We are accustomed to talking about technology companies as having infinite or near-infinite addressable markets. Productivity is almost by definition an infinite market; people have an uncapped appetite to do more with less. Communication is largely the same story; there is no clear end to how much people want to talk.
Technology companies often fiercely compete inside the technology industry. But in infinite markets with open-ended growth potential, these technology companies have generally been non-zero-sum with the outside world. Companies like Yahoo, Google, Twitter, Aol and Facebook have, with an occasional exception, grown without dramatically taking away from other legacy businesses. In many cases productivity and communication technologies have grown the pie for everyone.
But those times are changing and increasingly the most interesting technology companies are competing in finite markets against legacy companies. Technology companies are entering zero-sum spaces.
And that change is leading to a big change in sentiment around them.
The non-zero-sum technology businesses of the last few decades enjoyed lots of love and limited intervention from the outside world. These businesses made technology feel like a magic force delivering awesome new experiences at zero-to-minimal cost. It’s a key reason that sentiment towards technology companies is so positive compared to sectors like finance. Both industries have similar profitability and wealth concentrations, but bankers are viewed in a far less positive light.
Take for example Apple, perhaps the most deeply loved technology company. It’s easy to see all the wonderful things the company has added to the world, and it’s hard to pinpoint any specific industry it has destroyed in the process. Even if the digital media business isn’t as lucrative as traditional media, iTunes arguably helped save it from piracy.
There have been disliked technology companies in the past, to be sure. Microsoft for a long time was hated by consumers and other businesses. And a big part of that was due to its competitive nature against other software businesses from Netscape on down; in other words, the company went out of its way to be zero-sum. An internal Microsoft slogan, “Embrace, Extend, Extinguish,” which came to light when the U.S. Department of Justice sued the company for violating antitrust laws, says it all.
But we haven’t seen anything like what’s coming as new technology companies are increasingly taking direct aim at existing industries.
Transportation, housing and delivery services are quite explicitly zero-sum markets. The growing competition between technology and media companies for entertainment and attention is also zero-sum. They are only 24 hours in the day.
New tech companies will grow the pie to some degree. I will travel more if transportation and accommodations are easy and cheap—but there just isn’t infinite upside to the size of these markets.
We see this in how Uber and Lyft are in the process of dismantling the taxi industry and may eventually threaten the auto industry. Google Shopping Express, AmazonFresh and Postmates should have local retailers nervous in a big and immediate way.
And so these zero-sum companies—also thought of as the disruptors Jessica wrote about in her column a few weeks ago—are going to have a hard time winning and being loved at the same time. They must be especially careful and sensitive in how they position themselves, because they will have far more enemies who have strong business incentives to see them fail.
I believe this sort of disruption is necessary and good. This generation of technology companies is clearly pushing the world forward. But they are going to have to act differently from the last generation that didn’t have so immediate a burden. They’ll need to be more sensitive, more grown-up and more careful than their elder siblings.
That will serve them well as they face growing competition too. Incumbents aren’t going to go softly into the night, and they will try to win back the business they had.
Take Flywheel, an on-demand taxi app supported by cab companies that competes with Uber and Lyft. I took a cab through the app last week and the driver told me how Uber had served as a wakeup call for cabbies and cab-owners, who were committed to improvement. I was impressed, although I would have been more so if his meter hadn’t broken down.
Technology will ultimately improve our experiences as consumers and our world. (I have confidence that the Uber meter won’t break down.) But today’s companies need to play by higher standards as they delve more into existing markets and aren’t just inventing new ones.