Too Big to Succeed
Remember Tower Records? Back in 1999, they were doing $1 billion in sales and operated nearly 200 giant stores across the world. The documentary about the company's rise and fall is a fun watch.
In 1994, CEO Russ Solomon was asked about the possibility of music being sold online. Speaking on an internal promotional film, Solomon said:
"As for the whole concept of beaming something into one's home, that may come along someday, that's for sure. But it will come along over a long period of time, and we'll be able to deal with it and change our focus and change the way we do business.
As far as your CD collection — and our CD inventory, for that matter — it's going to be around for a long, long time, believe me."
Three years later, Duran Duran made history by offering their new single, Electric Barbarella, for sale online, as a digital download for 99 cents. Two years after that, in 1999, Napster came along and physical album sales collapsed. In 2003, Steve Jobs launched the iTunes store.
In 2006, Tower Records shut down. The brand lives on in Japan, where the local operator was smart enough to buy the local franchise from the parent company. Curiously, Tower Records Japan even went into a joint-venture with Napster, but that was well after Napster itself was destroyed by lawsuits, new competitors, and legal downloads.
Tower Records died for many reasons. Among them is competition from discount retailers such as Walmart and Best Buy who were not "online", but did benefit from the lower cost of producing and distributing digital music on CDs.
But looking specifically at Tower vs. the internet, two things stand out: The seemingly disruption-proof elements of the company's product; and how it chose to respond to the rise of digital media and online channels.
On the product side, Tower offered what every retailer aspires to provide in 2020 — an experience. Each store had a unique vibe. The local staff had relative freedom in choosing the merchandise and each employee was expected to be a music geek who could help customers find what they're looking for. As Bruce Springsteen described it: "everyone in the store was your friend for 20 minutes".
As music became digitized — on CDs and, later, online — Tower's stores became bigger. Typical record stores stocked 10,000-40,000 albums; Tower stocked up to 180,000. And it expanded aggressively, trying to appeal to a more mainstream audience by broadening its selection and opening stores in malls.
I am not sure whether the company did this as part of an explicit strategy. Whether intentionally or not, Tower tried to compete with the internet on the internet's terms. The internet was ubiquitous and offered abundance. Tower tried to be and do the same.
But you can't out-internet the internet. Which brings me to the doctor.
I wasn't feeling well this week and had to see a doctor. I was planning to see one in person. I've been living in a new location since April, so I was not sure where to look. Naturally, I started online.
Most of the listings I found (on Zocdoc) mentioned they're only accepting online appointments. Since I could choose a doctor from anywhere, I chose one from Manhattan. If only for a while longer, Manhattan is the center of the universe so I figured a doctor from there would be best.
Two hours later, I found myself on an intimate video call with a person I've never met before. Booking the appointment and "checking-in" to the clinic was still quite cumbersome (I had to fill in the same details into three different systems), but the call itself was nice. I struck different poses, the doctor had a look, and my prescription was available for pickup in a CVS nearby 20 minutes later.
From a medical perspective, the video call was inferior to a physical examination. But other aspects of it were delightful. I could see the doctor almost immediately. I did not have to leave home, put on shoes, sit in a waiting room, or fill any paper forms. Come to think of it, I'm not even sure I would have even gone to the doctor for this particular issue if it wasn't online.
Now that I've been forced to try telemedicine. I will happily use it again whenever an actual visit is not 100% necessary. I expect many people would do the same. Many of the most popular reasons people go to the doctor can be addressed remotely even today, and definitely in the near future when our phones and home devices would be even better at scanning and measuring our faces, bodies, stress levels, blood pressure, and more.
While I was not sitting in the doctor's waiting room, I picked up the day's newspaper and read that "middle and upper class families are teaming up to form 'pandemic pods,' where clusters of students receive professional instruction for several hours each day." The Boston Globe described it as a "2020 version of the one-room schoolhouse, privately funded.”
If you're wondering why an Israeli-born New Yorker is reading the Boston Globe, that's because I'm a Celtics fan. But there's a bigger point here.
Crossing the Chasm
As Geoffrey Moore points out in his classic book about technology adoption, selling to early adopters is very different from selling to mainstream customers. The latter are usually not very adventurous or pioneering. They are pragmatists. And as such, they normally opt for the safest, most obvious, plain vanilla option:
“When pragmatists buy, they care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system interfaces, and the reliability of the service they are going to get.”
All these concerns go out the window once people have no choice. As another great writer, Mike Tyson, once said: "Everyone has a plan until they get punched in the mouth."
The pandemic is forcing pragmatic mainstream customers to adopt cutting edge solutions. These solutions are based on makeshift infrastructure, of unknown quality, of questionable reliability. Under normal conditions, these solutions would have taken years to mature and reach the mainstream. Many of them wouldn't have made it at all.
This is evident in medicine and education, and it will have an impact on the buildings that cater to those two industries. But it is most evident in the office world.
