The iPhone is by no means the first phone to utilize Voice over Internet Protocol (VoIP). More sophisticated phones have had the capability for years. When a technology reaches the iPhone, however, it has gone mainstream.

So why are we still paying phone companies for phone calls? To a 3G phone with a mobile Internet connect, a phone call is the same as a picture of Angelina Jolie or a forwarded e-mail joke. It’s the Web connection that provides the value, not the dialing technology.

VoIP is basically software, so it offers options that old-style hardware switching simply cannot. It is also free beyond basic connections charges. There are no long-distance or country charges on the Web.

The phone companies, of course, have been fighting VoIP tooth and nail. Their business model is obsolete and they know it. Only Apple’s massive clout has allowed this small and long-delayed step forward. Nevertheless, iPhone users are already learning how to use the feature well. The Skype app transitions between Wi-Fi and AT&T almost seamlessly.

Old-school phone companies are, therefore, doomed. Only those that become full-blown ISPs will survive. If the past is any indication, current phone companies will resist the inevitable for so long that upstart ISPs and technologies will leapfrog the dinosaurs.

Speaking of dinosaurs, newspapers continue to collapse as I predicted. Bankruptcies have hit Philadelphia papers as well as the Journal Register chain. The Rocky Mountain News shut down and Hearst has turned the Seattle Post Intelligencer into a smallish Internet site. The San Francisco Chronicle is in a death spiral and the Minneapolis Star Tribune has filed for Chapter 11. The Miami Herald and the Boston Globe are teetering.

I suppose I ought to have more sympathy for those who work at those papers. In truth, however, I welcome their collapse. I left policy research, in fact, to help Jim Barksdale and the Netscape crew destroy the old media monopoly on information dissemination.

The mainstream media has done enormous damage by aligning itself with only one side of the political debate. On the one hand, journalists who are unable to solve even basic mathematical equations gave inordinate coverage to climate change hysterics.

On the other hand, they refused even to cover myriad warnings that Congress, Fannie Mae and Freddie Mac were taking our financial institutions over a cliff. It’s conceivable that if not for that tribal media bias, we wouldn’t be in the shape we are in now.

Incidentally, I would be just as opposed to an incestuous monolithic media run by the right. It wasn’t, however, and the creative destruction of old media is a necessary part of our economic recovery. No matter what your political affiliation as old institutions fall, new ones will arise — making fortunes for those who know they’re coming.

They are not, however, always obvious. The collapse of newspapers is accelerating the trend toward online news sources. If owners of these decrepit businesses had been thinking, they would have leapt at the Kindle when it emerged. The New York Times, for example, could cut its delivery costs in half by abandoning paper and giving all subscribers new Kindles.

Kindles are only the tip of the convergence iceberg, though. The next generation of mobile devices will combine the features of Kindle, netbook, iPhone and more. We already own several companies that hold key patents in this media evolution. We’ll be adding more in the future.

For transformation profits,
Patrick Cox

April 8, 2009

Old Media Collapse Will Profit Transformational Investors was originally featured in the Penny Sleuth.