Update: This was republished on BusinessInsider.com.
You do realize it’s us, with our words, who actually create the Bubbles we will then loathe. Yes – you, me, all of us… we create the hysteria and the irrational exuberance necessary for a “bubble” to actually form. If we can just refrain from the word this time, maybe better things will happen. Plain and simple. I know the conspiracy theorists out there will indeed flame up the comments with a variety of criticism – and that’s fine, commentary is a good thing. But I argue we are not going to see a bubble since we just entered the Golden Ages of the Internet. Don’t want to take my word for it? Let’s go ahead and use some logic backed by historical analysis to peel this onion a bit. We’ll see what can come of it since I think it’s better than just running around yelling BUBBLE every time a round of funding is raised or a new company rings the opening bell.
In my recent article, The Evolution of the Tech Bubble, I referred to the book Technological Revolutions and Financial Capital by Carlota Perez. I have to say again, quite an amazing book. On a surface level I described the general phases of each cycle (Irruption, Frenzy, Synergy, Maturity) and laid out a nice framework to grasp the magnitudes and movements of the cycle. I will now go deeper in an effort to bust this silly Bubble talk.
As you can see, our economy has gone through 5 major cycles since the late 1700’s.
1) 1770s through the 1820s – water power and introduced factories and canals, primarily in Britain.
2) 1820s to the 1870s – the age of steam, coal, iron, and railways.
3) 1870’s through about 1910 – steel and heavy engineering.
4) 1910 through 1980 – the rise of the automobile, petroleum-based materials, the assembly line, and the motion picture and television.
5) Our current cycle began around 1970 – based on silicon: the integrated circuit, the digital computer, globaltelecommunications and the Internet.
These are not my opinions, Perez illustrates through factual analysis each cycle lasted roughly 60 or 70 years. I argued we have just entered the Synergy phase of the fifth cycle, probably sometime in the mid 2000’s. Like it or not, this means the core paradigm (the internet) is about to spread into every corner of your life. This period is pleasantly referred to as a Golden Age. The image to the right provides a view of the Synergy and maturity phases, which together last 20 or 30 years. There’s the internet, going into everything around you. One thing to note here, the financial recession we just experienced is not directly correlated to these cycles. I am not passing off the idea that sometimes things rise and fall unexpectedly. It happened, and will happen again. The image used in my previous post illustrates the rate of diffusion of a technology into a society, not the rise in markets or a bubble, per se.
Here is what I think will happen next and why it will be mind blowing.
Fred Wilson recently stated at TechCrunch Disrupt we will very soon experience an incredible cultural revolution on a level we might not realize yet. Many things will be created to challenge the establishment (think Egypt) and new applications will change your life in very profound ways.
How do I know? Take a look at what happened the last time we were sitting in this position.
The car was at the heart of the last technology surge, based on mass production, which started in 1908 with Henry Ford’s Model T. The installation phase was about increasing car ownership and building road networks. The crash came quite early, and the deployment phase was delayed by depression and war. But the deployment phase was the period in which the suburbs evolved and supermarkets became the dominant mode of food distribution and retail.
Looking back, we realize it was because of the automobile (transportation) we now have suburbs, supermarkets and shopping malls. Now think of the Interstate network, and how important it was to connecting our country. Thankfully, this is how you can easily have food on your table… which you bought from the supermarket… which you drove to in your automobile.
Yes, it is amazing. And it’s all small potatoes compared to what is going to happen next.
Applying that perspective to today’s environment you can now start to grasp the notion we just entered the Golden Age. Mass adoption of the internet, real time communications and real time data will create adjacent industries we haven’t even thought of yet. Just ask Reid Hoffman what he thinks about this subject. For the first time in human civilization 2 billion, maybe even 3 billion people will all be connected on one platform. Almost a third of our world population is online or using some sort of connected device. This is even more moving: in the emerging markets of China, India, Brazil, Russia, and dozens of smaller developing nations, a billion people will soon enter the expanding global middle class.
Do you even realize the magnitude of what this will do to our global society? Place communication technologies on that platform. Include a way to exchange currency and do commerce. Find a way to locate a mobile device, right down to a 10 foot radius. Now imagine three billion people using this each day! Not everything will be rosy, but I argue it will be golden. For a little economic context, in the year 2000 the AOL/Time warner merger was at the time valued at $350 billion with AOL having roughly 30 million subscribers.
If you look back at the previous 4 cycles, it’s important to keep in mind how little of role communication technologies played. This is not something to overlook. Until the fourth phase (early 20th century) people were isolated on their own continents, lest they endured a few months boat ride to a new world. They were also confined to their local flea market if they couldn’t snag a horse ride. And information was short supply, limited to neighborhood gossip and a letter which mostly arrived too little too late.
Today, only 1oo short years later, I am theoretically one finger swipe away from anyone in the world (or 2 billion at least). I can video chat with someone in remote Africa, literally seeing them as we talk while they are on another continent. I can learn about an earthquake that hit another part of the world less than one minute after it happened. If you are reading this on your mobile and wanted to buy Perez’s book right now from a random person on the East Coast, an Amazon transaction will take you less than 30 seconds and you will be back reading this next sentence before you know it.
Take a step back and juxtapose those last 2 paragraphs. This is why I recently quit my job and finally got serious about building something. I am pretty excited to see what this synergy phase will bring out from within us. Don’t get me wrong, I don’t pretend to know the future. But I am using solid facts from the past to help me gauge where things might be going. If you are not serious about doing something amazing, now might be the time to reconsider.
Referencing my last article on the Bubble subject, the Frenzy period was characterized by individualism, excessive investment and miraculous manipulation of wealth. These ridiculous actions create Bubbles. Since the foundation of the web is already in place, this Synergy period is a time of Production. It is because economies of scale, maturation of the core technology and a new understanding of our global network we will not see a bubble burst.
I will leave you with a thought from Perez:
Whatever time it takes to set up the framework to overcome the recession, the beginning of Deployment is usually characterized by synergistic growth, extension of markets and increasing employment.
Bubble schmuble… can we just stop saying that word? I suggest we start using the words Internet Golden Age.
Image courtesy of Flickr user timtom.ch