Kirk Klasson

The Ineluctable Entropy of Being

About a year ago, in a previous post here in Epilogues entitled The Curse of the Walled Garden – Facebook’s Inevitable Implosion Begins, we flat out said that not only was Facebook toast but that Verizon’s Walled Garden pretender “Oath”, a combination of AOL and Yahoo! was also kaput.

Just by way of reference, the relevant comment started here:

Even more troubling was the idea that Facebook was following a familiar path, the well worn walk to the mythical Walled Garden, the only place where one would need to go to be globally connected on the Internet, a model tried and discredited by the likes of AOL and Yahoo! and pretty soon, if they stay on course, Verizon (see Big Bets and Long Tails – June 2013).

Well, Verizon did stay the course and just this week decided to write off the remaining good will of both their AOL and Yahoo! acquisitions, essentially recognizing that in the space of 3 short years they had spent $10b and had nothing to show for it. Or at least nothing of value that they could show their shareholders. But hey, that’s tech for you. It only took Microsoft 2 years to write off the $10b Nokia fiasco (see The End of an Error in the Epilogue section below).

How is it that a calamity so obvious could elude the strategic geniuses at Verizon?

Hope, while not a strategy, nearly always triumphs over experience. And it seems that this well-worn bit of wisdom, about the nature of human nature, didn’t factor in when sizing up the adtech opportunity that Verizon saw in its entry into social media.

Also, from The Curse of the Walled Garden:

Walled Gardens arose from the notion that visitor value is measured by time on-site, eyeballs on glass, a common media metric that even today remains largely unsubstantiated. But as we pointed out back in 2012 (see Trouble in Paradise– May 2012) site duration is inversely proportional to site subscription or membership which meant that the longer one subscribes to a particular site the shorter their visits would become over time. So, unless you could capture all of a visitor’s available Internet time, they would eventually and inevitably become a wasting asset.


Source: On Technology//On Strategy Blog


This is not the first or even the most prominent instance where temporal relationships have an appreciable impact on the value of any given technology.

One of the oldest of these is the relationship between occupancy and obsolescence or, stated more fashionably, recency and relevance; the notion that the value of any given technology is a function of when and why it was engaged. This one goes all the way back to Moore’s Law. Back in the day, it was understood that the life span of any instance of technology lasted for about 18 months or long enough to codify the current generation of software in the next iteration of circuit size and microcode. At which point obsolescence accumulated aggressively. If in 24 months you couldn’t provide existing customers with the next generation “new thing” there was a better than even chance you are either out of business or well on your way there.


Source: On Technology//On Strategy Blog

This is why certain prescribed operating philosophies and economic models got baked into so many high tech business. Axiomatically, one never combined long term debt with short-lived innovation cycles; current, coverage and conversion ratios matter more than return on assets; value propositions and customers might not last but there’s always a greater fool willing to buy yesterday’s success; organize your business accordingly.

These days, however, there are lots of businesses that claim to be high-tech, that are essentially sophisticated technologically enabled entities, but are far from high-tech businesses. Selling shoes over the Internet does not make you a high-tech business. Styles may come and go but your basic business model isn’t threatened due to the introduction of neuromorphic chips sets.

The same might be said for most of the current denizens of the search, ad tech, retail and media games, dazzling technological sophistication but not natively high-tech businesses. Scratch an autonomous vehicle and you still have a car whose expected life-time value and asset specificity will need to remain relevant and congruent with the current economics of production and consumption whenever that might occur. So far, this is a hurdle that none of the Waymo’s of the world have actually cleared.

However, as we have recently seen, when it comes to going concerns of every stripe, terminal obsolescence is never very far away. If you had told Jack Welsh on the eve of his retirement that he would out last GE he probably wouldn’t have believed you.

And yet, here we are.

The same is true for a host of businesses, even those who hold the patents on the technology we most fervently employ, whose future obsolescence is increasingly more a function of their hubris than it is the introduction of the next new thing.


Cover graphic courtesy of On Technology//On Strategy blog “Trouble in Paradise” post, all other images, statistics, illustrations and citations, etc. derived and included under fair use/royalty free provisions.



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