Kodak’s demise is the stuff of legend; a modern-day Shakespearean tragedy…
For over a hundred years, Kodak held a near-monopoly on the manufacture of camera film & photo production. And if Canon, Sony & Pentax were the proverbial car companies of photography, then Kodak was the world’s largest oil producer – by a wide margin.
But just as how Tesla rapidly went from “futuristic fad” to the world’s most valuable automaker in just 10 years – the photography industry was similarly paradigm-shifted by the rise of digital cameras, and then smartphones shortly thereafter.
And so Kodak, after having literally invented the digital camera, failed to recognize that digital was quickly becoming the inevitable future of photography.
They simply couldn’t imagine a world where people would choose digital over film; they failed to see what digital would actually become, and just how quickly its customers would adopt it.
And this same story is playing out again, as I type, but on a much larger scale. Because this time it’s not just a single industry that’s seeing the early signals of a disruptive technology…
This time, it’s the entire goddamn internet. And whether the current monopolies want to acknowledge it or not, there is a technological tsunami already traveling silently through the water at 500 mph – headed straight for their trillion-dollar empires.
And it’s setting up the most insane opportunity for marketers I’ve ever seen.
We’ll be exploring this “tsunami” of disruption in depth in Part 2 (as well as how the early adopters can capitalize on this), but first we need to understand why it’s been triggered in the first place.
To properly set the stage, we’ll need to consider how the internet has evolved to date, where we are currently, and why we’ve reached an inflection point.
Just as our early ancestors had no understanding of how fire would fundamentally alter human evolution – it was just a very convenient tool – the inventors of key technologies which later became the plumbing of the internet had no idea what they were truly creating.
The Genesis story is largely academic, but there are some relevant crossovers as far as original purpose vs eventual impact that are contextually important for framing the current Kodak Moment – so a few things are worth highlighting…
The Mother of all Invention
Much like the true drivers of the space race of the 60’s, the original foundation of the internet was actually motivated by the Cold War. Specifically, the military was concerned about how to maintain communications and store vital information in the event of a nuclear strike.
For this and other reasons, DARPA was tasked with figuring out how to facilitate “packet transfers” from one computer to another over long distances. Long story short, they figured it out, and ARPANET was born.
Side note: If you haven't seen this yet, take a few minutes to watch the Mother of All Demos, which was a demonstration of ARPANET's potential capabilities - including real time cloud collaboration & video conferencing... in 1968!!
This core technology was eventually forked into two separate “internets”; one for pure military applications (MILNET), and one for academic purposes (ARPANET) to support collaboration between various Universities & research groups.
Famously, Tim Berners-Lee was one of the earliest academic power-users who envisioned that the internet could be a way for himself & his colleagues at CERN (which had research facilities in multiple countries) to publish, store and retrieve documents from internet servers across the world – and single-handedly invented an early prototype of HTML in 1990.
Despite a few enthusiastic colleagues, most people failed to see the potential of Tim’s creation, and CERN was even happy to let him keep all the IP & code assets – a decision I’m sure they now regret.
And so for its first decade, the Internet (and later the Web) was only used by academics, computer scientists & enthusiasts – and really had no mainstream users or commercial function. Basically, you had to be a card-carrying geek to use it, let alone know of its existence.
This all changed in 1993, with the creation of the world’s first graphical web browser…
The first killer app
In the summer of 1993, two computer programmers working for NCSA at Illinois University created a visual browser called Mosaic.
Basically, Mosaic provided an easy, visually interesting way for “non-geeks” to access the internet, and transformed it into an entertainment medium. Adoption by the wider public was profound – with overall internet traffic increasing by 300,000% by the end of 1993.
Mosaic’s launch was a landmark moment – things finally clicked, and regular people began to see the true potential of the internet.
One of Mosaic’s creators was Marc Andreesen, who shortly thereafter left NCSA and teamed up with Jim Clark to build a browser that – like Mosaic – made the Web accessible & entertaining, but had a core focus on monetizing its users.
