

As such, one’s power is determined by their “ability or capacity to do something.” That’s why we typically consider Putin to be more powerful than the hobo inhabiting your local park.

Though, with all of that being said…

From what is power is derived? What enables or enhances one’s “ability or capacity to something?”

The answer: Technology.

That’s right, forget the idea that knowledge is power.

From flint knives to automated factories; from bare hands, to swords, to guns, to nukes — technology is power.

Traditional Businesses

Power isn’t cheap. At least not initially.

For most of history, sources of immense power — such as pricey technologies — have been largely inaccessible. Not everybody can afford an automated factory, industrial printing press or global distribution network, and it is from this very power inequality that traditional businesses profit.

As a result, society has long been dominated by what I like to call ownership-oriented businesses (OOBs):

Ownership-oriented businesses (OOBs)

Business model: OOBs focus on owning the source of power (hence the name) — such as a pricey technology or skilled workforce — and then distributing both the costs and benefits across the population.

Social structure: OOBs form a hierarchy in which the they have/own the power. The power flows down to consumers from the OOB. It is a one-way relationship; OOBs produce, consumers consume.

Words such as ‘customer’, ‘consumer’, and ‘client’ are indicative of this one-way relationship.

Below is a visual representation. The OOB has the power, and distributes both the costs and benefits of that power amongst customers.

Here are some examples:

• Airlines: The OOB owns the plane, and then distributes both its power (quickly moving you around the globe) and its costs (ticket price) across the population (everybody who’s caught a plane). The same applies to trains, ferries, buses, and so on.
• Products: The OOB owns the manufacturing technology — such as a factory, assembly line, product designers, retail stores, supply chain, etc. — and then distributes both its power (the furniture, car, device, toy, etc. that it produces) and costs (product price) across the population (everybody who’s bought a product).

You can also take a different approach, for example:

• Taxis: The OOB has the power to communicate to the world, “Hey! I can give you a lift.” The OOB does this by owning and marketing a fleet of heavily decorated cars. It then distributes both that power (you knowing that they can give you a ride in their car) and the cost (taxi fare) across the population (anyone who has ever caught a taxi).

Moving on, let’s take a look at what it is that will disrupt the ability of OOBs to continue profiting off power inequalities.

Exponential Power

Much to the despair of OOBs everywhere, power has a curious behavior.

Power is the “ability or capacity to do something,” which means it can — by definition — be used to create more power.

Accordingly, technologies can be used to create technologies of even more power. Just as a government might use its power to make itself more powerful, or a child granted a wish might wish for additional wishes.

Consequently, the cycle can be repeated again and again.

Two turns into four, which turns into eight, then 16, 32, 64, and before you know it, 128 — in but seven steps.

That’s exponential growth, and power — by its very nature — grows exponentially.

As Alvin Toffler said:

“Technology feeds on itself. Technology makes more technology possible.”

That being said, even though power begets more power, OOBs don’t end up any more powerful as a result. Instead, power becomes simultaneously more potent and accessible (read: affordable).

In other words, power democratizes itself.

So, what does technology’s undying penchant for democratizing immense power mean for the world of business? Let’s take a look…

The Future of Business

Increasingly democratized power is giving more and more people the power to create and distribute.

This democratization of power is perhaps best exemplified by the replacement of massive (yet vague) print encyclopedias with Wikipedia, which is crowdsourced.

The former belongs to an era where only large publishers had the power to create and distribute content, the latter belongs to an era of increasingly democratized power.

Similarly, one can’t help but notice that commuters have replaced newspapers with the likes of Facebook and Reddit.

Once again, the former belongs to an era where only large publishers had the power to create and distribute content, the latter belongs to an era of increasingly democratized power.

Wikipedia, Facebook, and Reddit don’t produce anything. Instead, they enable users to produce for each other. Their only content is that which is user-generated.

Power that was once accessible to only the most financially well-endowed corporations (read: OOBs) is becoming universally accessible. As a result, citizens are replacing corporations.

Business no longer means producing for consumers. Everybody is a producer. The future of business lies in enabling users to produce for each other.

Such businesses are what I call sharing-enabler businesses (SEBs):

Sharing-enabler businesses (SEBs)

Business model: SEBs focus on enabling users to share (hence the name).

Social structure: Just as OOBs — based on a scarcity of power — form hierarchies, SEBs — based on an abundance of power — form networks. Power flows through the network, with all users able to both produce and consume.

Words such as ‘user’ are indicative of this multidimensional relationship (as opposed to ‘customer’, ‘consumer’, or ‘client’).

Below is a visual representation.

Here are some examples:

• Digital Sharing: The SEB provides a framework/platform/hub through which users can share (create and distribute) digital media.

E.g.: Facebook, Twitter, Reddit, YouTube, Snapchat, Medium, Quora, Wikipedia, Instagram, Tumblr, Flickr, Vimeo, Soundcloud, etc.

• Physical Sharing: The SEB provides a framework/platform/hub through which users can communicate, share information, and organize/arrange something (that something usually existing within the physical world).

E.g.: Uber, Airbnb, UpWork, Fiverr, eBay, Craigslist, Kickstarter, Alibaba, etc.

Keep in mind the fact that mass communications technologies were once accessible only to massive corporations.

For example, having monks handwrite books was much more costly than using a printing press. Similarly, a printing press was much more costly than using the web.