Earlier this week, Antony Slumbers and I welcomed 35 new participants to our Future-Proof Office course. While marketing the course, we received emails from companies that have nothing to do with the office world — they're not landlords, not coworking operators, not investors, and not technology providers. They are just regular companies from a variety of industries. Why are they coming to us? They are struggling to figure out whether and how to bring their employees back to the office.
Interestingly, even some of the real estate firms who are joining the course are doing so less because of their own buildings and more because they, too, are trying to figure out what to do with their corporate HQs. As a friend from a large industrial landlord told me this week: "It took my company two years to decide on a 'Casual Friday' dress code; it's now taking us two months to allow people to work from anywhere." I paraphrased it for style, but that's the gist of it.
And it is not just the people who are going anywhere. The spaces are also moving..
Don't Shelter in Place
Industrious, one of the leading flexible office operators, recently partnered with Brooklyn's Wythe Hotel to convert empty rooms into pop-up offices. As the Real Deal reports:
the companies are offering full-day bookings on weekdays between 8 a.m. and 6 p.m. Rooms will be furnished with custom office furniture, high-speed wi-fi, free coffee and pastry, a landline and smart-TV. Each room also has private outdoor space... the daily rate for a two-person loft is $200, $250 for a three-person loft, $275 for a four-person loft.
In my book, I wrote in detail about how office space will bleed into all sorts of buildings — malls, hotels, apartment buildings, and more. That's almost old news by now (want newer news? read the book!). What's more interesting is that Industrious can leverage its brand and digital marketing channels to funnel traffic into a different location, almost overnight.
Yes, it's just a tiny little pilot project. But others like it have been popping up all over the world. And this, too, is not for everyone. But the point is that the internet makes it possible to unlock an abundance of potential workspaces.
Similar things are happening in the residential world. A company called Kibbo offers an extreme example. As TechCrunch points out:
The San Francisco-based startup aims to upgrade the American trailer park, making it a network of intentional communities for the remote-working, previously urban professionals (PUPs?).
In other words, the company is creating pop-up residential communities for people who no longer wish to live in the city — or don't mind the city but prioritize the quality of their immediate neighbors and the quality of the air they breathe and nature they see.
I find their value proposition compelling:
For less than the cost of living in a studio apartment, we give you a top-of-the-line Sprinter Van, a network of home bases across the West, essential groceries and provisions, wi-fi and an inclusive, adventurous community — everything you need to live an extraordinary life
Don’t shelter in place, shelter any place
But even if it's not compelling, it's the thought that counts. It's the idea that it is now possible for a new human community to pop up almost anywhere — without interrupting anyone's work.
Of course, not everyone can work remotely. The freedom to leave behind an overpriced studio is a privilege reserved to a small but growing minority.
Which brings us back to cities.
The Urbanizer's Dilemma
Richard Florida rang the alarm bell for US cities on Twitter early this week:
The biggest risk to US cities is not that people or business will move to the suburbs. It is that talented people who would have gone to San Francisco, NYC etc will decide to NOT come to the USA at all. Can the US turn this around. Or has too much damage already been done.
Florida is explicitly focused on Trump and the global competition for talent. And he's right to be concerned. But he might be too optimistic. Cities are facing a much bigger challenge, the challenge of abundance.
If people can work and study and access medical services and work from anywhere, cities have a problem. Even if it is only a minority, it is a very productive and creative minority — the people Florida wrote about in The Rise of the Creative Class a couple of decades ago.
Most of these people will actually stay in cities. But the fact that they now have a choice means cities will have to act decisively in order to keep them.
How will cities react?
Tower Records offers a hint: Many cities, especially the most successful ones under the current (old) paradigm, will try to out-internet the internet. They will try to become even bigger, even more diverse, to spend even more on fixed infrastructure, to appeal to a broader audience.
But this might be the wrong thing to do.
As Clayton Christensen points out in his series of books about disruptive innovation, incumbents are motivated to ignore threats to their dominance. Instead of identifying emerging consumer behaviors, they focus on their existing, most demanding customers.
And in many (or most) cities, the most demanding customers consist of two distinct groups: ultra wealthy people that control large corporations and make campaign donations, and poor people who vote en masse (or protest en mass).
Ironically, the fact that young (21-40) knowledge workers can live anywhere makes them even less interesting to politicians. Why invest in them if they can leave? They are important in theory, but not as important as massive donors or massive voter blocks.
Even if the creative class would gain more power, it would still have to compromise with those other two groups (and several others). Large cities are already a reflection of such compromises. Modern consumers don't like to compromise. Many of them don't have a choice. But what about those who do?
To attract them, cities and towns will have to do the opposite of what Tower Records did. They would have to focus on narrow niches. They would have to be smaller, less diverse, and less reliant on fixed and static infrastructure.
That, of course, opens up a Pandora's box of social, environmental, and political issues. I will continue to explore these in the coming weeks.
If you enjoyed this article, please share it with a friend.
Receive a weekly email from Dror with the latest insights.