Too big to change

Ama­zon, Google should learn from Xerox’s demise

Waterloo Region Record - - Front Page - MICHAEL HILTZIK

It was not so long ago that one could count on cer­tain fa­mil­iar guide­posts of busi­ness: Xerox was the dom­i­nant provider of of­fice equip­ment, Sears the big­gest re­tailer, Gen­eral Elec­tric the lead­ing man­u­fac­turer of, well, al­most ev­ery­thing, and you couldn’t take a pho­to­graph with­out Ko­dak.

This world is on the verge of ma­jor change. Xerox is about to dis­ap­pear into Ja­pan’s Fujifilm, its long­time joint ven­ture part­ner in Fuji Xerox.

The par­ent com­pany of Sears, af­ter years of de­clin­ing sales, store clos­ings, and gen­er­ally dis­ap­pear­ing pres­ence in the mar­ket­place, last year told in­vestors that “sub­stan­tial doubt ex­ists” about its abil­ity to sur­vive. Since 2010, the com­pany has shrunk from 3,500 Sears lo­ca­tions to fewer than 600.

Gen­eral Elec­tric is on the verge of get­ting kicked out of the 30-stock Dow Jones in­dus­trial av­er­age. That would be a cat­a­clysmic change, since the com­pany is the only sur­vivor of the 12 stocks in the in­dex when it orig­i­nated in 1896.

All three com­pa­nies once ap­peared to oc­cupy im­preg­nable po­si­tions in Amer­i­can busi­ness, and all are fac­ing ex­tinc­tion. There’s noth­ing es­pe­cially un­usual about that, given the dy­namism of busi­ness all over the world. But it’s a fact of life eas­ily for­got­ten.

That’s a warn­ing for to­day’s oc­cu­pants of the busi­ness pin­na­cle, in­clud­ing Ama­zon, Google (that is, Al­pha­bet), and Face­book.

Com­pet­i­tive ad­van­tage is not a per­ma­nent gift. In­deed, the more suc­cess­ful a com­pany is, the more unas­sail­able its com­pet­i­tive po­si­tion ap­pears, the greater the forces that gather to knock it off its perch.

As Mor­gan Housel of Col­lab­o­ra­tive Fund put it in a re­cent blog post, “Brands are hard to build and even harder to span across gen­er­a­tions.”

That’s not the only fac­tor in the de­cline of a dom­i­nant busi­ness. Some be­come so wealthy that they turn their ef­forts to main­tain­ing their wealth in­stead of find­ing sources of new wealth. Some be­come con­vinced that the skills that brought them suc­cess the first time around are trans­fer­able to other mar­kets, and take their eyes off the orig­i­nal ball (we’re look­ing at you, Elon Musk). Some run into tech­no­log­i­cal changes that are sim­ply too big for them to han­dle.

This shouldn’t come as a sur­prise to the masters of to­day’s busi­ness uni­verse.

Af­ter all, Ama­zon, Google, and Face­book each got where they are to­day by dis­lodg­ing one or more pre­cur­sors —be­fore Google there was Ya­hoo, be­fore Face­book there was MyS­pace, be­fore Ama­zon there was a panoply of de­part­ment store giants and big-box ware­house stores.

Every gen­er­a­tion grows up with brand names that are dim mem­o­ries by the time they reach ma­tu­rity.

Gone to­day, or at least with­ered, are such once-fa­mil­iar brands as Howard John­son’s restau­rants, Smith Corona type­writ­ers, Block­buster Video and Tower Records, Po­laroid and Ko­dak, F.W. Wool­worth and Kresge . last year as­sem­bled a photo gallery of dis­ap­peared and dis­ap­pear­ing brands, yet some­how failed to in­clude it­self, a faint shadow of the com­pany that once stood like a colos­sus over the in­ter­net as Amer­ica On­line.

Xerox is per­haps the best ex­am­ple of a com-

pany that be­came too big and suc­cess­ful.

It was said the com­pany had be­come a pris­oner of the Chester Carl­son legacy — a ref­er­ence to the in­ven­tor of the ma­chine that be­came the Model 914 copier, which upon its in­tro­duc­tion in 1960 be­came the most suc­cess­ful in­dus­trial prod­uct in his­tory.

The hulk­ing 914 brought in stu­pen­dous rev­enue. Cus­tomers could not buy a 914, but only lease it, pay­ing Xerox by the page.

