Legacy smackdown: Music, then taxis and now…airlines??

Record companies? Hammered. Yellow Cab? Bankrupt and sold off in court. Airlines? You see what’s coming, right?

Quick story: In the early 90’s, I was a mid-level functionary at a big LA record company. At the time, I was a former long-haired musician and current shorter-hair MBA student, so I figured it was a match made in heaven. I mean, record companies are super innovative and entrepreneurial, right? The industry had only come into its own 20 years earlier, and still had an incredibly cool reputation. And I was a tech guy. Musician, MBA student, tech guy…this is where I could make my mark, right?

You can probably guess the answer to that, but suffice to say the record industry was not the swashbuckling, experimental industry I expected. Behind the Doc Martins and goatees laid the soul of an IBM…an old, slow, complacent industry. By the mid 90’s, the record industry had become a highly efficient money printing machine. And when you can sell 30 minutes of music on a cheap manufactured disc for $16, it’s no wonder why NO ONE wants to tip the milk cow. Suffice to say, some of us tried and failed. I moved on to greener pastures in Silicon Valley.

The next part of the story you already know. It only took a few short years for the music industry to collapse, starting when Napster upset the apple cart (I passed on an investment, wisely), and finishing when companies like Pandora gave us music for free (I passed on an investment, stupidly.) In 2016, sales of recorded music sales are about half of what they were in 1999. Ouch.

But this article isn’t really about music, it’s about how brutally today’s economy treats companies that abuse their market power. Napster was not just a consumer price revolt, but a proletarian uprising over being dictated to. People wanted cheaper product in a more convenient form. The industry chose not to give it to them, and the castle was stormed.

A one-time thing? Cut to the taxi industry.

In 1990’s San Francisco, it used to be notoriously difficult to get a cab. Not because there weren’t cabs, it’s that the cab companies didn’t make any money on getting you into the seat. The minute a cabbie drove a yellow car off the lot, the cab company had their money from the driver. If the driver couldn’t get fares, the companies didn’t care. Telephone reservations…perpetually busy. Online reservations…why bother with that investment? Competition…city ordinances strictly regulated the number of medallions. In the end, we were sentenced to life on public transportation, which gave us the infamous MUNI Meltdown. So, none of us were surprised when Uber and Lyft, with better service and cheaper prices, took down the yellow Goliath.

So, here we are again….with airlines.

Last story, promise. I used to fly United all the time, because all airlines were kind of alike. But after 911, United got REALLY bad. One time during this period, I chatted up a flight attendant. Once I secured my Diet Coke, I asked why United attendants were so surly. Surprisingly, she didn’t take offense, but answered honestly. “The company treats us like shit,” she confessed, “so we treat you like shit.”

So, there you go: the fish really does rot from the head. And we all know what happened to this flying fish: industry consolidation lead to bigger and fewer players, who abuse their market position. Next up, a few inconveniently-timed consumer nightmares make people grab the torches and pitchforks. The government takes a look, but basically tells the private sector to fix it themselves.

Oh, and fix it the private sector will most certainly do, in the form of startups that will tip this shit over. You can almost hear the keyboards in Silicon Valley cranking out solutions to the problem. And if you think the enormity of airline industry intimidates venture capitalists, think again. The current airline situation is a VC dream…virtually unlimited demand, enormous market size, and Neanderthal legacy players who are universally hated. And LOTS of capital needed, which is a good thing in this era of way too much money.

The big question is not when will startups take over the airline industry, that’s a no-brainer. The bigger question is what other dinosaur industries are still lumbering through the woods, wrecking everything in their path with their walnut-sized brains and oversized tails. I’ll leave this party game to you, but think of an industry where: 1) there’s not much technology, 2) existing leaders still operate like the 1950’s, and 3) people hate them.

Hmm…anyone ever deal with a housing contractor lately?