It was called Netscape Navigator.
Modern humans made a living as hunter-gatherers for ~200,000 years before transitioning to a more convenient way of life: agriculture. And in a relative eye-blink, the technological progression from grass huts to glass skyscrapers in the last 12,000 years – the most recent 5% of our species’ history – has been astounding.
Similarly, the defining moments that accelerated the internet into mass adoption have largely been driven by advances in convenience & accessibility. And in that sense, Netscape Navigator stands out as the metaphorical “grass hut” on the internet’s timeline.
Improving on Mosaic’s usability and compatibility with different operating systems, Netscape enabled the average computer user to visit websites, use email and even create their own HTML content (in v3.0).
Netscape’s popularity was synonymous with the internet itself – which is to say, it exploded virtually overnight. In 1995, Netscape went public, reaching a then-unprecedented valuation of $2.9 Billion on the first day of its IPO.
This sent shockwaves through Wall Street, subsequently whipping up a speculative frenzy of investment into hundreds of internet startups, known as the Dot-Com Boom… and a few years later, the Dot-Com Bubble.
A day early, a Buck too much
Following Netscape’s extraordinary stock market debut, money started pouring into anything that seemed a promising vehicle to capture a piece of the new digital frontier.
Some extreme examples were Pets.com (ecommerce), WebVan (grocery delivery) and Kozmo.com (DVD & snack rental concept). Each were deeply unprofitable, with little to no revenue – but each had spectacular IPOs… followed by spectacular bankruptcies.
WebVan in particular was uniquely insane. With just $500K in gross revenues, no profits, and millions in annual burn, their IPO hit an $8 Billion valuation on day one.
The company promptly burned it all on advertising & fancy warehouses, and then went bankrupt 18 months later.
Here’s the thing, though: These were actually great ideas… but just not for 1999.
Pets.com would just be another ecommerce brand today. WebVan is clearly a direct ancestor to companies like InstaCart and DoorDash. And Kozmo’s DVD rental model doesn’t seem so crazy when you consider Netflix’s origins (which basically did the same thing in the beginning).
There’s a few reasons for this:
- Key infrastructure didn’t exist yet. We take it for granted today, but there was no such thing as 3PL fulfillment, same-day shipping, supply-chain automation, etc. back in the dot-com boom.
- The internet was small, slow, and limited. Even at the height of the dot-com frenzy, it’s important to realize that only 7% of the world had internet access. And those who did had to endure dialup connections with dreadful connection speeds.
- Most people just weren’t ready to live online. Perhaps most importantly, using the internet was still a novel, infrequent activity. Unlike today, where most of us now spend several hours online daily – back then, it was something you’d “turn on” a few times a week at most.
In essence, the dot-com mania, while speculative, wasn’t unfounded. It was just far too early. We tried to go from grass huts to skyscrapers in one step – and quickly learned that the foundation was lacking.
But let’s shift our focus away from the headliners for a moment, and look at the Web 1.0 experience for solo publishers & small business users…
Wall Street shenanigans notwithstanding, for the early internet entrepreneur or enthusiast, Web 1.0 was really just print media as viewed by browsers like Netscape. So naturally, advertising emerged as the earliest & most straightforward business model for small publishers.
Also, much like a small homestead on a hundred acres, websites were closed ecosystems and isolated. There were no social networks or marketplace platforms to tap as a firehose channel for building an audience, and there was no real mechanism for ‘going viral’.
You had to grow your traffic the old fashioned way – by asking your digital neighbors for links, trying to get a listing accepted in Yahoo Directory et al, being active in your local bulletin board (if one existed) and otherwise being creative.
Keep in mind that SEO was also still in its infancy, and wasn’t a major traffic source for most sites until Google rose to prominence in the early 2000’s.
But while in many ways more limited, the early web also provided a far more level playing field to its early settlers. As there were no “cities” yet per se, the most valuable virtual real estate hadn’t yet accreted to a small cabal of gatekeepers.
