What's Wrong With Tech?

Amazon, Disrupted

But I've got a third culprit to blame. In the technology cycle, there are periods of upheaval when new disruptive technologies emerge to destroy the profitability -- and sometimes the very existence -- of established businesses. And then there are alternating periods of consolidation when companies emerge from the competitive scramble to take commanding leads in specific technology sectors, often at the expense of past leaders.

The huge technology profits of the late 1980s and the 1990s were the result of the consolidation after a competitive scramble. Today's big technology names -- Cisco, Intel, Microsoft, etc. -- came out of that competitive scramble with control of key and very profitable parts of the new technologies.

I'd argue that today we're in the disruptive phase of the cycle. The positions of mature technology companies are under assault from new upstarts or from established technology companies that have decided they have no intention of being the IBM(IBM Quote), the Eastman Kodak(EK Quote), the Compaq Computer, or the Xerox(XRX Quote) of the next wave of disruptive technologies.

Disruptive technologies are now reshaping the technology sector. Let me pick one to show you how a disruptive technology works.

The technology in this case is the Internet music download most brilliantly exemplified in Apple Computer's(AAPL Quote) iPod. The business it's disrupting is that of Amazon.com(AMZN Quote) and other Internet retailers that now sell CDs through their Internet stores.

Amazon is currently in the advanced stages of negotiation with four music companies -- Universal Music Group, Sony BMG, Warner Music Group and EMI Group -- to set up a music download store to compete with Apple Computer's iTunes, and a spring launch is scheduled.

Amazon is also rumored to be planning to sell its own branded MP3 player that would come preloaded with music selected by Amazon.com on the basis of the customer's prior purchases from Amazon.com. That would launch -- if it is more than a deliberate piece of misdirection intended to unsettle Apple -- in September. (Apple has a tiny head start, with 42 million iPods already sold.)