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Why the Companies Most at Risk of Disruption Are Usually the Most Successful Ones

October 18, 20260 comments♥ 0
00:02 The disruption of the retail business should have come from Walmart or Target, not an upstart bookseller in Seattle. And the disruption of the taxi business, my God, was anything more ripe for disruption than taxis and should have come from Yellow Cab or Hertz or Avis, and then a bunch of computer nerds in the Silicon Valley who knew nothing about transportation, but knew a lot about algorithms to make things happen. That was Jeffrey Cole, one of the world's leading voices on media, technology, and the digital future, and author of the new book, Disruptors at the Gate. I'm Motley Fool analyst Rachel Warren.
00:48 Jeffrey founded the World Internet Project, the longest running global study of online behavior, and has spent more than three decades advising presidential administrations, the FCC, and the Department of Defense on exactly the kinds of changes that blindside companies and investors alike. In this conversation, we get into why disruption almost never comes from where an industry is watching, what the history of AI, the internet, and Kodak all have in common, and why the executives' best position to fight disruption are almost structurally prevented from doing so. We hope you enjoy. Welcome back to Motleyful Conversations. I'm Motleyful analyst Rachel Warren. And today I'm delighted to be joined by Jeffrey Cole.
01:26 Jeffrey is one of the world's leading voices on media, technology, in the digital future, and has spent more than three decades tracking change and anticipating what comes next. He founded the World Internet Project. That's the longest-running global study of online behavior spanning 27 years in 35 countries, and now directs the Center for the Digital Future at the USC Annenberg School. Jeffrey has advised four U.S. presidential administrations, the FCC, Congress, and the Department of Defense, along with global government leaders. His industry clients include Microsoft, Sony, Time Warner, 18T, CBS.
02:00 He also co-founded the Global Disruption Investment Fund and is the co-author of the upcoming book Disruptors at the Gate when visionaries Trailblazers and two guys in a garage turn the world upside down. Jeffrey, so excited to have you on the show. Rachel, I'm really thrilled to be here and thank you for such a nice introduction. Of course.
02:21 You know, maybe to set the stage for our audience for your book and its core themes, tell us about what led you to write this book, but also what are the major sectors in common? companies that you think are most deeply exposed to structural disruption in the coming years? Well, as far as why I wrote it, you know, I had been a television guy and the most powerful medium ever invented when it began in the 40s. And I watched as the internet came along. And I sort of got a hunch, this is where the world internet project came from, but the internet
02:53 was going to be pretty darned important. It turned out to be a lot more important than I or anyone could of predict, but I watched how people responded. The internet was a threat to a lot. In the book, I list about 100 companies or industries that have disappeared because of the internet, starting with the yellow pages, encyclopedias, and going on. And yet no one really understood the nature of the threat. They doubled down on their behavior. They refused to acknowledge that something was changing. Because disruption, unlike innovation, which is just a change, which may lead to increased market share. Disruption is something that comes from unexpected places, turns business models upside down,
03:40 changes everything. And historically, what I call master disruptions, disruptions that lead to dozens or hundreds of other changes, the Internet being one of those, but also like the Industrial Revolution or the introduction of the autumn. that kind of disruption tends to occur about every 100, 150 years. We're living through the third massive master disruption in 25 years. Started with the Internet. COVID, the unique thing about COVID, it was the first time that everyone,
04:19 everywhere at the same moment, was disrupted. The way we did, everything went online. I wrote a little piece during COVID's asking, what would the, what would COVID, what would the pandemic have been like if there were no internet? The answer was a lot worse. And then AI is now the third in 25 years. And we're going to already see the next one, quantum computing, coming up the driveway. So that I got interested in this massive change and why government leaders, and we're seeing that right now with a discussion over AI, why government leaders, what business leaders, and why government leaders, and why government leaders.
