Joe: Most people think Blockbuster was killed by Netflix. They're wrong. It was killed by an idea. An idea that's invisible, unstoppable, and it's coming for almost every industry on the planet. And today, we're going to give it a name. Lewis: Okay, I'm hooked. If it wasn't Netflix, then what was it? You can't just leave me hanging with a corporate murder mystery. Joe: The culprit is an idea called 'vaporization,' and it's the core of a fascinating and, frankly, terrifying book called "Vaporized: Solid Strategies for Success in a Dematerialized World" by Robert Tercek. Lewis: Robert Tercek… that name sounds familiar. Isn't he one of those tech OGs? Joe: Exactly. He was a senior exec at places like MTV and Sony Pictures right when the digital tsunami hit. He had a front-row seat to the chaos. The book was even named International Book of the Year, so it's not just some fringe theory—it's a playbook for the future. Lewis: A front-row seat to the chaos... I like that. So where do we start with this playbook? Joe: We start at a funeral. For a giant. Let's go back to Sunset Boulevard in the early 2000s.

Lewis: A funeral for a giant? This is getting more dramatic by the second. Who died? Joe: Tower Records. For decades, it wasn't just a store; it was a cultural landmark. A massive, three-story cathedral of music on the Sunset Strip. You'd see rock stars like Axl Rose browsing the aisles. It was a physical place, crammed with physical things—vinyl records, cassette tapes, CDs. It was the heart of the music industry. Lewis: I remember places like that. The smell of the plastic on a new CD, the thrill of finding a rare import. It felt so permanent. Joe: It did. And then, almost overnight, it just… wasn't there. By 2006, it was gone. Bankrupt. The building was empty, and the iconic red and yellow sign was taken down. It was like a landmark had been erased from the map. Lewis: Wow, I remember stores like that. It's not just a business closing; it's a piece of culture just... gone. What actually happened? How does a giant like that just vanish? Joe: That's vaporization in action. Tercek defines it as the process where tangible, physical products are replaced by invisible software. The CD, a physical atom, was replaced by the MP3, a digital bit. The record store, a physical place, was replaced by iTunes, a piece of software on your computer. The entire industry was vaporized. Lewis: Okay, that makes sense for music. It’s information, after all. But that feels like a special case. Joe: You'd think so, but Tercek argues it's the blueprint for everything. He tells the story of Kodak. Everyone knows Kodak missed the boat on digital photography. But the story is so much more tragic. They didn't just miss the boat; they invented the first digital camera in 1975. Lewis: Wait, hold on. They invented the technology that eventually killed them? That sounds insane. Why would they do that? Joe: Because they were a chemical company. Their entire business model, their identity, was built on selling film and the chemicals to develop it. They were selling physical atoms. The digital camera produced bits, and they couldn't figure out how to make money from bits. They were so afraid of cannibalizing their profitable film business that they locked their own invention in a closet. Lewis: That’s a classic innovator's dilemma. They were too successful at the old thing to embrace the new thing. Joe: Exactly. They were in denial. They argued that film had more "warmth" and "character." They even tried to market the graininess of film as a feature, not a bug. Meanwhile, companies like Sony and Canon, who had no film business to protect, went all-in on digital and ate their lunch. Lewis: But that's still just media, right? Music, photos. That's easy to digitize. Surely my car or my house can't be 'vaporized'? Joe: That's the million-dollar question, and Tercek's answer is a resounding yes. He has this mantra: "Anything that can be bits, will be." It's not just about the product itself, but the service the product provides. You don't want a car; you want transportation. You don't want a DVD; you want to watch a movie. Lewis: And that’s where a company like Uber comes in. They don't sell cars, they sell rides. They vaporized the service of car ownership. Joe: Precisely. And that shift reveals the new rules of this vaporized world. To understand how a company like Uber or Airbnb can become a global behemoth without owning a single car or hotel room, we have to go back to the 1800s and talk about... barbed wire.

Lewis: Barbed wire? Okay, you've lost me again. What on earth does a prickly fence have to do with my Uber ride? Joe: (Laughs) Stick with me. In the late 1800s, telephone companies were only wiring up big cities on the East Coast. They completely ignored the rural West. It was too expensive to run lines out to isolated ranches. So these ranchers were cut off. Lewis: Right, no infrastructure. Makes sense. Joe: But they did have infrastructure. They had thousands of miles of barbed-wire fences crisscrossing the plains. So, these ingenious ranchers started ordering telephones from the Sears catalog, used beer bottles as insulators, and hooked the phones up to their fences. They created a massive, peer-to-peer telephone network. Lewis: That is incredibly resourceful. A DIY internet made of fences. Joe: It was! And it perfectly illustrates a fundamental law of networks that Tercek brings up, called Metcalfe's Law. The idea is simple: the value of a network grows exponentially with the number of users. The first rancher with a phone had no one to call. But when the second, third, and tenth rancher joined, the value of the whole network exploded for everyone. Lewis: Okay, I get that. More people on Instagram makes it more valuable. But what's the catch? Why aren't we still talking on fences? Joe: Because it had a fatal flaw. It was a party line. Everyone could hear everyone else's conversations, and you couldn't call anyone outside your local fence network. It couldn't scale. What it was missing was a central switchboard. Lewis: Ah, I see! The switchboard is the key. It's the thing that connects everyone privately and controls the flow of information. So, in the digital world, who owns the switchboard? Joe: Exactly! That is the most important question in the vaporized economy. Google is the switchboard for all the world's information. Amazon is the switchboard for products. And Airbnb is the switchboard for empty rooms. Think about it: Airbnb is one of the largest accommodation providers in the world, and it doesn't own a single hotel. Lewis: It's just a website and an app. It's pure information. Joe: It's a platform. It's a digital switchboard. They connect people who have rooms (sellers) with people who need rooms (buyers). They facilitate the search, the booking, the payment, and the reviews. And for providing that switchboard service, they take a cut of every single transaction. Lewis: So they're like a digital landlord for a city they didn't build. They just collect rent on every transaction. That's brilliant... and a little scary. Joe: It's the most powerful business model of the 21st century. You don't need to own the physical assets anymore. You just need to own the platform that connects them. As the platform grows, it attracts more users, which makes it more valuable, which attracts even more users. It’s a virtuous cycle. This is what Tercek calls an ecosystem. Lewis: And once you're in that ecosystem, it's hard to leave. If you're a host, you have to be on Airbnb because that's where all the travelers are. If you're a traveler, you go there because that's where all the rooms are. They lock you in. Joe: They lock you in. And that power, the power of the switchboard owner, leads to some very dark places. Because when you own the switchboard, you become the dictator of that entire world.