As communications became increasingly democratized, SEBs arose and acted as hubs that enable specific applications of democratized communications, such as those below:

All of the example SEBs in the table above have one thing in common — they’re communications based. For this reason, you might be thinking along the following lines:

Well, sucks for communications-based OOBs, but surely businesses that produce physical products are safe from democratized power, right?

Let’s take a closer look. (Hint: They’re not).

Power’s Components

At the risk of oversimplifying the complexities of the real world, let’s assert the following premise: Everything is information.

After all, the Oxford Dictionary defines information as “what is conveyed or represented by a particular arrangement or sequence of things” — and that pretty much describes everything.

As such, the definition of power shifts from being the “ability or capacity to do something,” to being the “ability or capacity to [manipulate information].”

However, information, as a mere concept with no basis in reality, is of no use. Information is only made accessible when expressed either virtually or physically. Information can hence be broken down into two types: Virtual representations of information, and physical representations of information; the abstract and intangible, and the concrete and tangible.

Consequently, all power is derived from two sources — those two types of information: Communications and tools.

Communications are virtual representations of information.

Tools are physical representations of information.

Accordingly, there are two prerequisites for democratized power: Democratized communications, and democratized tools.

We have experienced increasingly democratized communications — with the advent of the internet and all — however, tools are not democratized to the same extent. At least not yet.

The Democratization of Tools

First up, consider the many OOBs that have died off — or at the very least, declined significantly — as a result of increasingly democratized communications. Newspapers, brick and mortar retail stores, cable television, magazines, publishing houses, record labels, taxis, and so on.

You wouldn’t exactly be keen to invest in any of those types of businesses, right?

Almost certainly not.

Well, guess what — it’s not only communications-related OOBs that face extinction.

As tools become increasingly democratized, every other OOB will face the exact same fate. In other words, any company that acts as a producer or distributor of goods, or is in any way based around the creation of products. Companies like Apple, IKEA, ExxonMobil, Toyota, Nike, Rolex, GM, and thousands more.

Remember Tower Records, Polaroid Corporation, RadioShack, Kodak, Blockbuster, and countless others like them? Democratized communications killed them all off.

The democratization of tools will make all remaining OOBs similarly irrelevant.

The beginnings of an extinction event

We’re already beginning to see the problems that democratized tools will pose to OOBs. Just this year we’ve seen product designs stolen and then 3D printed. And it’s not just OOBs that create those small toys or models that you regularly see 3D printed that need to watch out.

Already, 3D printers have been used to ‘print’ clothes, furniture, food, guns, mobile phones, laptops, solar panels, cars, houses, apartment buildings, and many other different things. In fact, 3D printers can even replicate themselves (i.e. print other 3D printers).

Now, add to all of that the following: You can already buy a wide range of 3D printers for about the same price as a computer.

In other words, we are not far from the day where pirating the latest iPhone or Lamborghini will be just as easy as it currently is (due to democratized communications) to pirate the latest film or chart-topping single.

Some suggest (and it’s certainly not inconceivable) that the homes of the future may come with a ‘manufacturing room.’ In other words, a room with a large 3D printer for households to ‘print’ what they need. Toys, furniture, devices, clothes, solar panels, a dog kennel or bird cage — who knows.

Rather than going to the mall or having Amazon post you something, one could simply download a file, have it printed out — and ta-da! — there’s your new dining table, boots, or fridge. No need for any OOBs whatsoever.

In addition to 3D printing, there is another candidate (albeit a little more distant in the future) for further democratizing tools: Collaborative nanobots, also known as utility fogs or foglets.

The idea is that these nanobots would arrange themselves in certain ways in order to create something. As a result, they could very quickly turn into something else.

You could have a different coffee table — or even car — every day. Heck, you could even have different colored walls every day, or even a giant floor-to-ceiling television-like screen.

All in all, the radical democratization of tools is inevitable.

It’s not only communications-related OOBs that are in deep shit. All OOBs face death within the next few decades (at most).

Remember back in the day when it was only multibillion dollar OOBs that had the power to distribute a book or film across the globe? Well, as you’d know, with increasingly democratized communications, now anybody can instantly share a blog or video with the entire globe — for free.

We’re not far from the day where democratized tools will make it similarly easy for anybody to start their own fashion, electronics, automotive, housing, or furniture brand — just as one might start a blog or YouTube channel today.

The Apple’s, Nike’s, Toyota’s, and IKEA’s of the future won’t be companies that produce their own products. Everybody will have the power to design, distribute, and produce their own products. The electronics, fashion, automotive, and furniture businesses of the future will be those that enable users to produce for each other.

These companies will look more like Facebook, YouTube, and Reddit than they will the OOBs of today. They will enable users to easily design products (or just edit/collaborate), and then share them with friends, and more generally, the world at large. Users will also be able to discover interesting user-generated designs and products, and then produce them via a 3D printer, utility fog, or other tool democratizing technology.

All in all

The democratization of power will see the evaporation of demand for businesses that themselves produce things (read: OOBs). Instead, that demand will shift to businesses that don’t actually produce anything but rather embrace democratized power by enabling users to create and share things (SEBs).

Business no longer means producing for consumers. Everybody is a producer. The future of business lies in enabling users to produce for each other.

All in all, one thing is certain: Traditional businesses are screwed.