Most investors and corporates estimate the potential of a new technology. It’s a mistake. Real disruption comes from the convergence of different technologies. This post will explain how technology convergence creates parallel industries and Startup Tsunamis. Most importantly, it will tell the story of a young stripteasing college student that took down a billion-dollar empire.
In 1953, a 27-year-old entrepreneur raised angel investment from 45 investors. With the money, he pioneered one of the world’s biggest industries and built a true empire. Today, his product is an iconic piece of western culture.
The name of the entrepreneur was Hugh Marston Hefner. His product was a new type of magazine. He called it Playboy.
The world was changing its view on sexuality, and pornography was taking off. It became a billion-dollar industry with companies raking in huge profits.
The pornography studios appropriated most of the profit because they controlled the means of production. Print machines, studio light, cameras and retail distribution were expensive.
At the height of its glory, the industry launched its own award show rivaling the Oscars in glamour. And then one day, in late 1990’s, it was all over.
A young college student had set up a camera in her dorm room. She connected the camera to her computer and created a website she called JenniCam. She started broadcasting for the world to follow. She quickly learned that viewers increased when she did stripteases.
A few years later, Playboy delisted from the stock market. Its stock was plummeting.
JenniCam started a webcam revolution. Today, there are thousands of cam models. They connect directly with viewers thanks to cheap cameras, fast internet connection, chat and digital payment.
The webcam revolution is one of the clearest examples of disruption caused by the convergence of technological innovations. The old companies were built on an infrastructure of professional grade equipment, film studios, and physical distribution.
In contrast, the webcam industry is built on the availability of cheap consumer grade equipment, online distribution, and new communication and payment protocols.
What the pornography studios experienced is the phenomena of parallel industries. Few people understand it. You are about to become one of them.
The difference between competition and parallel industries
The runaway success of Playboy attracted many competitors. Among the biggest was Penthouse. The magazines competed on celebrity pictures and naughtiness. With the emergence of DVDs, the studios competed on distribution and licensing agreements.
But when JenniCam launched, few took notice. To the established players JenniCam wasn’t a competition, let alone a threat. Its young founder didn’t try to muscle them out of licensing deals. She didn’t invest in new studios or steal their models. In fact, she was utterly invisible to them.
The thing is that when certain technologic innovations converge, it creates entirely new industrial platforms. The startups that emerge on the new platform are not competing with the incumbents. Instead, they are building a parallel industry.
A parallel industry is an industry that has been rebuilt from the ground up on a new industrial platform. The new platform provides an infrastructure that is magnitudes faster, cheaper and more effective than the traditional industrial platform.
The new platform enables entrepreneurs to reimagine all components of their business model and apply new technology in every layer of its business. As a result, the startups that emerge are so different from the incumbents, that they go unnoticed by the old industry.
The next thing that happens is that the parallel industry matures. It develops its own suppliers, consultants, and networks. Suddenly, JenniCam had sparked an entire industry of innovative producers of webcam technology, video compression providers, and digital payment solutions.
At this point, the incumbents take notice. But it’s too late.
How parallel industries cause Startup Tsunamis
Parallel industries are supported by underlying technologies that serve as the infrastructure of the industry. Like: production technology, distribution technology, communication technology and financial technology.
When innovations in the different underlying technologies converge, a new industrial platform is born. That happened during the industrial revolution when factories (production), railroads (distribution), the telegraph (communication) and Wall Street (finance) converged and gave us a tsunami of new products.
Startup Tsunamis describe the phenomena of very large number of startups launched within a concentrated timespan, attempting similar business models. One of the latest examples of this is ride sharing.
Much like the pornography studios, taxi companies had enjoyed decades of steady business. But around 2010, a new industrial platform was emerging.
The smartphone converged with advances in payment infrastructure. At the same time, venture capital was reemerging as a source of capital for startups after being decimated by the global financial crisis.
The result was a true Startup Tsunami. Here are just some of the few startups that built their business on the new industrial platform: Uber (2009), Ola (2010), Wingz (2011), Sidecar (2011), Hailo (2011), Grab (2011), Lyft (2012), Didi Chuxing (2012), Careem (2012).
Today, few people doubt that ridesharing will change personal urban transportation for good. When electrified self-driving cars join the convergence to enhance the new industrial platform, taxi companies are history. But the story doesn’t end here.
Blockchains are creating new financial infrastructure. IoT is creating new communication infrastructure. 3D printing is creating new production infrastructure. Individually they might seem like toys. But so did webcams until they converged with high-speed internet, chat and digital payment. The cocktail enabled a young college student to initiate the fall of an empire.
At Accelerace we help both startups and corporates. Check us out at Accelerace.io.
Thank you to Jeremy Rifkin and his great book, The Third Industrial Revolution, to inspire me to write this post. I can recommend his book.