Hype Springs Eternal

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Why is there Hype?

….and other things about predicting Technology Futures

Alan Patrick

May 2012

broadsight

Feb ‘12

Copyright Broadsight Ltd2

The Broadstuff Bubble-O-Meter

1. There is a New New Thing that trancends the Old Economics, and you cannot value It the Old Way. This Time It will Be Different. Dumb Money companies start paying over the odds for New Thing acquisitions.

2. Smart people who have been there before start calling it a Bubble (or at least a "Frothy Market"), New New Thing apostles make ever more glowing claims of the dizzy heights available, while "Startup Networking Events" start to proliferate (to supply new startups).

3. Companies with founders deemed to have "rubbed off the right stuff" (ie sons of, ex employees of, etc etc) get funded straight off at eye watering valuations for next to no product proof or traction.

4. There is a flurry of new incubators and investments started by (newly minted) VCs (trying to buy in)

5. Companies start getting funded "off the slide deck" with no actual product

6. MBAs start leaving banks to start up companies

7. The "Big IPO" happens (Netscape et al)

8. The big Investment Banks start to make a market in the New New Thing, punting in your pension money, and have "entrepreneurial" options and divisions to retain les autres MBAs

9. Your Taxi Driver gives you advice on what stock to buy - you punt in your own pension money

10. A New New Thing darling buys an Olde Industry thing at Stupid $$$. This is the Top Of The Bubble.

Jan

May ‘11

March

May ‘11

Things said in jest….

broadsight Copyright Broadsight Ltd3

Today is a Major Hype Payoff Day

Facebook

Hyped

Punters

Optimistic

IPO

Subscribed

Funders

& Out

Facebook

Washed

The “Hype PO” equation


So, why does Hype exist?

A challenge….

I have been “anti hype” for as long as I can recall, but I could see “Bubble 2.0” coming and wondered about hype’s role, and I came to a few conclusions:

•Technology (and most other) Innovations have a waveform nature

•The economics of Creative Destruction need Big Waves – i.e. bubbles

•Bubbles need to be created – so need hype to inflate them

•Good Old Greed is the game theory payoff


New Innovations come in waves....

Major new technology waves emerge every 50 years or so......

2021 Biotech?

Nanotech?

1971ICTAge

1921 Automobile

Age

1871Steel &

Engineers

1821 Steam &

Rail

1771Industrial

Revolution

In...1950 -1980

Install1920 -1950

Invent1880 -1920

(....also, there are arguably 75 (Kondratieff) and 25 year (Kuznets) cycles of innovation.)


....each made of smaller waves of adoption....

There are normally several generations of S curve in any one technology wave, its useful to look at which one you are in.


But all new New Things start out on very shaky ground – how do they take off?

Machiavelli had it taped in 1532

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.

For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries … and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it.”

- Nicolo Machiavelli, The Prince


To succeed, the New Thing needs the Madness of the Crowd, not its Wisdom....

Machiavelli suggested brute force, but Schumpeter noted Irrational Exuberance also works, and creates fewer (directly attributable) bodies.

Forces against Change Requirements to Change

Vested Interestsresist the New Order

Uncertainty about the Right path to follow

No infrastructure to support the New Thing

“Creative” Destruction- “Pirate World”

Massive Technological Experimentation

- Darwinian Competition

Credit creation for “buildIt and they will come” plans

- This means Bubbles!

Source: Carlota Perez


The deployment of every big New Thing is marked by a large popping sound....

For every new wave, there is a bubble.....

2021 Biotech?

Nanotech?

1971ICTAge

1921 Automobile

Age

1871Steel &

Engineers

1821 Steam &

Rail

1771Industrial

Revolution

CanalMania

RailwayMania

AmazingInventions& Losses

Roaring 20's

GreatDepression

2001ICT

Bubble

2008Financial Service Bubble?

Pre Bubble- market chooses winners- Innovation focuses on infrastructure deployment

Post Bubble- Regulation and - Innovation focus on good service rollout

BubbleBurstPhaseShift

Source: Carlota Perez


The Bubble popping signifies a change of state, from Old to New

For an Innovative new wave to succeed, it needs a bubble of cash to wash away the old.

