Is the Internet to Blame for the Recession?

by Dave Michels

The current economic situation is grim. It is already frequently compared to the Great Depression and no one knows how far we are into it. I did a report on the Great Depression back in high school and couldn’t fathom the pictures I saw. I remember a photo of people in line for a job during the construction of the Golden Gate Bridge apparently waiting for someone to fall off. I remember the photos of the breadlines and the abandoned store fronts. I’ve always been a Groucho fan, and read that despite all of his wealth, he never got over living through the recession.

About two years ago, a major snow storm hit Denver. So major, they closed the airport for four days. During that period, the store shelves dried up. Without an airport, fresh foods were stopped, and of course the snow had an impact on Interstate trucking blocking the non-perishables. The empty shelves in the grocery stores reminded me those photos and showed exactly how fragile our supply lines are. Our economy is highly interconnected- commerce is dependent on many interconnected factors and a chain is only as strong as its weakest link.

The current economic slow-down is largely blamed on the sub-prime housing crises; no doubt a major factor and a clear scapegoat. But I feel somewhat responsible for it too. Well, not completely personally responsible, but as an early adopter of Internet technologies, I feel partially responsible. The Internet and computing capabilities over the past decade have created havoc on our economy. I am not apologizing, nor do I think the Internet and the world’s attraction to digitization of everything is a bad thing – but we have to accept some responsibility for the mess its created. By the way, I say “we” as I am posting this on a blog, so presumably you are reading it there – we are part of the problem.


Retail: The malls around my home are overcrowded with “for lease” signs. I know this because I went to the mall last month for the first time in years. Over the past decade, my online shopping has increased to nearly 100% on non-food items. In the past year, my online purchases have included major home appliances, furniture, windshield wipers, skis, a trampoline, televisions, and even exterior stone siding. The system encourages it with tax incentives. The stores encourage it with their selection and hours, and Amazon has addressed shipping time and costs with their Prime program. The Internet has made things very difficult for retail – which relies on significant markup to pay for their staff and location. The Internet makes traditional retail totally obsolete – I want selection, price, and detailed information which simply isn’t available at a Linens and Things, Circuit City, or CompUSA.

Music: I don’t know the last time I purchased a new audio CD. I buy them used every once in a while on ebay. Instead I get great music from other sources – including and I’ve digitized all my CDs. I am sorry the Artists (and recording companies) are no longer making money from CDs. Kids allegedly illegally download and/or share music – which isn’t nice – but kids do things like that. I swapped cassette tapes when I was a kid. My radio station used to play seven complete albums every Sunday, they called it “The Seventh Day” and it built up my library. I had to monitor it live and flip the tape at the halfway point and quickly rewind it to the start before the first song on side two started. It was tricky and some of my friends thought it wasn’t worth the effort. But it was legal. Unfortunately, it is very easy to duplicate CDs with no quality loss. Despite that is illegal it is reportedly a major problem. I love good music, I am sorry that the model broke.

Publishing: We spend most of our weekends away, so I cancelled our newspaper subscriptions years ago. I don’t like them piled up on the driveway. I get a few magazines, but only because of airline miles. The fact is I get most of my news (newspaper and magazine type) online. I get some 200 articles per day in Google Reader. I keep getting some professional magazines, but I want them to stop. Information Week keeps calling me asking me to renew, but I keep saying no. The issue that just arrived has a paper cover saying “This May Be Your Last Issue If You Don’t Renew”. I wish it would’ve said “It Will Be…”, but it will keep coming. I am very concerned about the loss of newspapers nationally. Professional journalism fills an important role in our society – I don’t think a blogger like myself will crack stories like Watergate. But I also don’t feel any nostalgia toward the awkward sized newspapers or blind shotgun advertising. I’ve done worse than cancel my subscriptions, I’ve even placed ads on Craigslist. I can’t say for sure, but the last classified ad I remember was about 8 years ago.

Books are trickier. These I actually prefer non digitized (though the Kindle is intriguing).But the Internet shows no mercy on paper based media either. Buying used books were such a hassle pre Internet. But now buying a used book online is as simple as buying a new book – only cheaper. I don’t like tattered books, but a book rated “like new” for half the price from a reliable (rated) dealer isn’t a bad proposition. Of course neither the publisher nor the author receive any funds from this more efficient model. I used to enjoy browsing bookstores, but not any more. I don’t like being limited to their selection, and I enjoy reading reviews and posts by common folk.

