The History (and Future) of Disruption

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In the 1800s, New Bedford, Massachusetts was known as “the city that lit the world”.

It was a major whaling hub. Specifically sperm whales, which provided the cleanest burning oil.

Whale oil was the most desirable fuel to provide light and lubricant to grease machinery.

Throughout the 1800s, approximately 230,000 sperm whales were killed and processed, primarily for their blubber and other commercially useful products.

At one time, whaling was the 5th-largest industry in America. But artificial light, such as that provided by burning whale oil, was still a luxury.

Eventually whalers overdid it, and had to range farther to find prey. The industry became about faster ships, better equipment, and on-ship processing.

Whalers’ primary concern was maximizing for these factors. It was all about speed and efficiency.

They didn’t expect disruption to come from outside, from new technology.

Then along came John D. Rockefeller.

Rockefeller – The Whale’s Savior

Kerosene was the first breakthrough product produced from oil. Gasoline wouldn’t be used at scale for a few decades. Early on, gas was considered to be a waste byproduct.

At first, crude oil was all about a better, cheaper alternative to whale oil. Illumination was the game changer.

In 1860, John D. Rockefeller began refining crude oil. In 1870, he founded Standard Oil (which would eventually be broken up into Chevron, Exxon Mobil, and many other household names).

Rockefeller wasn’t the man who discovered kerosene, but he perfected its refining and distribution.

Without kerosene, we likely would have hunted whales to extinction. And that would have been a real shame.

So ironically, crude oil and kerosene saved the whales. More than any anti-whaling activist ever could.

Kerosene also made artificial light more affordable and scalable. Before electricity, kerosene brought light to the masses.

Google – Finally Disrupted

Disruption happens in unpredictable and chaotic ways.

Whalers never expected to be put out of a job by oil that leaks from the dirt. Whaling was a cornerstone industry. Yet it happened, and shaped the course of the world.

Just a few years back, Google was viewed as an unstoppable juggernaut. Politicians around the world tried (and failed) to contain this all-powerful monopoly.

Then in late 2022, OpenAI released ChatGPT to the world. AI models have now progressed to the point that Google is finally at risk of being disrupted.

OpenAI, Anthropic, DeepSeek, and others are all taking bites out of Google’s market share.

Google has responded with its own AI models, and integrated them into its search product. But with dozens of strong competitors, there’s a good chance that LLMs (large language models) will be the most disruptive event of the last 100 years. Probably even more impactful than the internet, which is crazy.

And ironically, Google was the company that published the research that birthed the modern AI industry.

To be clear, I’m not saying to sell Google because they’re the modern equivalent of the whaling industry. But they face a tough road ahead. Fortunately they’re one of the leading cloud compute providers, and their advertising products are still going strong.

But AI has already disrupted the traditional search business. So the future is murky for companies who rely on it as their primary business.

Today I find myself using AI apps far more than old-fashioned search, even though it’s been upgraded with AI features.

The AI Cage Match

For about 18 months after OpenAI released ChatGPT, they were the only real game in town. Years ahead of everyone else.

Then came Anthropic’s Claude, DeepSeek, and Google’s Gemini models.

And now, an absolute flood of new AI models are competing for the world’s attention. The leaderboards which calculate top AI models are constantly shifting, and so is consumer attention.

The stakes are high. Whoever wins the AI race may become the most powerful company in the world.

Some of you may be thinking, well, that’s an argument to invest in AI today. I don’t think so. Today’s fierce competition is going to drive down prices to rock-bottom levels. It already is.

Chinese models, many of which are “open source” (free to download and use), are providing extra pricing pressure.

Additionally, the vast majority of these AI companies will fail. Sure, if you pick the ultimate winner(s), you’ll do well. But if you invest in the entire industry, performance is likely to disappoint.

The same was true with oil companies, car makers, railroad firms, and almost everything else.

All the players in the AI industry realize how large the prize is. So they’re going to fight tooth and nail to grab the trophy.

This will be excellent for consumers, but maybe not so much for the industry as a whole.

At current valuations, I’m avoiding investing directly in the big tech/AI names. Sure, I have exposure through retirement index funds, and that’s plenty. I don’t need to add on any more concentrated AI risk.

One last thought. Eventually there will be major breakthroughs within the AI industry itself. Something that increases efficiency and drops costs by ~90%. When it happens, the AI hardware darlings of today will be left with a lot of spare inventory. It happened during the dotcom fiber builtout.

When tens of thousands of the world’s top software engineers are working on the same problem, it generally results in breakthroughs.

We’re still early in this disruption cycle, and there’s still a lot of action left to play out. It’s going to be fascinating to watch and experience.

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