On days like yes­ter­day, when I get caught in the weeds of dig­i­tal mar­ket­ing (where the blood suck­ing leeches tend to hang out) I some­times lose sight of why I got into this in the first place. This is a rev­o­lu­tion. What’s more, it’s a rev­o­lu­tion of epic, per­haps unprece­dented, pro­por­tions. In macro-economic terms, this is what they call a long-wave tran­si­tion or a Kon­drati­eff wave (named after the Russ­ian econ­o­mist that first iden­ti­fied them). These cycles, which typ­i­cally last more than 50 years, see the decon­struc­tion of the cur­rent mar­ket infra­struc­ture and the recon­struc­tion of a mar­ket built on entirely new foun­da­tions. They are caused by change fac­tors so mas­sively dis­rup­tive, often in the form of tech­no­log­i­cal inno­va­tions or global social events (ie a World War), that it takes decades for their impact to be absorbed and responded to.

The dig­i­tal rev­o­lu­tion is per­haps the biggest Kon­drati­eff wave in his­tory. One could ten­ta­tively peg the start of the tran­si­tion in the early to mid 90’s, with the intro­duc­tion of the Inter­net. If this is the case, we’re less than 20 years into the wave, still in the decon­struc­tion phase. To me, that feels about right. If his­tory repeats itself, which it has a ten­dency of doing; we have yet to get to the messi­est part of the transition.

These waves tend to pre­cip­i­tate what’s called a “regime shift.” Here is how the regime shift works. Com­pa­nies started in the old mar­ket par­a­digm even­tu­ally reach a stag­na­tion point. In our par­tic­u­lar case, think of the multi-national con­glom­er­ates that were build around mar­ket neces­si­ties such as mass dis­tri­b­u­tion, phys­i­cal loca­tions, sup­ply chain logis­tics, large scale man­u­fac­tur­ing, top down man­age­ment and cen­tral­ized R&D. In this mar­ket, big­ger was not only bet­ter, it was essen­tial to truly suc­ceed. Our For­tune 500 reads like a who’s who of this type of com­pany.  But even­tu­ally, the mar­ket becomes fully ser­viced, or even sat­u­rated, with the estab­lished mar­ket con­tenders and growth is restricted.

Then, a dis­rup­tive change hap­pens and a new oppor­tu­nity for growth is iden­ti­fied. At first, the full import of the dis­rup­tion is not fully real­ized. Spec­u­la­tion and a flood of invest­ment cap­i­tal can cre­ate a mar­ket frenzy early in the wave, look­ing for quick wins from the new oppor­tu­ni­ties. Think dot-com boom.

The issue here is that the full impact of the dis­rup­tive change has to be absorbed by soci­ety and that doesn’t hap­pen in a year, or even ten years. It takes decades for us to inte­grate it into our lives and social fab­ric. And so, the early wave mar­ket boom inevitably gives way to a col­lapse. Think dot-com bust.

As the wave pro­gresses, the “regime shift” starts to play out. Estab­lished play­ers are still heav­ily invested in the exist­ing mar­ket struc­ture, and although they may real­ize the poten­tial of the new mar­ket, they sim­ply can’t move fast enough to cap­i­tal­ize on it. Case in point, when indus­trial Amer­ica became elec­tri­fied in the late 1800s and early 1900s, the exist­ing regime had fac­to­ries built around steam power.  Steam pow­ered fac­to­ries had a cen­tral steam engine which drove all the equip­ment in the fac­tory through a com­plex maze of drive shafts and belts. The fac­to­ries were dirty, dan­ger­ous and inef­fi­cient. New fac­to­ries pow­ered by elec­tric­ity were cleaner, brighter, safer and much more effi­cient. But even with the obvi­ous ben­e­fits of elec­tric­ity, estab­lished man­u­fac­tur­ers tried to retro­fit their exist­ing fac­to­ries by jury-rigging elec­tri­cal motors onto equip­ment designed to run by steam. They sim­ply had too much invested in the cur­rent mar­ket infra­struc­ture to shut the doors and walk away. New com­pa­nies weren’t bur­dened by this bag­gage and built fac­to­ries from scratch to take advan­tage of elec­tric­ity. The result? Within a few decades, the old man­u­fac­tur­ers had to close their doors, out maneu­vered by newer, more nim­ble and more effi­cient competitors.

When I plot our cur­rent sit­u­a­tion against the time­lines of past waves, I believe that given how mas­sive this wave is, it could take longer than 50 years to play out. And, if that’s the case, there is still a lot of decon­struc­tion of the pre­vi­ous mar­ket­place to hap­pen. The good news is, the build­ing of the new mar­ket is a period of huge growth and oppor­tu­nity. There is still a ton of life left in this wave and we haven’t even real­ized the full ben­e­fits yet.

On days like yes­ter­day, when my to do list and my inbox con­spire to burn out what lit­tle san­ity I have left, I have to step back and real­ize why I did this. Some­how, way back then, I knew this was going to be impor­tant. And yes­ter­day, I had to remind myself just have mas­sively impor­tant it is.

Orig­i­nally pub­lished in Mediapost’s Search Insider November 10, 2011


Biography / Resume : Gord Hotchkiss is the founder and senior vice president of Enquiro, now part of Mediative. He is renowned in the industry for his expertise when it comes to understanding online user and search behaviour. He and the Enquiro team have built a solid reputation for being the leading experts when it comes to understanding what happens on a search portal and why. Before Enquiro, Gord was chairman and director of SEMPO (The Search Engine Marketing Professional Organization), he worked as a columnist for MediaPost and Search Engine Land, and he was a regular speaker at industry conferences and events. Gord is also the author of The BuyerSphere Project: How Business Buys from Business in a digital marketplace.