Too much of what is going on is a race to get to a theoretical end state of a whole new world of business and technology. Many pushing this were around for the tail end of the transition to an internet-based economy and are struggling with what appears to be a “compressed timeline,” much the way people record disruption as a “moment” versus a journey.
I’ve been thinking about where we are today with AI and the transition to this next wave, generation, platform of computing, and how it might look like previous transitions but really isn’t. I’m thinking about three different transitions: the transition to the PC and graphical interface, the shift to online retail, and the pivot to streaming.
AI changes what we build and who builds it, but not how much needs to be built. We need vastly more software, not less.
PC and Graphical Interface
The paradigm shift to the PC and graphical interface is a wild one when looked at in context. The most important thing about the PC is that the first predictions were de minimis, followed by the prediction that it would eliminate mainframe computing and the data center. HAHA. Everyone was wrong all around.
First, the run up to the internet saw the installed base of PCs go from under 100M to nearly 1B. PC growth was insane. But in the process, the rise of data centers happened along with that. Why? Because people first connected their PCs to data centers with mainframes, and still do, ask IBM, and then just replaced the hardware in data centers with PC hardware.
Second, the graphical interface enabled the desktop, but the character interface, CLI, not only didn’t go away, it remained the underlying architecture of the entire future of the platform, starting with the cloud and extending to iPhone and Android. So here we are today where the most widely used new computer interaction is via a command line for every type of user, end user, developer, IT professional, etc.
The lesson here is that whatever the world thought would end just ended up being vastly larger than anyone thought. And the thing that people thought would forever be replaced was not simply legacy but ended up being a key enabler.
The other aspect of this is, of course, that entire new companies were created in the process. Google, Meta, Amazon AWS, Salesforce, and more. Some companies remained incredibly strong, doing what they had always done while transitioning to new ways of doing those things, like SAP. And some companies like Microsoft, Dell, and Apple retained what they did but in entirely new and wildly successful ways. Yes, a lot of companies along the way, from EMC to Sun to Lotus and a seemingly very long list, did not make it. Such is Schumpeter.
Retail
No area of the economy was so large and yet under so much pressure during the internet run up as the “imminent death” of retail and the consternation over how “low margin” and “inefficient” retail would be subsumed by people clicking to have things magically appear. There was a new world a heartbeat away in 1995.
I remember one tech conference where the then, soon to step down, Walmart CEO was completely under the microscope of a tech-centric audience who simply believed Walmart was dead in the water against Amazon. Around this time is when existing retail leaders began to talk about a thing called “omni channel,” which meant you could buy online, in a store, or a combination, order online pickup, and Walmart logistics would rule the day. Everyone was skeptical because Amazon was a logistics monster and Walmart had nothing but old-style SAP and mainframes. The Street wanted WMT to break out the different channels to prove the future was online.
By 1999 the world had started to have enough and people were asking, “where’s the profit?” Suddenly there was an investor shift to companies that were stable retailers.
Amazon.com was famously labeled “Amazon Dot Bomb,” where no one had tolerance or patience for Bezos to deliver on all the investments. WMT was mostly ahead of AMZN until about 2005 when AWS appeared. Then the Street had a lot of twisting over whether to think about Amazon as two companies, whether one was funding another, etc.
Well here we are today with trillion-dollar retailers, both of whom are monsters, executing extremely well, serving customers, and dominating the world of retail in completely different ways. It is incredible.
And the rest of retail? It went through the same cycle that retail has been going through for literally 100 years. Transitions from store and brand formats of one kind to another. From small standalone to department to malls to big box to online, from mega brands to generics to niche online brands. Retail has and will always be in a constant state of flux for many categories because it is fundamentally about taste, logistics, and assortment. Retail gonna retail.
As with the PC, there are entirely new companies in retail, and more every day, and of course old mega companies and new mega companies. There are brands that survived, brands that thrived, and brands that were created. There were brands that were created but also crashed out. Schumpeter continues to rule.
The timeline for this was wildly longer than the 1995 predictions, the 2000 crash, or even the 2020 pandemic craze suggested. Literally an entire professional career worth of transition. And of course, it is still happening.
Media
No area of the economy has demonstrated more doom, gloom, and resurgence in completely unpredicted ways than media as broadly defined, news, sports, long- and short-form video, music, and personal. It was “super clear” to those in the know that we were dealing with an entire “new media” landscape.
From the first days of Netscape to 2000, the rush was on to build “new media” assets. This was everything from replacing the cable that connected to your house for TV to how we read the daily news to how we are entertained. “Content is king,” they shouted.
Then a modem-based online network bought the most analog of all mega media companies in the AOL-Time Warner merger. Suddenly we were seeing “You’ve got mail” in movie theater walk-in videos and at the start of films. It was insane.
Of course during this time the news would die. New tech-centric companies would aggregate, scrape, or simply license media so as not to deal with all that messy content creation, staffing, and cost. Everything good would be a click away. Music would be free with Napster.
The iPod brought hardware to media and also brought economics. Suddenly consuming media was going to be microtransactions and we’d all carry every bit of media with us all the time, all the media ever created. But the iPod would never have a screen, Jobs told us.
Then came UGC and user-generated content. That was going to obliterate all those professionals. Suddenly we were post-crash, a crash that no one predicted, and had a whole new set of companies and predictions while we watched “legacy media” and “dead tree” media wither away. There were hundreds of companies where anyone could post anything. This was the new world. Micro communities, social, and then came the phone to pull this all together.
