Remember how after Chemical Bank launched the first Automated Teller Machine in the 1960s, waves of bank branches shut down? And remember when banks went online, how waves of local bank branches shut down?
In both cases the new technology ended up augmenting, rather than replacing existing channels. This isn’t unusual. Despite bold proclamations of industry transformation, legacy technologies often last for a very long time. For example, commercial telephony services emerged in the 1870s. Western Union, the day’s leading telegraphy player, declined to invest in the new technology. Eventually telephone ended up being the cornerstone of AT&T*. But telegraphs were still viable commercial offerings as late as the 1960s. The last telegraph message was sent in…2005.
Not every transition takes this long. DVDs replaced video cassettes in many markets seemingly overnight. Sometimes a new solution comes along that is just better than the old solution along so many dimensions that a true one-for-one switch can occur (although I wonder if DVDs would have really accelerated as quickly as they did without the concurrent emergence of digital video recovers that addressed the fact that most DVD players could play, but not record). But generally old technologies last longer than most people expect.
Why is this? New technologies tend to suffer some performance limitations, making them unattractive to customers who are sensitive to those limitations. And, of course, ingrained habits are just hard to break for all sorts of reasons.
So, what then to make of recent pronouncements that hot payment startup Square is on track to kill credit cards, cash registers, and other traditional payment mechanisms? Square is certainly a startup to watch. Co-founder Jack Dorsey was one of the founders of Twitter. Rumors suggest its next funding round will value the company at more than $1 billion — only two years after formation.
Scott D. Anthony is managing director of Innosight Asia-Pacific.