Death of a Business Model

Historically, almost every significant economic crash has been due to one factor of the human psyche, the inability to conceive of change. Not adapt to change; we’re pretty damn good at figuring things out after the fact. Beforehand? Not so much. Entire industries collapse because of the assumption that the fourth quarter will be exactly like the first, only more so. This is true even when those assumptions are based on patent absurdities.

One incredibly obvious absurdity that infects everyone from a two person tech startup to the federal government; prosperity requires indefinite growth. It’s ingrained in our psyche. But think about it. Economics is not divorced from the physical world, and in the end economics is still the organized distribution of resources. Things will always run out. Labor, energy, capital, customers, people’s attention spans, bandwidth, tax base— everything is finite. Therefore, at some point, growth must stop. The problem, of course, is because of the assumption prosperity requires growth, we’ve done everything to insure that when it does stop it becomes a massive disaster because all the systems we’ve constructed to assume growth don’t really work when growth stops. (Case in point, the design of the Social Security system, which requires a constant permanent growth in the working population in order to work.)

Now, Microsoft’s existence is based on a similar absurdity, the permanent upgrade path. The idea that software is in a continual state of improvement, and that it is a valid assumption that the end user will continue to buy the new version of an application every few years or so. Both are at odds with reality. Every technology has an endpoint, there comes a time when a system is so mature that it does what it does well enough that any future meddling actually makes things worse. I write for a living, and deal with several flavors of MS Word every day. I can say that, for my purposes, there is absolutely no functional difference in any version of Word released since 2000. It’s a damn word processor. You’re not making it any better. The OS is facing the same problem. Intel has said there’s no compelling reason for them to upgrade their 80,000 PCs to Vista. The only reason the public’s buying the OS is because it comes on new machines— a substantial number of which are being downgraded to XP. The fact that XP is “good enough” is going to become a big problem for Microsoft. They’ll continue to push new OS’s onto new PCs, but fewer people are going to bother “upgrading,” meaning that developers are going to serve a Windows market that’s more and more fractured, and therefore they will not be as likely to utilize new “features” in the OS, (if half the computers there are running XP, you’re losing half the market when you develop something that only works for Vista or Windows 7). With less software requiring the new OS, it becomes even less attractive to upgrade. And as more and more of the stuff people do with computers moves to the internet, the OS on the machine becomes irrelevant. If your browser does all of what you need, why do you need Vista?

In fact, Intel’s decision should give itself pause, because it’s based on a similar model. What happens to the tech industry when people don’t buy a new PC every three years? What happens when the five-year old PC works just fine?