04:58 people rarely are able to adapt very easily. You know, the biggest disaster and disruption is denial. One of the interesting things, you know, to think about right now in the age of the AI revolution, which obviously, you know, there were many precursors to that and it's been coming for a long time, but it seems as though everything has sped up all at once. I think there's been a lot of debate as to whether what we're seeing now in terms of its disruptive potential, is this like nothing we've seen before? You know, this is the first time something like this is happening, or can we trace a through line to other disruptions? We have seen disruptions that change. I mentioned, the internet changed everything, but AI does take it to a new level. I mean, look, the discussion we're
05:43 having right now, literally as we speak, is, is AI going to end humanity by the end of the decade? I don't see that quite yet, or hopefully ever. But the stakes are. risen. And even if that turns out to be hype or fearmongering or there's nothing to it, the level at which AI is going to change. We know employment. It's one of the few areas. I don't see a hopeful, easy outcome, but the way it's going to change access to information, it is unprecedented. We really, we always want to think we're living in the middle of the biggest thing that's ever happened. But I thought the moment AI appeared, incidentally, AI, the joke within scientific laboratories and universities for 60 years was AI has a great potential and it always will.
06:39 While that changed when CHAP was introduced at the end of 2022, but AI, the moment it was introduced, I thought was as important a disruption as the beginning of the printing crest. I now really do believe it's the most important disruption of all time. So it really, that's not height. Whether it can be the best thing that ever happened or the worst or it looks like both, but certainly, you know, an interesting distinction with the Internet. The Internet started with so much hope and optimism that it would connect people that anyone could be a journalist. Then we learned the dark underside of hate speech, bullying,
07:22 odd misinformation. AI started with nothing but fear. Within three months of chat being introduced, the chat guy, the open AI guys who created chat, were on stage at South by Southwest, which is probably the biggest tech bros conference where Twitter came out of, and they were talking about the benefits of AI. This is three lines after it came out. And they were booed, off stage. Now, at graduations this year, you have speakers who foolishly are telling graduates living through the worst job market graduates in the last 70 years and fear that there are no jobs, they're telling them all seize the opportunity, learn AI, and it's booing, jeering. So this is, the stakes are big. It seems as though disruption almost never comes from where an industry,
08:16 or a company is watching. And I wonder, is there a discipline for auditing a company's vulnerability or an industry's vulnerability to these disruptive changes rather than just scanning the horizon? It's darn tough because, as you said, innovation comes likely from your competitor, figures out a better way to do what you do and may gain market share. Disruption comes from completely unexpected places. The disruption of the retail business should have come from Walmart or Target,
08:51 not an upstart bookseller in Seattle. And the disruption of the taxi business, my God, was anything more ripe for disruption than taxis and should have come from Yellow Cab or Hertz or Avis, not a bunch of computer nerds in the Silicon Valley who knew nothing about transportation, but knew a lot about algorithms to make things happen. and the disruption of the automobile business should have come from Toyota or General Motors, not from a South immigrant,
09:22 South African immigrant, who didn't know much about transportation. So it does come from all these unexpected places that we use it in the subtitle of the book, but everybody knows this as two guys in a barrage. And you can sort of eavesdrop or spy, not literally spy, on your competitor and try to get a sense of what they're doing.
09:45 But how do you eavesdrop on two guys in a garage you've never heard of? And that is very difficult. But one of the things we try to do in the book is the book goes through all the examples and lessons, but the last chapter is a battle plan. What do you do when the disruptors are at the gate? And the first stage is expect to be disrupted. Live your life as if you're going to be disruptive. When Larry Page and Sergey Brin created Google at a garage in Mountain View in the late 90s,
10:22 they knew they didn't invent search. They already been out to Vista and Ask Jeeves and of course Yahoo. They knew they just did it so differently and better. But the first moment anyone used Google, they didn't want to use anything else. It was as if Google could read your mind. Sometimes they would tell you with your search, did you mean to say, and it could read your mind. So they knew they didn't invent search. So they from day one ran that company as if they were going to be disrupted.
10:54 And they had mechanisms in place. It happened. But it took 23 years. And by the time it actually happened, they had gotten complacent as well. The disruption was AI in everything they. were afraid of. And now, of course, Google's surviving AI. It's surviving beautifully. But there is one big difference that's happened to Google. If you look at search, Google was over 90% of search in every country on the earth with a couple of exceptions like North Korea and Iran. They had over 90%
11:30 market share. When AI shakes out between Anthropic and Claude and chat and Grogh from Elon Musk, Google's going to probably end up at about 35, 40% market share. A great percentage. They may even be higher than almost anybody, but it's not 90. So they did expect, so expecting to be disrupted, looking around not being complacent, understanding the whole thing can change in a moment.
