So why are people asking about defensible and sustainable business models on the Internet? Well, if there’s one thing the Internet has done, it’s brought sky high valuations back to earth. So, investors doing what investors do, they’re suddenly looking for “bargain” companies that have mature business models and trial tested management. Hence the quest for sustainability and defensibility. Reasonable, right? It certainly makes sense if you’re going shopping for a private equity fund. But in the last 2 days, I’ve decided it’s almost exactly the wrong question to ask. It’s like looking for dry ground in a tsunami: it may give you some temporary peace of mind, but don’t count on it to last long.
 
The Quarter Century Electric Switch
 
Nicholas Carr’s book, The Big Switch, ties the development of the Internet to a previous discontinuous innovation, the electrification of America. In it, he provides a fascinating recount of the unsung visionary who laid the foundations of the power grid we take for granted today, Samuel Insull.  Insull started as Thomas Edison’s clerk, but soon split with his mentor in his vision of the future of electricity. Edison, for all his brilliance, was thinking too small. He was concentrated on building individual DC generators for industrial applications. Insull saw the promise of a ubiquitous power supply, centrally generated and then distributed. It is Insull, not Edison, who is responsible for the power receptacle that probably sits no more than 10 feet away from you right now.
 
In the very earliest days of electricity, one would be a fool not to chose Edison as the forerunner, the candidate most likely to carve a business out of the new frontier. His innovations harnessed electricity and made it usable. But if you had bet on Edison to provide a sustainable model, you would have lost. It was Tesla’s AC standard, not Edison’s DC that proved to be the one adopted. And it was Insull’s vision of electricity as a utility that changed our world. The idea was simply too big for one man. And it was bringing all the implications of that idea together that proved to be the true agent of change. It launched a shift in American (and global) lifestyles that Edison never envisioned. But from the initial stages in the final years of the 19th century, that shift took 3 decades to be fully realized. It took the building of new infrastructure, the development of new industries and the adoption of the ways of doing things. It took thousands of visionaries, not one, to realize the significance. Imagine then the impossible task of finding a defensible, sustainable business model for electricity in 1895. In hindsight, it’s clearly laughable to even attempt such a thing. But today, we’re trying to do exactly that with the Internet.
 
Fragmented Functionality
 
There is one difference between the Internet and electricity. An electrical appliance is an electrical appliance. Its functionality is usually independent. A blender doesn’t become more useful if you also plug in a toaster. But the Internet lives on mash ups and API’s. Apps can become exponentially more powerful if they plug into other apps.
 
Today, the Internet is a fragmented place. Functionality lies across the grid in a million different shards and chunks. Some of these are larger than others. Search is a particularly large one. And today, we’re just beginning to explore how all this functionality can come together. The infrastructure has been laid. The grid has been built. Now it’s time to start plugging in apps and see how they can work together. If you think the last decade brought discontinuous change, wait til you see what the next decade has in store. We’re just getting ready to take the Net for a spin and see what it can do.
 
One of the things I’ve come to realize is that there’s no such thing as revolutionary change. It only appears so when you look at it in a historical perspective. Instead, there  are tipping points of incremental change. Every supposedly revolutionary development was built on the back of hundreds of other developments. Cumulatively, they indeed change everything, but each development could never have happened without it’s supporting cast. It wasn’t Edison’s development of the incandescent light bulb that lit up America. It was a thousand developments, by Faraday, Golvani, Ohm, Volta and many others. Each one pushed us closer to the tipping point. And, when we reach it, we step forward, never to look back.
 
Back to the Original Question
 
So, to return to the beginning. What is a sustainable, defensible business strategy online? I have no idea. I don’t think such a thing exists. For all the excitement, for all the promise, there are no sure bets. The two concepts are incompatible. You’ll have to pay your money and take your chances. To cause investors even more discomfort, almost all innovation comes from small start ups. They far outpace the level of innovation coming out of corporate America. So if you’re looking to capitalize on the growth of the internet, don’t look for stability. It’s the wrong place to look.


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