Joe: And 'scary' is the right word, Lewis. Because when you own the switchboard, you become the dictator of that entire world. Tercek calls it the 'App Dictatorship.' Lewis: App Dictatorship? That sounds dramatic. What does that look like in practice? Is Tim Cook going to show up at my door? Joe: (Laughs) Not quite. But he might as well. Tercek uses the perfect story to illustrate this: the great ebook saga. It was a street fight between the biggest giants in tech and publishing. Lewis: Ooh, a corporate battle. I'm in. Set the scene. Joe: Okay, so in the late 2000s, Amazon was dominating the new ebook market with the Kindle. To get everyone hooked, they were selling new bestsellers for just $9.99, even if it meant losing money on each sale. They were playing the long game. The book publishers were terrified. They were losing control over the price of their own product. Lewis: They were being vaporized, just like the record labels. Joe: Exactly. So, they were desperate for a competitor to Amazon. And along comes Steve Jobs with the brand-new iPad. He sees an opportunity. He goes to the six biggest publishers and basically says, "I'll be your savior. I'll let you set your own prices, which will be higher than $9.99. All I ask is that you give me a 30% cut and you give me the same deal as everyone else." Lewis: Wait, so Apple and the publishers literally colluded against Amazon? This is like a corporate 'Godfather' movie. Joe: It was a conspiracy. The Department of Justice later called it exactly that. They held secret meetings in the private dining rooms of fancy New York restaurants. They formed a cartel to artificially raise the price of ebooks across the entire market. Lewis: That is wild. So what happened? Did they get away with it? Joe: Not a chance. The DOJ sued them all for price-fixing. Five of the six publishers settled immediately, terrified. Apple, in its classic hubris, decided to fight it in court. And they lost. Badly. Lewis: Wow. So in the end, Amazon won. Joe: Amazon won big time. But the story reveals the terrifying power of the platform owner. Apple, as the owner of the App Store, could dictate the terms. They demand a 30% cut of everything sold through their platform—apps, in-app purchases, subscriptions, ebooks. Tercek calls this the 'rake.' It's the price of admission to their kingdom. Lewis: And they can change the rules whenever they want. They can reject your app for a mysterious reason, or they can launch their own competing service and feature it on the front page, burying you. Joe: They can and they do. Developers live in constant fear of the App Store's arbitrary rules. You could spend a year building a business, and Apple could vaporize it with a single policy change. You are completely at their mercy. Lewis: So as a creator or a small business, you're basically a guest in their kingdom, and you can be kicked out at any time. That's the trade-off for access to their massive network of users. Joe: That's the deal with the devil you make in the vaporized economy. You get access to millions of customers, but you give up control. You become a digital sharecropper on their land.

Lewis: It's a fascinating and unsettling picture of the world we're living in. On one hand, this vaporization gives us incredible things. I have the entire world's library in my pocket. I can summon a car or a place to stay anywhere in the world. Joe: Exactly. And that brings us to the core tension of the whole book. This vaporization is creating incredible efficiency and access—think of the knowledge on your phone. But it's also concentrating immense power into the hands of a few platform owners, these new digital emperors. Lewis: So the big takeaway isn't just 'go digital.' It's to understand where the value is shifting. It's not in the 'thing' anymore—the CD, the car, the book—but in the network, the platform, and the data about the thing. Joe: Precisely. The data is the new oil, and the platforms are the new refineries. They control the flow. Tercek's final warning is that if you don't build your own platform, you'll end up as content on someone else's. You're either the house or a player paying rent. The question is, which one are you building towards? Lewis: That's a powerful question to end on. It makes you look at every app on your phone a little differently. You start seeing the architecture behind it, the switchboards and the dictators. Joe: It changes how you see the world. And that's the mark of a truly great book. It gives you a new lens to see the reality that's been hiding in plain sight all along. Lewis: It really does. We'd love to hear what our listeners think. Which platforms do you feel 'stuck' in, either as a consumer or a creator? Let us know on our socials, we're always curious to hear your stories. Joe: This is Aibrary, signing off.