Category: Creative Destruction

Firms No Longer Need Middlemen to Help Find Factories to Make Their Products

(p. B6) The migration of shoppers online has been squeezing profits throughout the retail industry–including at Li & Fung Ltd., one of the world’s largest factory middlemen.
The more than 100-year-old company, based in Hong Kong, contracts with 15,000 factories globally to make apparel, toys and other goods. Its core business has been connecting Western retailers such as Abercrombie & Fitch Co. and Target Corp. with factories around the world.
But as consumers increasingly shop online for the best deals, retailers have been forced to offer lower prices, putting pressure on factories and intermediaries alike.
Middlemen need to “either figure out ways to create value, or they will be going out of business,” said Edwin Keh, chief executive of the Hong Kong Research Institute of Textiles and Apparel. “The bigger question is whether middlemen can still exist in a globalized economy.”

For the full story, see:
KATHY CHU. “Shift to Web Hits Factory Middlemen.” The Wall Street Journal (Fri., Aug. 26, 2016): B6.
(Note: the online version of the story has the date Aug. 25, 2016, and has the title “Lower Retail Prices Threaten Profits of Middleman Li & Fung.”)

Intuit Tries to Disrupt Itself

(p. B1) MOUNTAIN VIEW, Calif. — Three decades ago, at the dawn of the personal computer age, Intuit shook up the financial software world with its first product, Quicken. The program, which was centered on the simple notion of a virtual checkbook, suddenly made the PC a very useful tool for people to manage the chores of paying bills and tracking personal finances.
Last month, Intuit said goodbye to that heritage and sold Quicken, which still has loyal fans but weak growth prospects, to a private equity firm.
Intuit, a Silicon Valley company, is now focusing on its TurboTax software, which tens of millions of Americans use to file their tax returns, and on QuickBooks Online, an Internet-based version of the company’s flagship bookkeeping software for small businesses and their accounting firms.
Giving up Quicken was difficult, said Brad D. Smith, Intuit’s chief executive, during an interview at the company’s lush green campus here. The kitchen table where the founders designed the product in 1983 still sits in the cafeteria to inspire employees.
But Intuit decided to shed its PC roots and become a cloud software company. “We try to live up to being a 33-year-old start-up,” Mr. Smith said. So the company faced a hard choice: “Do we have this beautiful child that we’ve had for 33 years that we know we’re not going to feed, or do we find it a new home?”

For the full story, see:
VINDU GOEL. “Intuit Sheds PC Roots to Rise as Cloud Service.” The New York Times (Mon., APRIL 11, 2016): B1 & B5.
(Note: ellipses added.)
(Note: the online version of the story has the date APRIL 10, 2016, and has the title “Intuit Sheds Its PC Roots and Rises as a Cloud Software Company.”)

Startup Entry and Scaling Are Easier and Faster Due to Internet

(p. B1) The world might be a mess, but look on the bright side: Men’s shaving products are much better than they used to be.
. . .
The same forces that drove Dollar Shave’s rise are altering a wide variety of consumer product categories. Together, they add up to something huge — a new slate of companies that are exploring novel ways of making and marketing some of the most lucrative (p. B7) products we buy today. These firms have become so common that they have acquired a jargony label: the digitally native vertical brand.
These kinds of online brands aren’t new. Dollar Shave is five years old, and Warby Parker, the online eyewear company, began selling glasses over the web in 2010. But over the last few years there’s been a proliferation of such companies — into underwear, children’s clothing, cosmetics and more — and the Dollar Shave deal suggests their growing importance. These firms could become an emerging problem for consumer products conglomerates like Procter & Gamble, and they might also spell trouble for television, which relies heavily on brand advertising for its revenue.
. . .
“We think it’s a unique moment in history where you can create brands that can be scaled quickly thanks to technology, but you can still maintain a one-to-one connection that delivers an elevated level of customer experience,” said Philip Krim, chief executive of Casper, which sells mattresses online.
Mr. Krim and four friends started Casper two years ago after studying the traditional mattress industry. They discovered it was plagued by inefficiencies and annoying gimmicks. Customers had to trudge to a mattress store and awkwardly prostrate themselves on numerous surfaces before choosing one to use for a decade. There were too many choices and brands, and mattresses were expensive.
With Casper, you simply buy the mattress online and it’s shipped to you in a comically small box (the compressed foam expands into a full-sized mattress, like a magic trick). You have three months to try it out, and if you don’t like it, the company will come pick it up free.
Casper’s business model offers a break from the annoyance of offline mattress shopping. It also works out for the company. Casper advertises on social networks, on Google, podcasts and a variety of other places online; the ads are creative, convincing, targeted and cheap. By selling directly rather than through retail middlemen, the company also creates a connection with customers that allows it to test and develop new products — it now sells sheets and pillows, too.
After two years in business, Casper is on track to book $200 million in sales over the next year, but its success isn’t ensured. Precisely because the internet has lowered barriers to entry, Casper is facing a surge of new mattress start-ups like Helix Sleep, Tuft & Needle and Leesa, among others.

