It's time again for everybody's favorite round of Motley Fooldom: Spot the Blindingly Obvious! This week's news flash is that the Internet is just the printing press all over again. Self-evident to the point of being cliched and trite? Of course! But what does it actually MEAN? Grab an encyclopedia!
In 1452, a man named Gutenberg quietly invented something that changed the entire world in exactly the same way the Internet is changing things today. No, he didn't invent the printing press. The Chinese did that centuries earlier. What Gutenberg invented was moveable type.
Moveable type? Little metal blocks with letters on them that can be arranged in rows and columns to form words. The Chinese printers carved entire pages onto wooden blocks, so they got plenty of copies but each character on every page was still made by hand. The fun thing about Gutenberg's moveable type was that the letters could be re-used; that is, quickly assembled into a page, copies printed, and then re-arranged into the next page and used to print again. And you thought interchangeable parts didn't come around until Henry Ford's time, didn't you? They're way older than that.
Interchangeable parts allow mass production of commodity products. Commodities, despite what you may have heard, are seriously cool. They're great for the economy, because they're cheap and plentiful. The end result of any truly mature market niche is commoditization. The cost of production goes way down, and the full power of capitalism is unleashed as multiple vendors compete to provide a better deal on the same goods and services in order to attract customers. Commodities are the lifeblood of capitalism.
The printing press commoditized printed pages, which changed the balance of power in Europe. The Catholic Church had a monopoly on written information, due to the monks it could employ copying manuscripts by hand. It made doubly sure to protect that monopoly by writing books in its own proprietary language, Latin, which nobody else used anymore. The Church was so powerful it crowned kings throughout Europe, and that unrivaled power lasted for over a thousand years.
When cheap and plentiful copies of the Church's secret writings started turning up in local languages, their power base started to erode. Individual protesters like Martin Luther, who previously could have been burnt at the stake and ignored, were suddenly not only using the Church's own words against it but able to distribute thousands of copies of their arguments. A grassroots protest was no longer a mob with pitchforks (which is kind of easy to spot), but people passing around leaflets. Unsettling, that.
But the important part to realize is that the direct attacks on the Church's monopoly power were basically a distraction from the real action of the Renaissance. Once information was freed up from monopoly control and put into the hands of individuals, it started evolving rapidly in capitalist/Darwinian fashion. New discoveries could be published and compared with the existing body of knowledge. Mistakes could be corrected, and the state of the art could be widely learned so less time was spent re-inventing the wheel.
The medieval feudal system with the Church at the top wasn't destroyed by a sudden mob-with-torches revolution. It was simply rendered obsolete and allowed to fade away. New systems were set up in parallel, with paper money and parliaments and universities and regular mail service and banks and printed laws and double entry bookkeeping. The new systems took over as the old became less relevant. Even today, England still has kings and queens for ceremonial occasions. They're just not in charge anymore.
What does this have to do with the Internet? Everything. Just as the moveable type commoditized printed pages and eventually affected everything that could be written, the Internet has commoditized binary data, and that affects all the text, pictures, sound, full-motion video, and programs that can be stored in a computer.
I've already written entire articles about a few of the established power bases being bypassed and commoditized by the Internet. The Recording Industry Association of America is kind of upset about MP3 music files being swapped online by programs like Napster and Gnutella. The Motion Picture Association of America is seriously torqued about the fact that Digital Video Disks contain digital information. (Apparently, nobody told them this during development.) Magazines and newspapers proved eager to switch to the winning side, and jumped online en masse. And, of course, software development went online years ago with the open source movement, enthusiastically commoditizing itself to bypass a particularly rigorous monopoly in that niche.
Widespread commoditization flows around monopolies and erodes their foundations the same way a flooding river destroys a hydroelectric dam. Unlike impersonal forces of nature, threatened monopolies actively defend their privileged status, passing laws like the Digital Millennium Copyright Act and the Uniform Computer Information Transactions Act. In my opinion, this has about as much a chance of stopping the Internet's commoditization of digital information as the Catholic Church had of holding on to its monopoly on Western thought. (Hint: If you type either DMCA or UCITA into a search engine, the most highly linked sites from each search are generally organizing protests against them.) Even so, sore losers can do an awful lot of damage on their way out.
Meanwhile, where does this leave us as investors? Looking at companies that can profit from commoditization. Remember, customers aren't spending less money; if anything, they have more to spend. They're just spending it on different things, and constantly searching for ways to get more bang for their buck. Companies trying hard to provide what customers want, how customers want it, can actually benefit from change.
Just as Dell (Nasdaq: DELL), Compaq (NYSE: CPQ), and Gateway (NYSE: GTW) profited from the rise of commodity computer hardware -- at the expense of IBM's (NYSE: IBM) monopoly -- new companies will arise that profit from the millions of types of commodity information. Like the PC manufacturers, commodity markets favor service-based companies that are willing to adapt to change and cannibalize their existing product lines before the competition can. (And you wonder why I'm always on about Merchant Kings.)
Off the top of my head, Yahoo! (Nasdaq: YHOO) seems like a good bet to profit from this whole "Internet" thing. Anybody else want to try to spot some others? The discussion boards are open...
Links to other columns I've written on this topic before (hey, recycling is environmentally friendly, you know):