Soon, the com­pany had a world­wide sales force of close to 100,000, all of them ac­cus­tomed to count­ing their in­come by the “click” of pa­per go­ing through the ma­chines they had placed in their clients’ copy­ing rooms.

The model was so suc­cess­ful that its in­ven­tor, Peter McColough, even­tu­ally was re­warded with the posts of chair and CEO.

McColough, how­ever, was smart enough to per­ceive that his com­pany’s dom­i­nance might not last for­ever. Copier tech­nol­ogy was be­com­ing minia­tur­ized, which pointed to the de­vel­op­ment of desk­top units. And there was no guar­an­tee that pa­per would re­main cen­tral to the of­fice in­def­i­nitely.

So in 1971 he or­dered a cor­po­rate lab­o­ra­tory to be es­tab­lished as far from Xerox’s ex­ist­ing copier labs as pos­si­ble —in far off Cal­i­for­nia, where the Palo Alto Re­search Cen­ter, the leg­endary PARC, opened. Its in­hab­i­tants were charged with in­vent­ing “the of­fice of the fu­ture.”

So PARC’s young engi­neers and com­puter sci­en­tists in­vented the per­sonal com­puter, the laser printer, and eth­er­net, but they could not get HQ’s at­ten­tion un­til 1977.

At a so-called “Futures Day,” they demon­strated all they had achieved, only to face an un­com­pre­hend­ing re­sponse from the au­di­ence. “They were all ask­ing, ’Where’s the click?’” one for­mer PARC en­gi­neer re­called.

McColough’s busi­ness model, on which a gen­er­a­tion of sales­per­sons had been trained, was now work­ing against him. They couldn’t un­der­stand how they would earn com­mis­sions in a world with­out pa­per. The com­pany even­tu­ally did bring out a per­sonal com­puter based on PARC’s pro­to­typ­i­cal Alto.

The Star was a won­der­ful ma­chine, with a high-qual­ity graph­i­cal dis­play and a level of soft­ware and hard­ware in­te­gra­tion that would still be the envy of com­puter users to­day. But it was built and mar­keted on a Xerox scale —big, hulk­ing units slid un­der every sec­re­tary’s desk with a ter­mi­nal up top, priced at $16,500 per unit, or nearly $50,000 in to­day’s money. A full of­fice in­stal­la­tion could eas­ily cost $250,000 or more.

And within months of the Star’s in­tro­duc­tion in 1981, the IBM PC ar­rived. The PC was a com­par­a­tively fee­ble ma­chine — no graph­ics, no in­te­grated pro­grams — but its $2,000 price tag low­ered the bar for of­fice sys­tems, per­ma­nently.

Xerox is reg­u­larly mocked for hav­ing missed the PC rev­o­lu­tion. But that’s un­char­i­ta­ble.

It may have looked im­preg­nable in 1970, but it was al­ready too big and too sin­gle-minded a ship to be turned around and re­fo­cused on an en­tirely new prod­uct serving a mar­ket that did not even ex­ist yet.

It’s a rare com­pany that can re­make it­self to that de­gree while still en­joy­ing the har­vest of its orig­i­nal model.

Much more fre­quently, a com­pany rides a wave or two to wealth and promi­nence, and then suc­cumbs to a new tech­nol­ogy or mar­ket­ing trend to which it can’t ad­just.

IBM did man­age to shift from big com­put­ers to desk­top PCs. But it was al­ready in the com­puter busi­ness, so the change was not nearly so mas­sive.

IBM only suc­ceeded by hiv­ing off its PC unit into an in­de­pen­dent op­er­a­tion; even so, it even­tu­ally got out of the PC busi­ness by sell­ing it to the Chi­nese com­pany Len­ovo.

IBM once reigned as the cham­pion phoenix of the tech­nol­ogy in­dus­try, sur­viv­ing wave af­ter wave of change; but even Big Blue has stum­bled in re­cent years.

It’s al­ways tempt­ing to think of the fu­ture as the same as to­day.

That’s why we imag­ine a fu­ture in which Ama­zon is the only name in re­tail and Google and Face­book con­trol ev­ery­thing we read, hear and feel.

Things have never worked out that way no mat­ter how ma­jes­tic are the kings of com­merce at any given mo­ment.

Maybe these com­pa­nies will grow so big and stay so smart that they’ll pre­vail over the forces that brought down their pre­cur­sors.

But that’s not a good bet.


Xerox is cited as an ex­am­ple of a com­pany that be­came too big and suc­cess­ful to re­make it­self.

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