If the online world has one potent effect, it’s turning proprietary value chains into dumb pipes

Over just a decade-and-a-half we’ve watched this happen to:

• Software sales.  Who now goes to an Egghead software store to interact with a salesperson with expert advice about what software to buy?  Software is downloaded directly from vendor websites if it’s downloaded at all.  Most of the time you give in your credit card and start subscribing.
• Music.  Who today goes to a CD store (or indeed even to an iTunes Store) to buy music.  Music is purchased in bulk on streaming services.
• Phone companies.  Who now buys a land line from a phone company?  Voice is one service among many over the Internet.  (We will speak about wireless service in a bit).
• Newspapers.  Who now consumes news, local events, and classified ads in a printed package?  Not so many.

Pay TV is tipping as we speak.  Why pay for someone’s packaging of programs (whether as a “channel” or as a bundle of channels) when you can fetch high-quality video content directly over the Internet, “over the top” as it is called?

Although those-who-are-about-to-die can see their doom coming, they can’t necessarily evade it.  Pay TV is a great example.  The MSOs have gone from bravado (“premium content will always be worth paying for”) to playing catch-up.  No one wants to become a dumb pipe.

What’s the opposite of a dumb pipe?  In some ways, a walled garden.

A “walled garden” is an online venue who keeps a captive audience and gets value out of them, either by subscription, or by advertising to them, or both.  As long as the audience is truly captive, it’s an annuity.

I saw a clip when I was a boy about a scientist drawing a chalk line on the ground and putting a chicken’s head down on it.  The chicken, the voice-over said, believed the chalk line was a rope and stayed put.

Audiences aren’t like that.  They won’t stay put forever, as AOL, MySpace, SMS text messaging services, and others have found out.  Walled Gardens have a way of turning into Dumb Pipes.