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13:12 I slash F-O-O-L. Sign up for exclusive access today, rippling. dot AI slash fool. Unlock unlimited free grocery delivery with PC Express Pass. Shop online and get the same low, no-frills prices delivered. Get your first year of PC Express Pass for just $2.50 a month. Learn more at no-frills.ca. You know, it's interesting because I think there's been a lot, as you noted,
13:39 a lot of criticism as we're watching the AI revolution. There's been some concerns of people trying to trace a feared, you know, AI bubble to what happened during, you know, the dot-com meltdown, which, as you mentioned, was, you know, chiefly related to businesses that didn't have really underlying core operations. What do you say to people that raise those concerns, kind of tracing it back to the current era? Well, you do.
14:04 It's a different situation with what we're seeing with AI now, but already market analysts are saying AI and the AI, what they're calling the AI bubble, was the only thing keeping the stock market growing and that it is ripe for collapse. The valuations, we're about to see the IPOs of Anthropic and Open AI. Unless all this fear about the end of humanity slows that down, I suspect it won't. they're going to be at least a trillion and a half dollars. It has become speculative. It's based more in reality, I would argue, than crypto.
14:46 Crypto will, in my opinion, will never go anywhere when it is primarily the tool of terrorist, money launderers, drug dealers, and get-rich speculators. Crypto ever has a chance, it has to become a real currency. And actually this great potential for a new currency. that doesn't require currency exchange. But AI, it could bring the whole, could put us into a major recession
15:14 if it is a house of cards. And the AI, I think AI is based on real, a foundation of real things and will sustain itself. But we are going to see all of a sudden, I don't think we've ever seen this before, we're going to see two companies become IPOs that are immediately going to make them among the six or seven largest companies on Earth. Yeah. And of course, the question is whether they can support those valuations once they're in the public market.
15:48 Switching back to a different industry, you briefly mentioned quantum computing earlier. And I'd like to talk a little bit more about that. Obviously, this is further out in terms of seeing a lot of the practical growth they're out in the real world. but it's potentially as significant as AI, if not maybe more so. What industry should investors be watching now, even if disruption is a long ways away? I agree that it is potentially as significant. We see more of it, and you can see the signs more of it ahead of time than you do with most other disruption. I mentioned AI had been around for 60 years, so we know it's coming.
16:27 There's heavy investments in quantum. And quantum, of course, means. the change from the digital foundation. And digital technically means ones and zeros. And it's the ability to look at not a binary, but a system that can do multiple digits, multiple bytes at one time, taking computing speed to a level never imagined before.
16:55 And like AI, it can be used for evil purposes. there will be no such thing as a code that can't be cracked, particularly under quantum, including nuclear launch codes, and that's something that's directly going to have to be addressed. But really where it may have overwhelmingly positive is the industry we just talked about, pharmaceuticals. The ability to really, the prediction is, and I think there's a good basis for this,
17:25 we're going to see diseases begin to be treated and then disappear at a speed we've never seen before. We may see major diseases and major variations of cancer. You know, already we're seeing just in the last two years, you know, the one cancer that has still always been almost an absolute death sentence, has been pancreatic. And there's real progress being made there. I think quantum may take it the rest of the way.
17:55 Quantum can do enormous amount in medicine. But also in business organization and transportation logistics, where quantum's capable of, is really pretty darned exciting. And except for cracking codes, it's not quite clear where the negative or dark side of quantum might come from. I'm sure people will find it. When we're thinking about, you know, an industry that might be vulnerable to disruption, but specifically companies. And obviously there's a few examples you've given. And what are kind of the early warning signs that a company might be vulnerable, that investors? Well, first, one of the most, you would think that disruption would come when a company is weak and vulnerable.
18:42 It doesn't. It comes. Actually, most companies are disrupted at their most successful point. Talked by the music industry, an industry that has always fascinated me. An industry that the consumers wanted to be disrupted, because most of us grew up. You know, with a music industry whose business model was extortion. You want two songs? Great. We have to buy 12 songs and spend $17.
19:08 But Napster came along in 2000 or so. In 1999 was the most successful year in the history of the music business. Everything was going right. Of course, people were being forced to pay for music they didn't want, but everything was going right. They had never been more pleased. They got completely complacent. They thought no one could challenge them.
19:34 And incidentally, looking at Napster, customers didn't want to steal music. I mean, there were a few wanted to, but they didn't want to steal. They just wanted to pay for the music they wanted. They wanted to pay a dollar or two per song, and the music industry wouldn't do that for them because they were making too much money.