For the full commentary, see:
Manjoo, Farhad. “STATE OF THE ART; How Companies Like Dollar Shave Club Are Reshaping the Retail.” The New York Times (Thurs., JULY 28, 2016): B1 & B7.
(Note: ellipses added.)
(Note: the online version of the commentary has the date JULY 27, 2016, and has the title “STATE OF THE ART; How Companies Like Dollar Shave Club Are Reshaping the Retail.”)

Innovations Make It Easier to Form and Run Smaller Firms

(p. B3) Unilever is paying $1 billion for Dollar Shave Club, a five-year-old start-up that sells razors and other personal products for men. Every other company should be afraid, very afraid.
The deal anecdotally shows that no company is safe from the creative destruction brought by technological change. The very nature of a company is fundamentally changing, becoming smaller and leaner with far fewer employees.
. . .
Now it is possible to leverage technology and transportation systems that never existed before. Dollar Shave Club used Amazon Web Services, a cloud computing service started by the online retailing giant in 2006 that encouraged a proliferation of e-commerce companies. Manufacturing now is just as much a line item as is a distribution apparatus. This is the business strategy of many other disruptive companies, including the home-sharing site Airbnb, which upends the idea of needing a hotel. The ride-hailing start-up Uber could never have been possible without a number of inventions including the internet, the smartphone and, most important, location tracking technology, enabling anyone to be a driver.

For the full commentary, see:
STEVEN DAVIDOFF SOLOMON. “Deal Professor; In Comfort of a Close Shave, a Distressing Disruption.” The New York Times (Weds., JULY 27, 2016): B3.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date JULY 26, 2016, and has the title “Deal Professor; $1 Billion for Dollar Shave Club: Why Every Company Should Worry.”)

VCRs Let “You Create Your Own Prime Time”

(p. B1) Many new technologies are born with a bang: Virtual reality headsets! Renewable rockets! And old ones often die with a whimper. So it is for the videocassette recorder, or VCR.
The last-known company still manufacturing the technology, the Funai Corporation of Japan, said in a statement Thursday [July 21, 2016] that it would stop making VCRs at the end of this month, mainly because of “difficulty acquiring parts.”
. . .
In 1956, Ampex Electric and Manufacturing Company introduced what its website calls “the first practical videotape recorder.” Fred Pfost, an Ampex engineer, described demonstrating the technology to CBS executives for the first time. Unbeknown to them, he had recorded a keynote speech delivered by a vice president at the network.
“After I rewound the tape and pushed the play button for this group of executives, they saw the instantaneous replay of the speech. There were about 10 seconds of total silence until they suddenly realized just what they were seeing on the 20 video monitors located around the room. Pandemonium broke out with wild clapping and cheering for five full minutes. This was the first time in history that a large group (outside of Ampex) had ever seen a high-quality, instantaneous replay of any event.”
At the time, the machines cost $50,000 apiece. But that did not stop orders from being placed for 100 of them in the week they debuted, according to Mr. Pfost.
. . .
A consumer guide published in The Times in 1981 — when the machines ranged in price from $600 to $1,200 — explained the appeal:
“In effect, a VCR makes you independent of television schedules. It lets you create your own prime time. You set the timer and let the machine automatically record the programs you want to watch but can’t. Later, you can play the tape at your convenience. Or you can tape one show while watching another, thus missing neither.”

