Embracing Chaos

Amazon has a history of facilitating disruptive change. First by selling books online, they demonstrated the advantages of a well-run online store. Then with music, movies and just about everything else, they have shown that centralizing inventory and customer experience allows for reduced costs and an improved experience over a traditional distributed retail model. Today, Amazon Web Services is starting to disrupt IT operations similarly by providing a higher quality service at lower cost than most companies can manage themselves. They achieve these scale economies through centralization. With Kindle Amazon is attempting another disruptive change, this time in the way…

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[I wrote this for my excellent class on Open Innovation. With mere weeks to go until I finish my MBA, I haven't found much time to write original stuff for this blog, so I'm recycling a bit.] The music recording industry is in trouble. Disruptive changes in music playback technology have seriously reduced demand for their mainstay business, physical CD sales. CD sales comprise 80% of the industry’s total revenue, but have dropped sharply in recent years. Last year sales dropped by 19%, and the channel is in danger of freefall as retailers start to re-allocate store space currently assigned…

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Although most corporate mergers fail (often due to mis-aligned incentives on the part of the deal-makers) there is a solid economic foundation for the proposed Microsoft + Yahoo! merger. Most of their assets will work no better combined than separate. But the merged Microhoo ad network would be significantly more valuable than the sum of two ad networks alone. Why bigger is better for online advertisers The reason lies in network effects of the online search + advertising industry. Imagine you’re an ad buyer which is to say you have a service you want consumers to find online. Unless you’re…

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