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March 13, 2009

The Econalypse / Depression 2.0 Killed Broadband

Years from now, forensic economists will study terabytes of historic information trying to identify the tipping point of the Econalypse of 2009-2011; when did the economy start an irreversible slide? What single datapoint broke the camel's back? For the record: It's Maria's fault. Maria is a lady I work with. She caused Depression 2.0 ; it started with the best of intentions in October 2008.

econalypseA buddy of Maria's faxed her a list of stores still selling gift cards, even though they'd probably be closing soon. Some of the names surprised me. I made copies and passed them around; I didn't want anybody giving me no-good giftcards. Good thing I distributed that list widely.

Later that day I was reviewing my 401K and I thought, if all those businesses are folding, I should get that last bit of money out of the stock market. So I transferred my 401K money to savings bonds. I was talking with friends about what turned us to the Bear side and I think I can pretty accurately say: it was that list of Maria's.


Unexpected things happen in economic tipping points.
Used to be, the railroads were the mainstay of the economy.
Used to be, Pittsburgh made steel.
Used to be, real estate couldn't go wrong.
Used to be is no guarantee of future performance.
What would be Unexpected 2.0?

I've read about scenario planning and the way they use it at Royal Dutch/Shell. One of their techniques is to consider these questions: What's a current market assumption about something that's either plentiful/cheap or scarce/expensive? What would happen if the assumption turned out to be false?

So: what relatively recent trend is so firmly embedded in our assumptions that we can't imagine it going poof? What's new, popular, widely adopted, and we can't imagine doing without it? I suggest: high speed web access. Continual growth of high-speed web access underlies almost everybody's business strategy, The web is always becoming faster, cheaper, and more ubiquitous. It's an accepted article of faith. What would happen if that changed?

How could Depression 2.0 affect growth of domestic broadband? Suppose we have a four-year economic downturn and 13% of the country is unemployed. Suppose 30% of the country cancels their high-speed web access because it's an unwarranted luxury when next month's paycheck is uncertain?

How would the cable companies, with significant fixed costs and few variable costs, respond? They'd consolidate through M&A, raise rates, and allow cable to go dark. The ubiquitous web might be gone, and we'd be back in 1996. The people unaffected by the Econalypse will be online, but there'll be a broadband ghetto.

The pure-play businesses will suffer. The clicks-and-bricks will struggle. The bricks-and-mortars will do better. Newspapers and magazines, or any industry betting on the web for their salvation, will probably fold.

How will children do their papers without high-speed internet? Hello, public library with web access! Congratulations, banks that maintained branch offices!

All the businesses that shifted to the web-based version of customer relationships will suffer when their relationships move offline. Companies that moved their HR posture to self-serve, or that moved their information systems to the cloud, will have remote employees who can't access their key systems.

I'm just saying.

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