For the full story, see:
JONAH ENGEL BROMWICH. “Once $50,000. Now VCR, Collects Dust.” The New York Times (Mon., JULY 21, 2016): B1 & B2.
(Note: ellipses added.)
(Note: the online version of the commentary has the date JUNE 19, 2016, and has the title “The Long, Final Goodbye of the VCR.”)

Technology Platforms Will Create Decades of Gales of Creative Destruction

(p. A11) For traditional businesses, economies of scale are the key to competitive advantage: Larger firms have lower average costs. In the digital economy, network effects matter most. In “Matchmakers” (Harvard Business Review, 260 pages, $35), David S. Evans (a consultant) and Richard Schmalensee (a professor of management) highlight two particular forms.
Direct network effects occur when additional users make a service more valuable for everyone. If one’s colleagues are all on, say, LinkedIn, it will be hard for another professional network to exert a strong appeal. Without the critical mass of LinkedIn, the alternative will have less utility even if its features are better. Indirect network effects arise from positive feedback loops between opposing sides of a market. The value of Rightmove, for instance, the leading online real-estate site in Britain, comes from a matching function: Since each home is unique, buyers prefer the site with the most properties, and real-estate agents favor the site with the most buyers. This virtuous cycle magnifies Rightmove’s advantage even though participants on each side of the market compete with one another: More buyers increase competition for the same homes, and agents compete for buyers.
. . .
“Matchmakers” is . . . measured and analytical . . . . The authors fairly conclude that, while the telegraph was “a far more important multisided platform” than anything produced so far by the Internet, platforms are “behind the gales of creative destruction that . . . will sweep industries for decades to come.”

For the full review, see:

JEREMY G. PHILIPS. “Why Facebook’s Imitators Failed; If one’s coworkers are all on the same platform, any alternative will have less utility–even if its features are better.” The Wall Street Journal (Thurs., May 19, 2016): A11.
(Note: the ellipsis between paragraphs, and the first two in the final quoted paragraph, are added; the third ellipsis in the final paragraph is in the original.)
(Note: the online version of the review has the date May 18, 2016.)

The book under review, is:
Evans, David S., and Richard Schmalensee. Matchmakers: The New Economics of Multisided Platforms. Boston: Harvard Business Review Press, 2016.

Creative Destruction of Polaroid by Digital Photography

(p. A17) There aren’t many 3-year-olds who can take credit for inspiring a revolution in the way millions of people view the world. According to a legend that begins Peter Buse’s welcome history of the Polaroid company, “The Camera Does the Rest,” it was engineer Edwin Land’s daughter, Jennifer, who asked one evening in 1943 why it took so long to view the photographs that the family had shot while on vacation in Santa Fe, N.M. Land set out on a walk to ponder that question and, so the story goes, returned six hours later with an answer that would transform the hidebound practice of photography: the instant snapshot.
. . .
“In 1974 alone there were about 1 billion Polaroid images made, and by 1976 . . . 15 billion in total,” the author writes, “and this before the real explosion in Polaroid photography in the late 1970s and early 1980s.” The party might have gone on forever had it not been for the same type of creative destruction that Polaroid itself had stirred up in the 1940s–this time brought about by the digital revolution.
By the time the company joined that revolution in the 1990s, it was too late. Their digital products were inferior to those being turned out by competing companies. Polaroid had always done well selling cameras, but the real money was in the film, the demand for which was falling precipitately. In July 1997, the company’s stock price was $60.51. Four years later, as the company spiraled toward bankruptcy, it was $0.49. The author writes that Polaroid joined the “analog scrap heap” that included “vinyl turntables and the Sony Walkman.”​

For the full review, see:
PATRICK COOKE. “BOOKSHELF; The Original Instagram; Purists grumbled that Polaroids were ephemeral, but Ansel Adams created some of his most enduring photographs using the camera.” The Wall Street Journal (Tues., May 17, 2016): A17.
(Note: ellipsis added.)
(Note: the online version of the review has the date May 16, 2016.)

