Venture Capital

Big markets are spinning up and disappearing faster and faster

By January 21, 2016 One Comment

The idea for this post came this morning when I saw these two tweets from Benedict Evans. One shows the newspaper industry growing steadily for fifty years and then declining for ten and the other shows the Japanese fixed lens digital camera market growing from nothing to 120m unit sales in ten years and then dropping by 80% in the seven years after that.

The market for the Japanese cameras spun up and disappeared more quickly than for newspapers. There’s a hypothesis that’s a phenomenon we are seeing over and over again. New markets, especially digital markets, grow big very fast, but don’t have legs. Other examples I can think of include

  • Word processing software – the market took off in the 1980s and is now in substantial decline due to Google Docs and Evernote. Evernote (arguably itself a new market) grew very fast but is now threatened by Quip.
  • Video cassette recorders took off in the 1980s, were replaced by DVD players in the 2000s, which are now being replaced by streaming services
  • Vinyl records were around for decades before being replaced by CDs in the 1980s, which were replaced by music downloads in the 2000s which are now being replaced by streaming services
  • Walkmans were replaced by MP3 Players which were then usurped by phones on a similar timetable
  • PDAs and satnavs were usurped by mobile phones in about 15 years
  • Blogging got going in about 2005 before Twitter and a collection of other sites took the wind out of it’s sales over the last three years or so

A few too many of these examples are linked to smartphones for my liking, but I do think there’s something in the idea that new markets have shorter and shorter durations. It fits with my worldview that the pace of change is accelerating. If the duration of markets is shortening it has implications for venture capital, because if companies take 7+ years to reach a big exit then increasingly their markets will have started to decline before they get big enough to sell or IPO and the model will break.

[Apologies for not posting the images from the two Benedict Evans tweets. WordPress won’t let me upload anything today…]