Anyone with a domain name & and an email list had the same chance as anyone else of becoming the go-to start page for their niche.
Many of the most popular “homesteads” would later go on to become substantial brands – especially as the network effect of their daily users & backlinks would eventually cement their position as an authority as the web’s first “cities” took shape.
Bottom line: For small publishers, in many ways Web 1.0 was a golden age; a true land rush opportunity – and they were largely unaffected by the dot-com crash of the same era.
if you build it, they will come… 3 years later
In many ways, the Dot-Com Crash was a necessary system shock; a proverbial Chicxulub impact that wiped out all the dinosaurs – clearing a path for a new species to emerge from the ashes.
For starters, the fundamentals mattered again. Raising money as a dot-com startup after 2001 was a grueling exercise. Since most investors now considered dot-coms to be scams, or at the very least overblown – you needed a real business with real traction.
Thankfully, due to the massive investment in infrastructure & telecom assets that accompanied the Dot-Com Boom, the survivors of the crash (and subsequent newcomers) ironically had a lot more to work with in the aftermath.
As one economist put it…
Investors lost their money. We now get to use all their stuff. What got built wasn’t profitable, but a large chunk of it will be very useful.J. Bradford DeLong, 2003
And secondly, in some ways the unrelenting optimism and marketing spend that fueled the boom became self-fulfilling; internet usage was rapidly accelerating as a result – which in turn provided the scale of audiences needed to start seeing real network effects.
Simply said, survivors and newcomers now had the foundation to build a real online business. The internet was way faster and more accessible, post-crash. And its users were online more often, and growing more comfortable interacting & transacting with websites, rather than just consuming content.
This paved the way for the internet’s second act.
And this time, it really would live up to all the hype – and then some…
For the most part, Web 1.0 was a fairly lonely experience – both for homesteaders & visitors. There was a lot to see, but there wasn’t that much to do.
So among other things, Web 2.0 represents the shift to an internet that was conversational & interactive.
And to expand the metaphorical bridge between human history and that of the internet, Web 2.0 represents the emergence of Cities – for better and worse…
Welcome to myspace, pop. 115M
While the Web 2.0 story encapsulates more than social networks, it would be disingenuous to feature them as anything other than the main character.
Arguably, the first social network was SixDegrees.com – which peaked at about 3.5M users, and then declined. There was nothing inherently bad or lacking about the platform, it was simply too early on the scene, and there weren’t enough internet users for a meaningful network effect to kick in.
Several variations of SixDegrees followed in quick succession (Hi5, Friendster, Classmates, etc.), but it was MySpace, founded in 2003, that saw the first truly widespread network effect play out at scale.
Finally, the promise of the internet – as envisioned by the late 90’s speculators – came to fruition just a few years after the crash.
At its peak, MySpace had more traffic than Google, and about 115M daily active users. But despite its runaway success as the internet’s first real “city”, its prominence was short lived…
the social drug
Most of us are all too familiar with how the story goes from this point forward.
Founded just a year later in 2004, Facebook quickly gained ground on MySpace, eventually overtaking the platform by popularity in 2008. There’s a number of reasons why Facebook supplanted MySpace, but I think it can largely be distilled as follows…
- MySpace made it easy for the average person to become a “micro-publisher”, and showed everyone that a social network could be interesting.
- Facebook basically did all of that better, and it made it personal. You had to use real identities – which meant your online persona was in some ways an extension of the real you.
- And finally, adding the personalized Newsfeed was the killer app that FB needed to truly become endemic. This transformed the platform into the perfect dopamine storm; users logged in and experienced the optimal confluence of a social inbox + voyeurism + curated news + validation (likes).
By this point, now that Facebook had essentially hacked the human brain and developed a digital drug – its domination was all but inevitable.
The King’s land
As with the city-state kingdoms of the middle ages, life as a peasant could be pretty decent at times. At the best of times, you could rely on fertile land, well-maintained roadways, border security, and an established trade network to sell your produce.
It was not the isolated, anarchanistic free-for-all that was Homesteading.