The book under review, is:
Buse, Peter. The Camera Does the Rest: How Polaroid Changed Photography. Chicago: University of Chicago Press, 2015.

German Car Makers in No Rush to Catch Up to Tesla

(p. A7) When Elon Musk rolled out the new Tesla Model X at the end of September [2015], some grumbled that the Silicon Valley car maker’s all-electric luxury crossover was coming to market two years too late. It depends on who you ask. The Big Three German auto makers only wish they could catch the tail of Mr. Musk’s rocket.
I’m not talking about units sold, though Tesla’s target of 50,000 cars in 2015 is a respectable chunk of the global luxury-sedan market. But Tesla has taken more hide off German prestige and sense of technical primacy. I mean, the Model X was just rubbing their noses in it with those “falcon” doors, right? In executive interviews at the Frankfurt Auto Show any praise of Tesla was guaranteed to land on the table like a paternity suit.
. . .
I wonder if any traditional auto maker whose existence does not hang in the balance can ever have enough belly for the EV long game?
Even if the Germans had market-bound EVs in mass quantities, there is the concurrent problem of charging. As the estimable John Voelcker of Green Car Reports notes, the luxury incumbents have no plans to challenge Tesla on charging availability. Tesla has hundreds of charging stations in the U.S. and Europe and plans for hundreds more–all free to owners.
. . .
I am struck by the lag time. This isn’t about profit and loss but industry leadership. The Germans are headed where Tesla already is and, taking Frankfurt as the measure, they are in no great hurry to get there.

For the full commentary, see:
Dan Neil. “RUMBLE SEAT; How Tesla Leaves its Rivals Playing Catch Up.” The Wall Street Journal (Sat., Oct. 10, 2015): D11.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the commentary has the date Oct. 8, 2015.)

Standard Oil Money Funded Homage to Oz

(p. A1) Vandals are slowly destroying the Land of Oz, a small private theme park nestled atop Beech Mountain, N.C., built on land bought years ago with money from a Standard Oil fortune. Thieves and urban explorers have carted off polka-dot mushrooms, a pair of cement lions and, most hurtfully, pieces of the golden-hued path that runs through the park.
“It’s magical,” says Vicky Conley of Morganton, N.C., who took her son to Oz last year when he was six. “People should leave it alone.”
. . .
(p. A8) In 1966, Mr. Leidy’s grandfather Page Hufty–an insurance pioneer and real-estate developer in Palm Beach, Fla.–bought land on Beech Mountain. His wife, Frances Archbold Hufty, was the granddaughter of John D. Archbold, a titan of the Gilded Age and John D. Rockefeller’s right-hand man at Standard Oil, which was dissolved by the government in 1911.
Mr. Hufty leased some of the land to other developers, who wanted a summer theme park to complement their ski resort.
The Land of Oz opened in 1970, amid much fanfare about the 70th anniversary of L. Frank Baum’s classic book. Debbie Reynolds stopped by. So did Ray Bolger, who played the Scarecrow in the 1939 movie. At least 300,000 people visited the first year, says Neva Specht, a historian and a dean at the College of Arts and Sciences at Appalachian State University.
By the second year, she says, it was one of the biggest attractions in the Southeast, and it graced the cover of “Southern Living” magazine.
. . .
But the park quickly became more of a white elephant than a Merry Old Land. Attendance dropped, as families were lured away by splashier attractions like Disney World, which opened the following year in Orlando, Fla. The developers went bankrupt, and Mr. Leidy’s grandparents eventually gained ownership.
. . .
Mr. Leidy installed fences topped with barbed wire, but thieves cut through. Security cameras didn’t seem to deter anyone either. Mr. Leidy is now hiring guards.
. . .
Mr. Leidy says he doesn’t know what lies in store over the rainbow, but thinks his grandparents would be proud.
“Until we figure out a long-term plan here,” he says, “it’s important to me to protect it.”

