You know how the compound eyes of a fly are designed to spot motion and not stationary objects? Well, to a lesser degree ours are as well (which is why we don't see our nose). We're evolutionarily trained to focus on change, even at the cost of sometimes missing what's right in front of us.
The chart below (from Gawker) brings this to mind. It shows US newspaper advertising revenue from 1982 to last year, with the dark brown print revenues and the light brown online. It was headlined "Over the precipice", and the same news (of a 9.4% fall in print ad revenue and a 7.9% fall overall, including online) elsewhere got similarly apocalyptic coverage about the largest fall in fifty years.
But when you see this chart, what's the first thing that you notice? Surprisingly, the industry is just ten percent off its historic highs (much like the stock market) and is still twice as big as it was twenty years ago.
[continued below chart]
If you'd ask me to describe the state of the newspaper industry based on the scary coverage about it alone, I would have guessed that it had fallen by half and that we were back to 1970s levels. Instead, it's a $45 billion business, which is twice as big as Google and Yahoo combined.
The reason we get this wrong is that we give too much weight to the first derivative (growth) or even the second derivative (change in rate of growth) and not enough to the absolutes numbers. In the past, I've called that "endism" and its symptoms include equating negative growth (or even, more sinfully, slowing growth) with death.
Here's the example I gave in the earlier post [updated to reflect comments], using the hypothetical example of Consumer Reports:
- "Absolute people" think: "4 million subscribers is a lot. Consumer Reports must be doing something right."
- "First derivative people" think: "It was 4.5 million two years ago. Consumer Reports is dying."
- "Second derivative people" think: "They lost more readers last year than the year before! Consumer Reports is dead."
The truth is that the newspaper business is still a huge industry and will be around in one form or another for the rest of my life. That is not to dismiss the declines, but only to note that there's still a lot of money there and what is required is strategic change, not giving up the ghost.
Growth industries are different from sunset industries, but in many cases the second category is larger (one example: the Yellow Pages is still a $16 billion business). Managing companies on the way up takes a different set of skills than milking them for cash on the way down (and often different people, witness the buyout guys), but fortunes are just as often made the second way.
What people forget is that industries peak at the top. Which is to say, at the very time that the first and second derivative people are writing off a business, those who can stand back and see the value still left in it can make a mint. Laugh at newspapers if you will, but I'll bet some private equity firm out there is looking at the chart above and licking their chops.