The social web brought with it a number of real advantages. Building an audience was 10X faster. And reaching a social audience (in addition to email) gave brands an entirely new way to communicate at scale.
But at the end of the day, the land still belonged to the King. And whether it was King Facebook, King Google or one of the Outer Kingdoms of Twitter, Bing or Tumblr… as a tenant on the land, you were one edict, rule change or whimsical law away from either fortune – or ruin.
And this consolidation of power was just getting started…
On June 29, 2007, Steve Jobs walked on to a stage at Apple’s Developer Conference and introduced the first iPhone. It practically de-emphasized its status as a phone – recognizing that its other attributes were what made it a gamechanger.
Namely, the iPhone blew everyone away with its futuristic touchscreen interface, full-screen experience and its connectivity features. As Jobs put it, ‘the iPhone is a breakthrough internet device’... a bold claim that would eventually prove to be a wild understatement.
This was a watershed moment, triggering the demise of Blackberry, Nokia & Motorola – the prior heavyweights in the phone market – each of whom faded to obscurity in direct lockstep with the iPhone’s rapid rise to dominance, per the chart below:
As we think about how smartphones led to the current state of the internet and its respective Kodak Moment, there are many factors, but these stand out as the key catalysts…
- Users. The internet became substantially easier to access as soon as you could carry it around in your pocket, especially for the developing world and “lite” social users. Thus, smartphones were the key catalyst to getting 4.7 Billion people online (as of 2021)
- Usage. Thanks to smartphones, average daily screen time has also risen by orders of magnitude (5X) in the last 10 years. The average internet user is now actively online 3.2 hours per day – over 2 hrs of which are on mobile devices.
- Content. When you give half the world’s population a world-class camera, video camera & one-click access to global distribution channels (social apps, Youtube, Twitter, Reddit, etc), it turns everyone into a micro-publisher. And the volume of content that we now publish every day is staggering; literally billions of new posts are created per day.
- Augmentation. Arguably the most important role that smartphones have played in the last decade is in providing a platform for true business model alchemy; think about how quickly the App Store went from offering $2 puzzle games to forging world-changing businesses like AirBNB, Square, Uber, Tinder, DoorDash, Pokemon Go and many others… each for better & worse.
It’s easy to overlook given how widescale and persistent this disruption has been for the last decade – but we truly live in an “augmented reality” already when you consider how essential our smartphones have become for daily life.
With this meteoric growth of internet users, one would think it should be easier than ever to drive traffic, build an audience and grow a business.
Instead, as we all know too well, paradoxically this mass onboarding catalyst has directly coincided with a mass consolidation… which has left the “keys” to the internet in the hands of just a few players, who now control access to everything – and who charge a fortune for it.
There’s a few reasons why this happened…
created in your own image
As these billions of new users found their way online from their smartphones, they largely piled into familiar apps & services owned by the already-dominant internet gateways: Google & Facebook.
And with the perfect confluence of 10X more users, 5X more time spent online, and the ability to connect behaviours, engagement & publishing sentiment across multiple devices – this gave Google & Facebook each an immense treasure trove of data on each of its users.
The sheer volume & depth of this data is what’s made it possible to utilize actual AI & machine learning to build content suggestions & advertising experiences with near-perfect relevance and precision.
And as such, both Google & Facebook have become the “IQ test” for customer acquisition – you’d have to be insane not to use them.
But a free lunch this is not. These algorithms are just as skilled as maximizing revenue for their owners as they are at finding your ideal customers – to the point where an estimated 40% of all funding provided to internet companies just gets sent directly to Google & Facebook.
There’s never been more users online… and they’ve never been more expensive to reach.
singularities of innovation
A black hole’s growth can be exponential in that the more matter it “eats”, the more matter it can eat, ad infinitum. In the same way, as a company dials in its monetization and achieves the maximum user value in a category, growth by acquisition becomes increasingly sensible.
Facebook’s perpetual train of social acquisitions – notably Instagram & WhatsApp – has been hugely additive, but also necessary to maintaining dominance as the network of social networks.