The most legacy of all media types was the DVD, and Netflix had become this wildly popular way to go to a website, get a rental DVD, no rewind, and then mail it back. Every corporate mailroom and apartment mailbox was a sea of red envelopes every Monday morning. So many companies were trying to be software to bridge the physical world. Do something online with a website and the company would find a way to connect the physical world. Magazines and newspapers were offering online and offline content. It sounded like omnichannel all over again.
But through all this, once again, major companies found new ways to do what they always did, which is focus on creativity, visualization, and storytelling. News and writing figured out ads and subscriptions. Social networks learned people wanted to do more than share micro updates about breakfast. The process of creative destruction was taking place.
Importantly, we were now at least a decade after the initial predictions that everything would be laid to waste by a web browser on a computer at work. Now we thought about phones. We thought about streaming.
Netflix was now making stories. The DVD business was their legacy business. Then HBO started streaming. Everyone got even more content and more quality than ever before. It was a crazy explosion of creativity and output. There was more news than ever before. There were people paying more for online news than they ever paid for static print news. Some players were stronger. Some were weaker or gone. And most importantly there were many new players doing new things in new ways, like Netflix. What person can imagine waiting seven days or an entire summer for the next episode of a show? Who could think of not being able to binge on a download on a plane or have any book stream through your headphones? Audiobooks were a super weird niche before the Kindle and before online.
There is vastly more media today than there was 25 years ago. In fact, some argue we have a new modern surplus. Any graph of available media shows a crazy amount across every category. Some categories are different and companies change, but that’s a given.
So…
In each of these examples you can be someone who was there and claim “told you so,” or you could be someone who placed all their bets on “whole new world,” or somewhere in between.
In reality, almost all the people that called for full disruption and a whole new world were wildly optimistic on the timeframe. The thing is, the world needs these people because the transition is not a straight path. It is not “this is what we know needs to be built and now build it.”
Instead, what is absolutely part of this whole arc are people who are certain we are less than five years away and are in a rush to build with absolute belief in where things are heading, and people who support them with their labor or dollars. Their success is awesome. Their failure teaches the broad community lessons. That’s also why the network and community of SV was so key.
The people that are certain what is going on is forever away, or even worse never going to happen, well they are important too. Because the transition takes so long and is so unevenly distributed, having people focused on legacy is key. Without all those people working on mainframes at IBM we would never have had online travel or banking, because that whole industry runs on that iron.
Wall Street is filled with investors of all types. There’s also a community, and they tend to run in herds. The past couple of weeks have definitely seen the herd collectively conclude that somehow software is dead. That the idea of a software pure play will just vanish into some language model.
Nonsense.
Here’s what will happen:
1. There will be more software than ever before. This is not just because of AI coding or agents building products or whatever. It is because we are nowhere near meeting the demand for what software can do. This holds for software I use on my own, software a business needs, software an organization needs, or software to control the explosion of devices that replace every analog device with an automated one.
2. AI-enabled or AI-centric software is simply moving up the stack of what a product is. Software did not create online banks. Banking always required software. Software that faced a consumer, banking or traveling or shopping or reading or viewing, just became an essential part of the bank, travel, etc stack. Sometimes this created new from-scratch companies and sometimes it created new companies inside old ones. Industries were restructured as assets moved around. However big and complex you think a legacy business is today, it will be vastly larger and more complex tomorrow, and it will do vastly more. Think I’m crazy? Consider what banking was like in 1995. If you have any experience you know your choices, features, options, etc were one-thousandth of what you have today, even if fundamentally you got a paycheck, paid your bills, and might have had a credit card.
3. New tools will be created with AI that do new things. The number of processes and experiences in work and life that are not yet fundamentally improved by software is far greater than the number that have been improved by software. Not just big things, like everything in your home, but the whole nature of work, collaboration, transportation, and more. There are so many new inventions that will happen because of autonomy and robots it is hard to even comprehend. However many tools you think exist today, there are exponentially more that will exist.
4. Domain experience will be wildly more important than it is today because every domain will become vastly more sophisticated than it is now. This is not just because service providers and builders have better tools, but because customers do as well. I will never forget how bankers said they were going to be so much more efficient by having a few college kids use spreadsheets while they did all the hard work of deal-making. Little did they know that to even be a banker by 1995 you were going to be the person using the sheet to build a model. Repeat for consultants. Graphic artists. Writers. Lawyers. Doctors. And every single domain. This is going to happen all over again. Yes, some supporting jobs in domains went away, but they were not just replaced with even more skills, they were replaced with many more people. More people work in more banking locations today, per capita, than ever before. There’s more expertise required in every domain, even with three decades of automation.
5. Finally, it is absolutely true that some companies will not make it. It is even true that in some very long time, longer than a career or generation, every company will be completely different or their product line and organization will have dramatically changed. This will not broadly happen on any investing timeline. Look at today’s retail and compare it to 2000. Look at large media companies. Look at the world of computing.
Strap in. This is the most exciting time for business and technology, ever.
Author note: an LLM was instructed to provide a “light proofread only, with minor changes for spelling, grammar, and clarity. Do not delete content or change meaning. Preserve your tone, rhythm, and point of view.” Any emdashes were in the original 🙂
