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Why is there Hype?

 ….and other things about predicting Technology Futures



 Alan Patrick

 May 2012




broadsight                                      1
The Broadstuff Bubble-O-Meter



  Things said in jest….

             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
    Jan
             off at eye watering valuations for next to no product proof or traction.
   March     4. There is a flurry of new incubators and investments started by (newly minted) VCs (trying to buy in)
   May ‘11   5. Companies start getting funded "off the slide deck" with no actual product
   Feb ‘12   6. MBAs start leaving banks to start up companies
   May ‘11   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.




broadsight                                                                                                                               2
                                                           Copyright Broadsight Ltd
Today is a Major Hype Payoff Day




 The “Hype PO” equation




 Facebook        Punters                 IPO                 Funders   Facebook

   Hyped         Optimistic        Subscribed                 & Out    Washed




broadsight                                                                   3
                                  Copyright Broadsight Ltd
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




broadsight                                                                              4
                                      Copyright Broadsight Ltd
New Innovations come in waves....



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



               1771       1821        1871                  1921          1971    2021
             Industrial   Steam &    Steel &               Automobile      ICT   Biotech?
             Revolution   Rail       Engineers              Age           Age    Nanotech?




                                      Invent              Install        In...
                                      1880 -              1920 -        1950 -
                                       1920                1950          1980


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


                                                                                             5
broadsight                              Copyright Broadsight Ltd
....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.




                                                                                        6
broadsight                            Copyright Broadsight Ltd
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




                                                                                         7
broadsight                                Copyright Broadsight Ltd
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 Interests                                              “Creative” Destruction
        resist the New Order                                                 - “Pirate World”

                                                                     Massive Technological
        Uncertainty about the
                                                                           Experimentation
        Right path to follow
                                                                    - Darwinian Competition

                                                                     Credit creation for “build
        No infrastructure to
                                                                 It and they will come” plans
        support the New Thing
                                                                     - This means Bubbles!



             Source: Carlota Perez
                                                                                                  8
broadsight                           Copyright Broadsight Ltd
The deployment of every big New Thing is marked by a large popping
   sound....


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



               1771           1821           1871                1921               1971           2021
             Industrial      Steam &        Steel &            Automobile            ICT         Biotech?
             Revolution       Rail         Engineers             Age                Age          Nanotech?

                                                            Roaring                                2008
             Canal                      Amazing               20's                 2001
                          Railway                                                                Financial
             Mania                     Inventions            Great                  ICT
                           Mania                                                                  Service
                                        & Losses           Depression             Bubble
                                                                                                  Bubble?



               Pre Bubble                          Bubble                Post Bubble
               - market chooses winners             Burst                - Regulation and
               - Innovation focuses on             Phase                 - Innovation focus on
               infrastructure deployment            Shift                good service rollout


               Source: Carlota Perez                                                                         9
broadsight                                    Copyright Broadsight Ltd
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.
                                          Maturation,
                            Bubble        slower
                             Burst        growth                The Bubble bursting marks the change
                                                                of state from one system to another –
                           Fast                                 marks when the high growth
                           Growth                               “installation” phase is over

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



                       Invent          Install    In Place
                       Product         Deployment Service
                     Innovation        Innovation  Innovation

                                                                                                   10
broadsight                           Copyright Broadsight Ltd
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
                                                                           11
broadsight                              Copyright Broadsight Ltd
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.




                          Bubble
                           Burst




                                                                                     12
broadsight                            Copyright Broadsight Ltd
The Economics of Hype – where are the payoffs?



    Where is the money made?


                      Selling it


              Investing                                             Running
                   In it                                            it
                                   Consolidation
                                   workouts

             Marketing
             it


   Conferences
   about it                           Re-Investing
                                      in it


                                                                              13
broadsight                               Copyright Broadsight Ltd
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)




broadsight                                                                         14
                                          Copyright Broadsight Ltd
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,


                                                                                                       15
broadsight                                     Copyright Broadsight Ltd
...a Predictive Exercise.



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



     Feature      iPhone 3      Iphone 4        IPhone 5                IPhone 6         Iphone7    Iphone
                                                                                                    2018
                                                2012                    2014             2016
     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



                             Low end laptop                           Today's high end
                             today                                    “hot” gaming PC




                                                                                                            16
broadsight                                 Copyright Broadsight Ltd
...and another!



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




                                                                   $ 50 in
                                                                   2020




             $ 400 in
             2010
                                                                             17
broadsight                              Copyright Broadsight Ltd
...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




                                                                                                 18
broadsight                                 Copyright Broadsight Ltd
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)




                                                                                             19
broadsight                               Copyright Broadsight Ltd
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….




                                                                                             20
broadsight                        Copyright Broadsight Ltd
….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




                                                                                21
broadsight                       Copyright Broadsight Ltd
The death of the Old is always exaggerated…



    Riepl's Law..




             Source: Baekdal
                                                             22
broadsight                        Copyright Broadsight Ltd
(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


                                                                                        23
broadsight                             Copyright Broadsight Ltd
Question?




