“Today, we predict, an industry will take on average 25 years to progress through all four stages; in the past it took somewhat longer, and in the future we expect it to be even quicker.” –circa 2002
New industries move through several stages as they run their course: birth, scale, focus and balance. Harvard Business Review published an overview of these industry phases written by three consultants who surveyed 25 industries. The major internet related industries have reached the Balance and Alliance stage defined by 3-4 companies occupying 70-90% market share well ahead of the 25 year mark. Online advertising, online travel, e-commerce, digital media sales and many sectors have dominant large players in Google, Expedia, Amazon and Apple each with dominant market shares in their respective territories. Typically Balance and Alliance industries are marked by lack of progress as the few dominant players fight over market share and stall innovation.
However, the pace of innovation in these sectors has never been more rapid. The first half of 2010 has been one of the most active investments periods for our firm. We have invested in more deals in the first half of 2010 than all of 2008 or 2009 because of the vast amount of potentially disruptive innovations we’re observing across all these “mature” sectors: consumer services, advertising, gaming, enterprise & software, infrastructure and healthcare.
There are several factors driving the frenetic pace of disruption in these “mature” sectors. Consumers and businesses are adopting new products faster than ever. The costs of operating and marketing new services has fallen dramatically with cloud computing and freemium price models. As a result, startups’ price points can be lower than incumbents’ while maintaining similar margins – thereby taking share from the mighty monopolists.
Perhaps this means that industries never persist in Stage 4, Balanced and Alliance, because the pressure of innovation prevents homeostasis.