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Simplicity is King

April 8, 2010

Clay Shirky is a genius.  If you haven’t already, go and read his latest blog post on The Collapse of Complex Business Models now.  He is undoubtedly much smarter than me and his insights are much more valuable than mine.  His central argument is pointed at the TV/Film industry where obvious lines can be drawn to all other media industries.  The central thesis is that when stress is introduced to a business model, most of the time that model can impose additional levels of complexity or bureaucracy in order to mediate that stress or even extract additional value from it.  However, there is a limit to how far this pattern can repeat.  Eventually, the weight and sluggishness of the model’s bureaucracy will make it susceptible to competition from simply structured and more nimble competitors.  At that point, if further bureaucracy cannot squash these competitors, the model must simplify down to a competitively manageable level or face collapse.  This pattern has played out many times in the history of the media industry when new and disruptive technologies are introduced.

Shirky hits on this obvious but often over looked mantra early in his post: “there are two ways to generate a profit: raise revenues above expenses, or cut expenses below revenues.”  Glaringly obvious but also painfully true and hard to swallow.  It’s clear that revenues in the recorded music industry are falling.  To avoid collapse, simplification or further expense cuts need to happen.  Many lament the fact that thousands of people have lost their jobs in the music industry as the firms scale back expenses.  I feel that unfortunately, we are still very far from reaching an equilibrium where further layoffs and expense cuts are no longer necessary.  The complexity in major and indie record labels was built upon the revenues of physical sales, not subscription models.  Subscription models will I think eventually bring in massive amounts of revenue, but they still might not save the majority of the music industry jobs out there.  More simplicity needs to be reached to better match this new business.

Shirky’s post has an apocalyptic tone but all is not negative.  I particularly like his closing line: “when the ecosystem stops rewarding complexity, 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.”  Hopefully the hungriest of us can figure out how to be the people working simply in the future.

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