For the full story, see:
CHRISTINA REXRODE. “Goodbye Yellow Brick Road? Even a Wizard Can’t Save Oz.” The Wall Street Journal (Fri., Sept. 18, 2015): A1 & A8.
(Note: ellipses added.)
(Note: the online version of the story has the date Sept. 17, 2016, and has the title “Goodbye Yellow Brick Road? Even a Wizard Can’t Save Oz From Vandals.”)

Plastic Buttons Replaced Seashell Buttons, but Technology Can Be Restored

In What Technology Wants, Kevin Kelly has made the point that most obsolete technologies remain available to satisfy nostalgia, or for more practical uses, if the need arises. Below is another example.

(p. C27) In a tan outbuilding overlooking a pond in northeastern Connecticut, equipment for turning seashells into buttons has lain fallow for nearly eight decades. The building’s owner, Mark Masinda, a retired university administrator, is working to transform the site into a tourist attraction.

In the early 1900s, his grandfather William Masinda, a Czech immigrant, supervised a dozen button makers in the building, which is on a rural road in Willington. They cut, drilled and polished bits of shells imported from Africa and Australia to make “ocean pearl buttons” with two or four holes. The area’s half-dozen button factories supplemented the incomes of families struggling to farm on rocky terrain.
The Masinda operation closed in 1938, as plastic flooded the market. “The equipment he had just couldn’t make the transition,” Mr. Masinda said.
. . .
Mr. Masinda is planning to reactivate the equipment and open the site for tours by . . . spring [2016].

For the full story, see:
EVE M. KAHN. “Antiques; Restoring a Button Factory.” The New York Times (Thurs., DEC. 3, 2015): C27.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the story has the date DEC. 3, 2015, and has the title “Antiques; Yale Buys Collection of Scattered Medieval Pages; Restoring a Button Factory.”)

The Kelly book mentioned above, is:
Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.

Tesla Model 3 Excites Venturesome Consumers

America’s venturesome consumers are hungry for products exciting enough to justify enthusiasm. They are desperate for evidence that the future can continue to look bright.

(p. B2) DETROIT — Despite a steady stream of new models from a number of automakers, sales this year of electric and hybrid vehicles have failed to keep pace with the growth in the overall American market.
But if the market for electrified cars was slumbering, Tesla Motors woke it up with a jolt Thursday [March 31, 2016] with the unveiling of its coming Model 3 lineup of affordable, zero-emission vehicles.
Given that electric and hybrid vehicles account for only about 2 percent of last year’s record-setting sales in the United States, the extraordinary reaction to Tesla’s first mass-market model was a vivid demonstration of the potential demand in the segment.
“It shows that the future of electric vehicles is not necessarily bleak,” said Alec Gutierrez, an analyst with the research firm Kelley Blue Book. “Maybe we’ve been waiting for the right products that resonate with consumers.”
Tesla said on Friday that it had booked reservations — at $1,000 each — from nearly 200,000 people for the first Model 3 sedans, which will not be available until next year.
With a starting price of $35,000 and a battery range of 215 miles, the new Tesla is a big leap in the company’s expansion beyond expensive luxury models.
“The final step in the master plan is a mass-market, affordable car,” Elon Musk, Tesla’s chief executive, said at the lavish introduction of the Model 3 held at the company’s design studios in Hawthorne, Calif.

For the full story, see:
BILL VLASIC “In Clamor for new Tesla, Signs of an Electric Future.” The New York Times (Sat., APRIL 2, 2016): B2.
(Note: bracketed date added.)
(Note: the online version of the story has the date APRIL 1, 2016, and has the title “Tesla’s New Model 3 Jump-Starts Demand for Electric Cars.”)