19:52 So they only went to Napster reluctantly. And what did the industry do, rather than saying, you know, the good times it may be changing, we've got to begin to give the customer what he or she wants. They double down. They refused to believe that this was a threat. They went after Napster and sued it. Then they began suing people who downloaded from Napster. It's never a good business model to sue your customer. And then went further and tried to have the customers of Napster arrested. So it's people, it's a slow response.
20:32 It's a refusal to acknowledge the change is coming, and it is simply doubling down sometimes, you know, to an extreme, having your disruptor made illegal, which is what the taxi companies did with Uber, although Uber actually succeeded. It's what the automobile dealers did to Tesla, who was selling their cars directly, to the consumer and the automobile dealers who had strong local government connections.
21:02 They had been in communities, in some cases for 100 years, made it illegal to buy a car directly from a manufacturer, although there's no good reason, and still illegal in seven states. And the funeral business, even the funeral business, has been disrupted. The biggest, most expensive item in a funeral is a casket. And some of them costing, thousands of dollars. And a lot of the viewers may not know, even go to Walmart or Costco online and you can buy a casket. And nobody wants a casket delivered a week from now to their home, but that's not the way it works. It's delivered overnight to the funeral home you designate at about an 80% discount. And the funeral home saw their biggest, most lucrative item,
21:54 threatened and went to court and tried to have it made illegal to buy a casket from anyone other than a licensed funeral home. They lost. Anyone can buy it. Most people, of course, buy it just the moment they need it. But I've been in the home of a guy. This was funny. Some small number of people are buying caskets ahead of time, putting them in their garage, using them as storage. And I went to this guy's Allison, he said, you want to see my final home? Unlock unlimited free grocery delivery with PC Express Pass. Shop online and get the same low, No Frills prices delivered. Get your first year of PC Express Pass for just $2.50 a month.
22:44 Learn more at no frills.ca. Now more than ever, quality matters, but so does price. At Marshalls, you don't have to choose. You can get the good stuff for less, the stuff that lasts, because there's no point in tightening your belt if it's just going to break when you do. Get the good stuff in store at Marshalls today. It's interesting because I think one of the questions
23:05 that comes to mind discussing all of this is when we're looking at companies that are vulnerable to disruption, is that vulnerability often, you know, a function of the business model, an inability of leadership to change, or is it really a confluence of different factors? It's all of those things. It's a not listening,
23:25 to what your customers want and are unhappy about or not caring. That was the music industry. It was bearing your head in the sand. That was Kodak. It was lack of leadership. But I learned a pretty valuable lesson about leadership. I was interested in banking. And I believe banking would be and will be completely disrupted. It already has gone on for 30, 40 years. It started. The first real change was the ATM card from the 70s, where all of a sudden you didn't have to go into the bank. We only had to go to the outside wall of the bank, and that quickly moved to supermarkets and place in malls,
24:11 but you didn't even have to go to the bank. And then online banking, where you could do all of your banking with few exceptions. The only thing you couldn't do was get cash, and cash was completely disrupted, from COVID. We're very close to a cashless society. But all of a sudden, with online banking and ATMs, it those eradicated the differences between banks. There was no difference between being at Wells Fargo or being at B of A. And banks, there's all these new fintech companies that are starting banking without the gotcha fees that banks' customers hate so much. They should be
24:50 listening to that. So we really dug into disruption in banking. And I'm fortunate. I got to share my views with CEOs of banks, big banks all over the world. They had nothing to do with the work, but they knew me and they wanted me to come in and tell them what I found. Which, you know, I don't like just studying things. I like rolling up my sleeves and fixing things. So I went in and talked to these guys. And rather than they were really smart.
25:19 And rather than resisting me and denying it, they said, re-grate completely. You're absolutely right. Everything you're telling us we should do, we know we should do. There's just one problem. If I do what you tell me to do, I will be gone in 12 months because it will disrupt profits. They said, keep in mind, the average tenure of a bank CEO is three years. And they say, to a one, they say, I have no ability to focus on anything beyond the next four quarters. I can't do what's in the best interest of this company in 20 years and 30 years.