Similarly Google’s key acquisitions (notably Youtube, Android, Waze, & Nest) were clearly as protective as they were progressive in terms of maintaining their default gateway status for the Web, no matter the medium.
But these acquisitions & core initiatives aren’t just a story about the giants getting bigger… it’s also about controlling as much of the internet journey as possible.
Consider how each of these monopolies are deftly maneuvering to corner the entire internet “supply chain” from every direction…
- Facebook owns the social graph. Whether you’re a Boomer or GenXer using Facebook, a Millenial using Instagram & Messenger, or a Non-American using WhatsApp… the fact is, if you’re connecting with your everyday-life friends online, you’re relying on Facebook in some capacity.
Digging deeper: Facebook’s recent focus on acquisitions in VR and interfacing, as well as a recent blockchain acquisition hints at where they see the future of social interactions headed, as well as how they intend to maintain dominance.
- Google owns all the starting points. Just flipped open the laptop? Open Chrome. Need to find something? Google Search. Time to check your email? Gmail. Using a non-Apple smartphone? Android. Need to go somewhere? Google Maps / Waze. Looking for a video? Youtube. Need to work on something? Google Docs/Drive. And the list goes on.
Digging deeper: Google is really the world’s biggest data bank. Basically every online behaviour gets accreted into their vault, to be monetized at a later date. So it’s not surprising to see them double down on AI as their core focus in acquisitions and R&D. If anyone builds a device or app needs to be “smart”, it will need to run on Google for the foreseeable future.
- Apple owns the affluent. For the most part, the affluent demographic strongly correlates to using Macs, iPhones, Apple Watches & AirPods. And Apple takes 30% of the topline revenues from any business that wants to build things that work on its devices.
Digging deeper: Clearly, Apple’s big bet is AR. They want to be the premium augmentation option for the high-value customer. And with their rumored smart glasses coming later this year, Apple aims to retain its status as the premium internet gateway of choice.
- Amazon owns the shopper. From its start here status for buying anything online to its world-class fulfillment & logistics infrastructure, the Amazon ecommerce experience is unmatched – nothing else even comes close.
Digging deeper: Amazon tends to conquer really hard problems for their own business – and then productize them. FBA is one example… and AWS is another. Most people don’t think about it, but the former book reseller now provides the “digital plumbing” necessary to run most apps & internet services via the AWS cloud range.
We’re just scratching the surface here, but the overriding paradox is that the larger the internet grows, the more centralized & cornered it’s becoming.
This has led to an increasingly inaccessible landscape for entrepreneurs – who are now almost totally dependent on renting the right to exist from today’s digital landlords. The fact that you can count on one hand the number of CEO’s who effectively control 95% of the internet experience as we know it is pretty astounding.
fueling the future
What lies ahead?
I believe we’re at an inflection point; a pivotal moment on the internet’s timeline. This is the part of the story where we either cross the point of no return and fall into the abyss of consolidation & wealth disparity… or, we choose a different path.
Today’s internet giants seem unstoppable, but they each also share the same weak spot in their defenses. Their fundamentally exploitative business models are a double-edged sword; they depend on us to survive.
In The Matrix, the Machines use humanity as its power source – who they sustain & distract using a palliative digital world; a perfect parasite. Google & Facebook have similarly perfected this balance between harvesting data, content & attention from us in exchange for a little convenience, distribution & dopamine to keep us plugged in.
But some cracks are starting to form, and people are beginning to wake up. Facebook and its founder are increasingly viewed with negative sentiment. Google is increasingly under the microscope for anti-trust & monopolistic behavior.
And in general, the average user is now starting to actually care about things like privacy, data custody, and data ownership, which poses a real political threat to Big Tech.
Perhaps most importantly, considering the rapidly expanding gulf between classes, people are simply growing tired of their de facto role as the unpaid wheel-cogs of these trillion-dollar tyrants.
