The Collapse of Complex Business Models

Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

.. In the mid-90s, I got a call from some friends at ATT, asking me to help them research the nascent web-hosting business. They thought ATT’s famous “five 9’s” reliability (services that work 99.999% of the time) would be valuable, but they couldn’t figure out how $20 a month, then the going rate, could cover the costs for good web hosting, much less leave a profit.

I started describing the web hosting I’d used, including the process of developing web sites locally, uploading them to the server, and then checking to see if anything had broken.

“But if you don’t have a staging server, you’d be changing things on the live site!” They explained this to me in the tone you’d use to explain to a small child why you don’t want to drink bleach. “Oh yeah, it was horrible”, I said. “Sometimes the servers would crash, and we’d just have to re-boot and start from scratch.” There was a long silence on the other end, the silence peculiar to conference calls when an entire group stops to think.

The ATT guys had correctly understood that the income from $20-a-month customers wouldn’t pay for good web hosting. What they hadn’t understood, were in fact professionally incapable of understanding, was that the industry solution, circa 1996, was to offer hosting that wasn’t very good.

This, for the ATT guys, wasn’t depressing so much as confusing. We finished up the call, and it was polite enough, but it was perfectly clear that there wasn’t going to be a consulting gig out of it, because it wasn’t a market they could get into, not because they didn’t want to, but because they couldn’t.

.. The web hosting business, because it followed the “Simplicity first, quality later” model, didn’t just present a new market, it required new cultural imperatives.

.. “If you want something to be 10 times cheaper, take out 90% of the materials.” Making media is like that now except, for “materials”, substitute “labor.”

“Web users will have to pay for what they watch and use, or else we will have to stop making content in the costly and complex way we have grown accustomed to making it. And we don’t know how to do that.”

… Bureaucracies temporarily suspend the Second Law of Thermodynamics. In a bureaucracy, it’s easier to make a process more complex than to make it simpler, and easier to create a new burden than kill an old one.

In spring of 2007, the web video comedy In the Motherhood made the move to TV. In the Motherhood started online as a series of short videos, with viewers contributing funny stories from their own lives and voting on their favorites. This tactic generated good ideas at low cost as well as endearing the show to its viewers; the show’s tag line was “By Moms, For Moms, About Moms.”

.. Once the show moved to television, the Writers Guild of America got involved. They were OK with For and About Moms, but By Moms violated Guild rules. The producers tried to negotiate, to no avail, so the idea of audience engagement was canned

.. The most watched minute of video made in the last five years shows baby Charlie biting his brother’s finger. (Twice!) That minute has been watched by more people than the viewership of American Idol, Dancing With The Stars, and the Superbowl combined. (174 million views and counting.)

.. “Charlie Bit My Finger” was made by amateurs, in one take, with a lousy camera. No professionals were involved in selecting or editing or distributing it. Not one dime changed hands anywhere between creator, host, and viewers.

.. it is the people who figure out how to work simply in the present, rather than the people who mastered the complexities of the past, who get to say what happens in the future.