Knocking Over The Wall Does Not Itself Create A Business

  • Posted by Leigh Drogen on May 17th, 2012 at 4:23 pm
  • Comments: 0

Amazon has taken 30 billion dollars a year in sales away from the brick and mortar retail industry, yet it has a hard time turning a profit, amazing.

Napster was a failure of a company financially, yet it completely destroyed the music industry, absolutely leveled it.

I’ve been chewing on this theme for a few weeks as I think about what happens when sell side equity research is completely disrupted, which it will be soon. It relates to Estimize, StockTwits, and a whole host of other companies that are leveling the playing field in our industry, breaking down barriers, and opening up access to information.

But just because we’re knocking down walls, does not mean that all that money is gonna come spilling out the other side for us to pick up. When you disrupt an industry, you often erase a large portion of the profit for everyone. Consumers benefit greatly, as they did with Amazon in pricing transparency, and music services that allow you to access content without buying it, but the companies themselves have not had an easy go of it given the amount of revenue they pull in.

Technological advance is naturally a deflationary force. I’m sure Mr. Bernanke stays awake at night trying to figure out how to put the breaks on it, the access over ownership economy is crushing the labor market, or at least the labor market he understands how to control with his tools.

We’re building a new business model at Estimize on top of the data. We’re adding value not by selling access to content, but by providing a whole new alpha generating data source that no one else can. I often get questions from people asking if we will build an independent research portal on top of Estimize. The answer is no. That industry is dead. Content is dead, it’s worth nothing. Why would you pay for equity research when people are sharing great stuff for free on Estimize and StockTwits and blogs?

I look at companies like 42 Floors which is disrupting the commercial real estate rental business and wonder how they will try and make money once they have destroyed all the brokers. I see several examples a day like this.

We live in an amazing world that is moving so quickly, and it’s not always easy to see where the money will come from once you knock over those walls of inefficiency. But that’s the fun part, figuring it out.

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see the Disclaimer page for a full disclaimer.



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