Comparison to Other Successful Industry Business Models
To illustrate, let’s take a look at the semiconductor (SC) industry, certainly one with a viable business model. In 1997, I published an article in Technology Management, entitled “Radical Innovation and Industrial Transformation in Biotechnology: Comparison with the Early Semiconductor Industry.” In constant dollars, biotech product sales were compared to SC sales at similar stages of development (at comparable time intervals following the seminal events for those industries—the discovery of recombinant DNA in 1972 and the invention of the transistor in 1947). Twelve years after their respective seminal events, SC sales were 25% greater than biotech product sales, after which biotech product sales grew faster than SC sales. At 17, 18, 19, 20, 21, and 22 years, biotech product sales were 3%, 19%, 29%, 51%, 59%, and 63% greater, respectively, than SC sales.
In 1982, 35 years after the SC industry’s seminal event, five U.S. SC companies accounted for 24.5% of the U.S. market. Yet these five companies represented only 0.65% of all the U.S. SC firms at that time. In fact, the top five SC companies worldwide, which represented an even smaller percentage of all SC firms worldwide, accounted for about 29% of the world market. These percentages are comparable to the percentages previously mentioned for the biotech industry after the same time period.
Also, when one looks at the leaders in the SC industry over time, one sees dramatic turnover. None of the top five companies throughout the 1960s were among the top five companies by the early 1980s, and the largest SC company today, Intel, was only seventh in market share in 1982.
The same type of creative destruction has resulted in the dotcom era. Many people at the time thought the dotcom bust in 2000 reflected a nonviable business model. With the right amount of investment capital, however, Amazon, eBay, and Google emerged in addition to a lot of other viable but smaller dotcom companies. Bear in mind, that in any industry, roughly 80% of all startups fail within five years.