When Kodak engineer Steve Sasson brought his first prototype of a digital camera into the Kodak boardroom to show to management, the reaction was not what he had hoped for his new invention.
“My prototype was big as a toaster, but the technical people loved it,” Mr. Sasson said. “But it was filmless photography, so management’s reaction was, ‘that’s cute — but don’t tell anyone about it.’ ”
I remember similar reactions showing off Intertainer’s IP Video On Demand system to the major studios in 1997. The DVD business was booming and all I heard was the word “cannibalization”. A little later I heard the story of one of the initial demos of the Tivo system to a major media executive. When the demo was over the exec unplugged the Tivo and threw it out the second floor window of his conference room and told the shocked Tivo execs never to darken his door again.
I say all this because this morning the U.S. sales figues for autos were released(chart above).
The switch to smaller, more fuel-efficient vehicles has been building in recent years, but has accelerated recently with the advent of $3.50-a-gallon gas. At the same time, sales of pickup trucks and large sport utility vehicles have dropped sharply.
Like the Kodak executives trying to preserve their high margin film sales, U.S. auto companies have been trying to deny reality to preserve the high margin truck and SUV business.
The trend toward smaller and lighter vehicles with better mileage is a blow to Detroit automakers, which offer fewer such models than Asian carmakers like Toyota and Honda.
Part of the nature of innovation is creative destruction. Joseph Schumpeter, the Harvard economist who coined the phrase said, “Profit comes only from innovation. When all companies are making the same goods the same way, none can make a profit, because they eventually cut prices to the level of their costs.” But the Detroit automakers steadfastly resisted the hybrid technologies Toyota and Honda were developing, determined to hold on to their me too truck business. And now they are going to experience the same involuntary creative destruction that Kodak has been going through for the last 15 years.
It seems to me this same dynamic is taking place in the alternative energy space. The existing power players–oil companies, utilities, coal producers–are trying to hold on to a system that will not work for the future. They know the digital camera makes more sense. They are just afraid to let go. The Wall Street Journal, commenting on Exxon’s record earnings (Rupert subscription required) yesterday said,
The soaring profits from fossil-fuels are coming as the rules for the industry are being rewritten, pressuring oil companies to move beyond fossil fuels to new sources of energy. With new finds rare and the best sources in countries that limit Western investors, crude oil is no longer viewed as the abundant, dominant fuel it once was. Critics contend that unless these companies focus more on the future, today’s record profits could dry up.
This country’s corporate leadership is going to have to be dragged kicking and screaming through this Interregnum into the Green Age. The next President is going to have to be a corporate ass kicker.