26:00 And that's probably what happened to Kodak in the 1960s. I'm going to be gone before this happens. And he was. So it's, you know, the exception to that, there are more than just, the major exception is the tech companies because they're controlled in most instances by their founders. We know in 30, 40 years, Mark Zuckerberg, if META survives, and boy, they're in some real trouble now when you're compared to the tobacco companies. But META will be run in 30 years by Zuckerberg.
26:36 And Jeff Bezos, who's trying very hard to live forever, maybe he'll succeed, will be running Amazon, not on a day-to-day. And Larry and Sergey will be running alphabet. vet. And as I mentioned earlier, but for his illness, Steve Jobs would still be running Apple. They can do that. Rupert Murdoch could do that. It's one of the ones in the non-tech world. But when you have a CEO who stays for a couple of years, they can't do the painful things. And fighting disruption can be painful. Sometimes it means disrupting yourself. Jobs did that. You know, the product that really turned Apple around when he returned was the iPod. And he stabbed the eye, knowingly stabbed the iPod in the back when he created the iPhone.
27:29 And he knew that. And he knew it had to happen. And he knew that if he didn't disrupt himself, somebody else would. And that's real leadership, disrupting yourself, taking the pain. But most leaders can't. So I'm sympathetic to the, but, Leadership is a very important issue. Not clouding your head.
27:52 You know, when you run a really successful company, you're not only are hugely well paid, but you're also on the cover of magazines, you're on the Motley Fool, you're invited the lecture in business schools and to speak at graduations to pretty heady experience. And I think sometimes they take their eye off the ball also. One of the things that I think that I'd like to hear thoughts on as we close out today's discussion, I mean, looking at this pace of innovation and disruption from your vantage point, what worries you the most and what excites you the most about what you're seeing?
28:31 The worry is, I think we're developing an anti-technology and anti-innovation mentality. And we're starting, we may have some cause with AI, but we're seeing in a lot of places. crypto, things that disappeared, NFTs that we thought were just stupid, I think we're beginning to not welcome innovation and always focusing on this is going to hurt us, this is bad for us. And I think technology has done miraculous things to wildlife, the very fact that we're communicating the way we are at this moment. And I mentioned what would COVID have been like if there had been no internet. Almost nothing would have happened. So that's my fear is we're becoming anti-tech. The excitement, the hype is real. These things do change the world. The power that I have,
29:29 but I'm not special, the power that anyone has sitting in their home or with a smart book, they don't have a smartphone, they don't even have to be in their home, the power to have an impact on the world to build networks, to build networks. They can be used to build networks to do evil things, but to build networks to change the world, rally people. And I believe, while the internet and social media have really been used to divide us and to create this partisanship, I really believe, my friends sometimes think I'm much too optimistic, but I believe, I believe this country and this world wants to be brought together. What we need really effective leadership. And I think if we had that, the things we could do, there wasn't a problem we couldn't solve
30:24 using technology and common sense. And I think AI, I think the internet, I think all this technology really could achieve its ultimate optimistic purpose. But it also, as we know, some people think, you know, not much more evil than ending humankind. Although I've been asking a question. I'm trying to get an answer. Maybe one of your readers will, or to me, one of your viewers can help me. I really, I'm not, I'm not doing this for effect. I really am trying to get the answer.
30:57 Assuming AI does kill us all. And I don't assume that. I mean, I don't think that's happening. But assuming it did, doesn't AI need electricity? doesn't it, doesn't it basically shut down and? That's a good, good point. Yeah. I think the fear of taking over, you know, autonomous systems that would be adverse to
31:20 humankind is probably what people are thinking about. But I think that's a valuable point. Could it exist for the next thousand years without people? I'm not, I doubt it. Yeah. Yeah, I'm trying to get an answer to that. Maybe somebody can help me. Maybe there's something simple I'm missing.
31:37 Well, no, I think you've given our listeners and viewers a lot to think about it. I wish we had more time. But to those who are watching or listening, check out Jeffrey's new book Disruptors at the Gate when visionaries, trailblazers, and two guys in a garage turn the world upside down. Thank you so much for joining me today for the Swiss government. Thank you, Rachel. I really enjoyed that. To see the full interview, go to our Motley Fool Conversations YouTube page. As always, people on the program may have interests in the stocks they talk about.
32:07 And the Motley Fool may have formal recommendations for or against, so don't buy ourselves stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For the Motley Fool Hidden Gems Investing team, I'm Rachel Warren. Thanks for listening. We'll see you next time.