There are lots of examples of how we use the desktop instead of published materials. I don’t know why they keep giving me the Yellow Pages, I can’t seem to opt out. I also don’t have an encyclopedia in the house anymore; we had two sets where I grew up. We don’t have a reasonably current dictionary either – I just hit when I need one. Maps? Mapquest or Google Earth depending on what I need.

Movies: Everyone loves a good movie, but the fact is we don’t really like to pay for them anymore. Personally, I prefer the comfort and quality of movies at home better than the uncomfortable chair in front of the jabbering patron. I enjoy a bowl of popcorn, but I don’t think it is worth $10 no matter how much fake butter is on it. It means I generally have to wait 3-6 months to see the movies, but that isn’t a problem since I’ve eliminated most advertising in my life – I don’t know what I am missing. It isn’t just Hollywood feeling the pinch – think of the Blockbusters too – with their stock now hovering less than a late fee. In Boulder, there is only one movie theater left – when I moved here there were four. The Hollywood elite (Tom Hanks, Jim Carey, Renee Zellweger, etc.) are all turning to children/family movies because they at least result in DVD sales. Teens and adults don’t go to the movies like they used to – too many distractions – Internet usually blamed.

Then there is the whole thing about Bit Torrent and other technologies regarding movie piracy. Apparently it is quite easy to either download HD quality movies or copy a DVD rental to an iPod. Forget illegal camcorder copies filmed in theaters. The fact is the home technology and experience are becoming pretty good or even better than theaters. Not nearly as profitable as individual ticket sales though. Plus factor in real international competition from India and others – and Hollywood has a problem. What film won Best Picture this year? Oh yeah, Slumdog Millionaire from Celador Films.

Television: Television isn’t as impacted as the above categories, but it can’t last much longer. The problem is the revenue or advertising model is obsolete. The primary reason people prefer DVRs is so they can skip the commercials. I rarely watch anything live anymore and don’t know many who do. GE successfully shut down one DVR maker that automatically skipped the commercials, so we all endure skipping manually (for now). Shows like American Idol provide incentive to watch it live, but most shows it really doesn’t matter. I don’t even know when my favorite shows are on anymore – I just wait for them to show up on the recorded list. As DVRs increase in popularity, the secret is going to get out and the revenue model will fall apart. The channels already know it, the run adverts for their own shows increasingly along the bottom of the running show instead of waiting for commercial breaks.

Photos: I’ve got plastic bins in the closet filled with yellow envelopes of old photo finishing. Newer photos are on CDs. Other than the subject matter of the photo, there is nothing local about modern photography. We used to take the roll to the drug store and they sent it off to a lab. If that was too slow, we went to the more expensive 1 hour shop in the mall. All are gone. Now, I upload the photos I want printed to a distant .com and they arrive in the mail a week later. The Asian camera I bought was also purchased online. I will miss the local camera stores. I’ve got a $100 gift card at the local store that I’ve had for a year now, I feel guilty using it – haven’t I done enough?

Telecom: A subject close to my heart. I cut out Qwest from my life years ago. I’ve tried various Internet solutions; cable, DSL, wireless – it doesn’t really matter. The kids don’t understand the land line concept at all. My European wife calls home for less than two cents a minute – That is $1.20 per hour! Of course, that is if we use phone lines. Skype is completely free when they are both online. We also have multiple methods of free domestic long distance – but it is hard to care at rates so low.

Expectation of Free: I like free stuff. I use Gmail for free – it includes excellent virus and spam protection, search, and nice sorting features. I also use Skype, another great service for free. I enjoy blogging with Blogger, sharing photos, getting news and weather, and now even Office type software. I don’t know which is more astonishing the fact all these great services are free, or that we expect them to be free.

It would not be fair in a post like this not to point out that the Internet has created lots of jobs, opportunities, and enormous wealth. The Internet has been a very positive thing to most of us. But based on my personal usage and observations, I can’t help but feel that many aspects of this recession are related to the disruption of the business models our economy depends on. It will take some time for things to normalize and new revenue models to create and be understood. In the late 90s, it was computer dealers and travel agents under attack, but now its impact is far more widespread and profound. This recession is going to take down a lot of companies. The Rocky Mountain Newspaper in Denver went under last month and was 150 years old – nearly as old as the State of Colorado itself. If only that were the only casualty.

It is no fun blaming the Internet for this recession. Mortgage brokers and bankers are such easier targets. But the fact is, we live in a very disruptive time and as we enjoy the positive disruption, we have to accept the negative disruptive aspects.