Time's Up!

10Business Model Evolution

If we want things to stay as they are, things will have to change.

—Giuseppe Tomasi di Lampedusa, The Leopard, 1958

Shawn Fanning was a 19‐year‐old college dropout in 1999 when he created Napster. In the first three months of 2001, 2.5 billion music files a month were being downloaded, validating the economist's theory of demand, which states that the lower the price, the larger quantity demanded, especially a zero price. The music industry collectively cried foul, accusing millions of young people of intellectual theft. Yet when you have millions of potential customers downloading billions of your product, you do not have a crime wave; you have a marketing problem—more specifically, you have a business model problem. It took Steve Jobs of Apple to capitalize on this opportunity with iTunes, and now, that model has evolved once more, and most of us stream our music on a subscription basis.

The Napster saga is just one in a long history of revolutions taking place outside the confines of an existing industry, in what the Austrian economist Joseph Schumpeter labeled the “perennial gale of creative destruction.” The reason entire industries can be brought down is because new competitors offer more value to the customer than the status quo. Schumpeter understood this phenomenon at the macro level: “Creative destruction is the essential fact about capitalism. Stabilized capitalism is a contradiction in terms. [Responsible businesspeople] know they are ...