For the masses, these days seeing “Elysium” track its orbit across the sky no longer holds the same promise of opportunity. Rather, it’s just a symbol of extreme disparity – floating above us, ever out of reach.
“But what’s the alternative?“
As with Kodak, I don’t think the current incumbents are at risk of being knocked over by direct competition. Remember, the “alternative” to film wasn’t a better product; it was the byproduct of of a much larger trend – personal computing.
Similarly, the key disruptions that are starting to reshape the internet aren’t alternatives per se; they’re a new framework for our digital lives.
In the same train of thought, if Web 1.0 made everyone a researcher, Web 2.0 made everyone a publisher, and Web 2.5 made everyone an asset – what will be our role in Web 3.0?
I think the internet’s third act could be just as formative to society as its genesis.
And it would accomplish this by making everyone an owner.
Which is where things start getting very, very interesting…
It’s a funny feeling when you first encounter something that you know is going to change the world – even if you can’t pinpoint exactly how it’s going to happen.
I’ve only experienced this a few times…
Creating my first album with Napster. Calling someone across the world using Skype… for $0.12. Setting up my first programattic campaign with SiteScout.
While each of these innovations had immediate utility, it was also obvious they were just the early frontrunner of something much, much larger. And ultimately, this is exactly what materialized.
- Napster heralded in the age of streaming (Netflix, Spotify, Apple Music, etc) which transformed how we consume media, and massively disrupted the entire Entertainment industry.
- Skype heralded in the age of P2P session comms (Zoom, FaceTime, FB Audio, etc) which has transformed how we communicate, and all but replaced phone calls.
- SiteScout heralded in the age of programattic advertising, which Facebook quickly managed to refine into the killer app for digital marketers – reducing customer acquisition to a budget and a button.
The main takeaway? World-changing innovation is a relay race. The baton usually changes hands a few times before reaching the mass-adoption finish line.
But you can still spot a world-changer before the killer apps arrive…
the future will be decentralized
Back in 2010, someone offered to pay for a high-ticket product of mine using Bitcoin. I declined, because I didn’t think it would ever be a viable currency, and seemed too complicated.
Technically, I was “right”. Bitcoin hasn’t yet become a viable currency. Instead, it’s become digital gold. And had I accepted their offer, that $995 payment would now be worth about $80 Million. Don’t I feel just sooo smart...
Like Kodak, I was looking at it from a myopic perspective, failed to see what crypto currencies could actually enable… and unwittingly missed out on a massive wealth event.
Fast forward to today, and it’s become increasingly clear that the crypto ecosystem – specifically, its blockchain infrastructure – will fundamentally change the way we use, build and benefit from the internet.
This is the next Napster, and then some.
Part 2 will cover this in depth. I’ll be diving in on why Web 3.0 is going to drive business model alchemy at a rate we’ve never seen before, and why fractional ownership will become as mainstream & customary as an email/password login.
From enabling an actual Metaverse, to disrupting the future of work, to “de-platforming the platforms”, to providing an entirely new way to build a permanent marketing audience, to… well, there’s a lot to cover.
And as you’ll see, the opportunities for early adopters aren’t just compelling… they’re extreme.
But don’t just take it from me…
A word from the founder
“We are optimistic [about crypto] because we are deep believers in the power of software. Software is simply the encoding of human thought, and as such has an almost unbounded design space.
“We find ourselves consistently surprised and excited by the wide variety of creative crypto ideas we encounter.
“For those of us who have been involved in software for a long time, it feels like the early days of the internet, web 2.0, or smartphones all over again.“— Marc Andreesen (Andreesen Horowitz / a16z Crypto Fund)
Co-Founder of Netscape
And on that bombshell…
It’s time to punch the clock on this one. Keep an eye out for Part 2.
And keep and open mind 🙂
Thanks for a great presentation. It’s so interesting too that the new wealth is just a group of people acting in common.
Totally. Though I’d say acting-in-common has generally always been what’s driven markets & wealth creation – it’s just that Web3 finally allows for a structure where the consumers can simultaneously be beneficial owners.