Smartphones and Creative Destruction

Is the multi-function and ubiquitous smartphone one of the best examples of creative destruction. This article “10 Things Killed by the Smartphone” points to a clutch of devices and products whose demand has been affected by the mass volumes of data-heavy smartphones that now dominate the market.

MP3 Players Nintendo 3DS and Sony PSP Point-and-Shoot Cameras Personal Video Players Voice Recorders Portable GPS Navigation Devices Personal Digital Assistant (PDA) Wristwatch iPod Nano Paper Maps Telephone Directory Assistance

The term “creative destruction” was first coined by Joseph Schumpeter in his book Capitalism, Socialism and Democracy in 1942.

Schumpeter was an economist of the Austrian School which advocated a laissez-faire approach to economic policy and argued that the ephemeral human nature made it unreliable to mathematically model a changing market. Schumpeter argued that long-wave cycles were caused by a step change in technology or a significant innovation. Innovation is a strong source of market power and entrepreneurs can therefore compete with existing firms in an industry, eroding their profits and market share and eventually becoming more powerful than them.

Consequently, “creative destruction” describes the process of industrial transformation, from a competitive to a monopolistic market and then back to a competitive one.