    Or, read our blog – Broadstuff

    www.broadstuff.com

    @broadstuff on Twitter


    Or...

    email me:

    alan.patrick@broadsight.com




                                                                24
broadsight                           Copyright Broadsight Ltd

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Hype Springs Eternal

  • 1. Why is there Hype? ….and other things about predicting Technology Futures Alan Patrick May 2012 broadsight 1
  • 2. The Broadstuff Bubble-O-Meter Things said in jest…. 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 Jan off at eye watering valuations for next to no product proof or traction. March 4. There is a flurry of new incubators and investments started by (newly minted) VCs (trying to buy in) May ‘11 5. Companies start getting funded "off the slide deck" with no actual product Feb ‘12 6. MBAs start leaving banks to start up companies May ‘11 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. broadsight 2 Copyright Broadsight Ltd
  • 3. Today is a Major Hype Payoff Day The “Hype PO” equation Facebook Punters IPO Funders Facebook Hyped Optimistic Subscribed & Out Washed broadsight 3 Copyright Broadsight Ltd
  • 4. 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 broadsight 4 Copyright Broadsight Ltd
  • 5. New Innovations come in waves.... Major new technology waves emerge every 50 years or so...... 1771 1821 1871 1921 1971 2021 Industrial Steam & Steel & Automobile ICT Biotech? Revolution Rail Engineers Age Age Nanotech? Invent Install In... 1880 - 1920 - 1950 - 1920 1950 1980 (....also, there are arguably 75 (Kondratieff) and 25 year (Kuznets) cycles of innovation.) 5 broadsight Copyright Broadsight Ltd
  • 6. ....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. 6 broadsight Copyright Broadsight Ltd
  • 7. 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 7 broadsight Copyright Broadsight Ltd
  • 8. 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 Interests “Creative” Destruction resist the New Order - “Pirate World” Massive Technological Uncertainty about the Experimentation Right path to follow - Darwinian Competition Credit creation for “build No infrastructure to It and they will come” plans support the New Thing - This means Bubbles! Source: Carlota Perez 8 broadsight Copyright Broadsight Ltd
  • 9. The deployment of every big New Thing is marked by a large popping sound.... For every new wave, there is a bubble..... 1771 1821 1871 1921 1971 2021 Industrial Steam & Steel & Automobile ICT Biotech? Revolution Rail Engineers Age Age Nanotech? Roaring 2008 Canal Amazing 20's 2001 Railway Financial Mania Inventions Great ICT Mania Service & Losses Depression Bubble Bubble? Pre Bubble Bubble Post Bubble - market chooses winners Burst - Regulation and - Innovation focuses on Phase - Innovation focus on infrastructure deployment Shift good service rollout Source: Carlota Perez 9 broadsight Copyright Broadsight Ltd
  • 10. 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. Maturation, Bubble slower Burst growth The Bubble bursting marks the change of state from one system to another – Fast marks when the high growth Growth “installation” phase is over Early Irrational Exuberance - creating a Days Bubble is the only way to get sufficient capital formation to wash away the Old infrastructures (semi) peacefully Invent Install In Place Product Deployment Service Innovation Innovation Innovation 10 broadsight Copyright Broadsight Ltd
  • 11. 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 11 broadsight Copyright Broadsight Ltd
  • 12. 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. Bubble Burst 12 broadsight Copyright Broadsight Ltd
  • 13. The Economics of Hype – where are the payoffs? Where is the money made? Selling it Investing Running In it it Consolidation workouts Marketing it Conferences about it Re-Investing in it 13 broadsight Copyright Broadsight Ltd
  • 14. 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) broadsight 14 Copyright Broadsight Ltd
  • 15. 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, 15 broadsight Copyright Broadsight Ltd
  • 16. ...a Predictive Exercise. Picture this....the High End iPhone.... Feature iPhone 3 Iphone 4 IPhone 5 IPhone 6 Iphone7 Iphone 2018 2012 2014 2016 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 Low end laptop Today's high end today “hot” gaming PC 16 broadsight Copyright Broadsight Ltd
  • 17. ...and another! ....and the iPhone Micro (halving the size 4 times) $ 50 in 2020 $ 400 in 2010 17 broadsight Copyright Broadsight Ltd
  • 18. ...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 18 broadsight Copyright Broadsight Ltd
  • 19. 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) 19 broadsight Copyright Broadsight Ltd
  • 20. 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…. 20 broadsight Copyright Broadsight Ltd
  • 21. ….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 21 broadsight Copyright Broadsight Ltd
  • 22. The death of the Old is always exaggerated… Riepl's Law.. Source: Baekdal 22 broadsight Copyright Broadsight Ltd
  • 23. (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 23 broadsight Copyright Broadsight Ltd
  • 24. Question? Or, read our blog – Broadstuff www.broadstuff.com @broadstuff on Twitter Or... email me: alan.patrick@broadsight.com 24 broadsight Copyright Broadsight Ltd