About Viral

Elite Economic Thought Translated for the Music Industry

You will have to excuse the substantial amount of quoting in this article but it is needed in order to demonstrate that some of the elite thinkers of this world have thought about and printed the very economic concepts that are usurping the music industry. So it begins.

All quotes are from Eric D. Beinhocker’s The Origin of Wealth (2006).

To start you must understand a concept of the S-Curve from Richard Foster’s book; Innovation: The Attacker’s Advantage. The S-Curve graphs:

The level of effort invested in improving a technology versus its performance

Got a grip on that? Good, now Beinhocker referencing Clayton Christensen’s book; The Innovator’s Dilemma.

Christensen claimed that whether a technology [Internet/YouTube/P2P] is disruptive depends less on how radical a technological advance it is, and more on its specific effect on the S-curve. If a technology pushes performance up an existing S-curve, even very rapidly, then the technology tends to preserve the power of existing players.

The music industry moved through record, tape, to CD while maintaining their centralized power. No disruptions to the players controlling the economic model and a higher quality product was delivered to the end user. (Life in the 80’s and 90’s).

However, when a technology requires a new S-curve, particularly when it starts at a worse price point-performance point then the current technology [online media is free which is hard to beat], the newer technology tends to be disruptive and to change the industry structure.

Cue Napster, Kazaa, iTunes, Pirate Bay, Google, YouTube or Metacafe which are all a result of the ability to be connected via the internet.

This is because any executive in a successful incumbent company [RIAA, Warner Music Group, Viacom, Etc] would have a difficult time justifying investing resources in a technology that offers, at least initially, worse price performance.

Welcome to an age in which anything that can be digitized will need to first consider the Internet as a critical resource for distribution.

The Evolution of the Business

Evolutionary theorists refer to Orgel’s Second Rule (named after biochemist Leslie Orgel), which says, “Evolution is cleverer than you are.” Even a highly rational, intelligent, benevolent Big Man [Big Corps] would not be able to beat an evolutionary algorithm in finding the peaks in the economic fitness landscape [highest value, to keep it simple]. Markets win over command and control, because of their effectiveness at innovation in disequilibrium.

Markets win over command and control because they percolate value to the top and value is the life blood of markets.

Cheers