Startup general interest

Digitisation shrinks markets by two thirds – music industry data

By February 23, 2015 4 Comments


I pulled this chart from Business Insider. As you can see it shows that adjusted for inflation US music spend per capita has dropped 64% from $71 to $26 since the beginning of the century, a change largely driven by digitisation.

It’s become a bit of a cliche that digitisation shrinks markets by two thirds, and it’s good to see the rule of thumb corroborated by hard data.

It’s the shrinking of markets that makes it so hard for incumbents to respond and explains why new entrants often take so much market share. We have yet to see a large company CEO embrace disruption of her own industry to shrink her company by two thirds.

The interesting question of course is which markets will be the next to be digitised. To date the digitisation has been of hardware products – CDs are disrupted by downloads and streaming. The next wave will be about the digitisation of labour – people are disrupted by robots and artificial intelligence. In a sense this disruption has been happening since the the industrial revolution as manufacturers and companies everywhere spend money on technology which makes their people more productive so they save money by employing less people. That’s why the luddites smashed textile machines in 19th Century England. What’s different this time is that the disruption will be more pervasive – it won’t be some people’s jobs at risk, it will be everyone’s jobs.

At the macro level this trend will play out over decades – I would guess 40-60 years – but at the level of individual industries and products things will move much faster. Insurance, haulage, and large parts of the banking industry are prime candidates for near term digitisation which will see their market sizes shrink largely driven by automation of labour.

The investment opportunities are as exciting as the societal implications are worrying. It’s incumbent on all of us to think about both.