In Place Service

Innovation

Install Deployment

Innovation

InventProduct

Innovation

BubbleBurst

Early Days

The Bubble bursting marks the change of state from one system to another – marks when the high growth “installation” phase is over

Irrational Exuberance - creating a Bubble is the only way to get sufficient capital formation to wash away the Old infrastructures (semi) peacefully

Fast Growth

Maturation, slower growth


The Other Moore's Law - each new thing needs to jump the chasm to survive

Geoffrey Moore - Technology Adoption and the “Chasm” into which many promising technologies fall and die

The detritus of failed innovations

Source: Geoffrey Moore


Hype creates the Irrational Exuberance – it moves crowds from Wisdom to Madness to jump that Chasm

Hype drives the optimist to become Irrationally Exuberant - spend early, spend large.

BubbleBurst


The Economics of Hype – where are the payoffs?

Where is the money made?

Conferences about it

Investing In it

Marketing it

Selling it

Consolidation workouts

Running it

Re-Investing in it


And now for something completely different – Technology Prediction

It is difficult to make predictions, especially about the future…*

• There are some broad laws, its not that hard to tell what may come to pass

• But there is many a slip – nay, a Chasm – between possible and probable

• What is one thing, When is another thing entirely

• Old soldiers never die….

• Hype is quite useful as it is a leading indicator

difficult to make predictions, especially about the future

(*Berra, Bohr, Borge, Einstein, Marx, Quayle, Shaw, Twain)


Three Laws......

3 laws have driven ICT technology for the best part of 5 decades

1. Moore's Laws

Moore's first law - “the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years.”

Moore's second law - the capital cost of a semiconductor fab also increases exponentially over time.

2. Metcalfe's Law

the value of a telecommunications network is proportional to the square of the number of connected users of the system

3. Kryder's Law

magnetic disk area storage density doubles approximately every 2 years,


...a Predictive Exercise.

Picture this....the High End iPhone....

Feature iPhone 3 Iphone 4 IPhone 5

2012

IPhone 6

2014

Iphone7

2016

Iphone 2018

Processor 600 MHz 1 GHz 2 GHz 4 GHz 8 GHz 16GHz

RAM 256 Mb 512 Mb 1 Gb 2 Gb 4 Gb 8 Gb

Storage 32 GB 64GB 128 GB 256 GB 512 GB 1 TB

Display 165 ppi 330 ppi 660 ppi 1.2 kppi 2.4 kppi 4.8 kppi

Today's high end “hot” gaming PC

Low end laptop today


...and another!

....and the iPhone Micro (halving the size 4 times)

$ 400 in 2010

$ 50 in 2020


...or, Maybe Not

Sage's Amendment to Murphy's Law

For all laws, there is one exception, which will occur at the most critical possible point and time

(in the case of mobiles, it was/is the battery power)

And of course, The Other Moore’s Law – that Chasm thing – very few make it over


Augustine’s Law of 1.4....

Augustine's Law on Timing of Complex Technologies....

Any task can be completed in one-third more time than is currently estimated.

(In fact he found a factor of c 1.4 at NASA with complex New Thing technologies, which my experience over many years corroborates)


Augustine’s Laws on the dangers of Prediction

On the risks of Mathematical Extrapolation....

In the year 2054, the entire US defence budget will purchase just one aircraft. This aircraft will have to be shared by the Air Force and Navy 3-1/2 days each per week except for leap year, when it will be made available to the Marines for the extra day….


….but that same graph points to a New Wave

Drone Wars - the hidden story of Afghanistan

•Use of drones has ramped up from a few missions in 2001 to thousands by 2011

•Predictably, as with WW1 aircraft, they have shifted from reconaissance to strike roles – 200+ in 2010


The death of the Old is always exaggerated…

Riepl's Law..

Source: Baekdal


(In) Conclusion

Any technology fits within greater waves.....and swimming against the tide is a very hard game

Most new New Things fail to jump The Chasm

A game changer has to be large and fast enough to sweep away the Old

Bubbles re-distribute capital from the Old to the New rapidly, they are necessary for Creative Destruction....

Hype springs eternal in the human breast, and is the time honoured way that Bubbles are inflated.

Greed is Good for Hype - there is a payoff in the Hype game, so follow the money

Prediction is easy – timing is much harder.

The imminent death of the Old is always much exaggerated


Question?

Or, read our blog – Broadstuff

www.broadstuff.com

@broadstuff on Twitter

Or...

email me:

[email protected]

Date post:	25-May-2015
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Hype Springs Eternal

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