Why Large Companies Fail

The larger the company, the more stupid it acts.

When a company becomes strong, the focus shifts from growing the business to protecting the sales from diminishing. Hence the question changes from how do we increase sales to how do we avoid the decrease in sales.

This kind of thinking has killed off industry after industry. Companies that were built off an amazing idea, fed on that idea till the idea itself became irrelevant. Each new media has had a dominating company who pioneered it first. But rarely do these catch on to the next new form of media.

It is the companies who bet on jeopardizing their own existing business for the next game changing idea that achieve huge growth for decades.

This is innovation in its true form. Killing your own big idea for a bigger idea. It’s not putting money after money in research. It is the will to bet on the outcomes of this research.

Apple does it time and again. iPod Mini was competition to the original iPod. iPod Nano replaced the iPod Mini. iPod touch is competition to the iPod Classic. The iPhone is competition to the iPods as we know them. iPads hurt Macbook sales.

All this time Apple is simply doubling profits year after year. Imagine, the second largest company by market capitalization, doubling its profits every year. This is unheard of. They bet everything on the next big thing. They don’t fall prey to their past success. They don’t spend energy fighting to protect legacy.

Netflix did the same thing when it offered online streaming instead of DVD mailers. They built a business that competed with their own offering. And they remained at the top of their game.

But the publishing industry isn’t ready to learn. They want to see themselves losing profits year after year and simply blame the disruptive new technologies for it. They resist the future with all the money in their pocket.

The music industry wants you to buy CDs, because their music is copy protected if you buy online. The movie industry wants you to still get movies in physical form. New York Times will only offer you a good price on the electronics subscription if you are already a print subscriber. The book industry wants you to buy prints because the ebooks are overpriced. Not to say about all the DRM protection in all these media.

Newspapers are trying online content but only as an addition to existing print circulation. Only one company, The Daily has had the guts to truly move towards the future. The media industry has ridden online sales with fragmentation of availability (exclusivity) and copy protection. Book publishers don’t understand the ebook business and don’t let those who understand to carry forth their business. Like, Amazon using its power to enforce exclusivity in what it sells.

And then they want to fight for their rights with SOPA and other copyright laws. Fight their customers with layer over layer of copy protection. Squeeze their own paying customers by adding movie trailers and notices to all copies of their media.

This is the sign of an industry struggling with a new form of media. This is the sign of a new breeding ground for the next monopoly. Are you building it? Are any of your friends building it?


Originally published at paramaggarwal.com.