Everything is cyclical. From stock markets to our daily lives we see cycles; on the macro scale of economics and on a micro level of entomology there are cycles. Technology is no exception: it follows the ups and downs, taking the big companies, startups and venture capitalists on an emotional roller coaster ride.
Everyone knows that there are cycles. What we do not know is how long any particular cycle will last. We know of the patterns, but we don't know the details. Only a handful of people will ever predict exactly when the tide will turn (sometimes using science, but mostly using luck). The rest of us, realize it later, some time after it happened.
It is clear by now that the latest wave of technology, which started in early 2003, has peaked. We have entered a digestion phase. It is not a burst, nor a recession. Rather, a digestion phase is a period of time for us to reflect, to integrate, and to understand recent technologies and how they fit together. It is the outcome of this phase that will decide if we continue to slide or if we rebound and start climbing back up. The deciding factor will be the true value of the technologies that we created.
How Did We Get Here?
The current state of the tech market is the consequence of an explosion of the social web. It started in with the handful of companies and a few verticals and rapidly spread to thousands of startups and niches. The key drivers of this explosion were:
- Broadband - facilitated rich media (video, photo, podcasts)
- Ajax - pioneered rich web experiences
- Social Networks - connected people online
- Blogs - created a new channel for information dissemination
Remixed together these drivers became a strong foundation for the new web era. By seeing the power and value of sharing information, people embraced new and open ways of interaction. The feedback loops created by social networks and blogs led to more content creation. The popularity and rapid spread of new technology among early adopters resulted in a strong base for these new ideas to spread.
The main thing that was created during the latest innovation phase was social networks. They took different shapes and forms. From generic, general networks like MySpace and Facebook to specialized verticals like YouTube (video), Flickr (photo), Bookmarks (del.icio.us), Flixster (movies), Last.fm (music), MyBlogLog (blogs) and Twitter (chat) the web sites focused on connecting people via content. In each vertical there was either a single strong winner or a couple that stood out from the pack.
Encouraged by the early success entrepreneurs and the venture capitalists rushed to launch more startups. Some were just blatant clones of the existing web sites, some where unique and different. In any case, by the end of 2006 there were so many things announced and launched that it was virtually impossible to keep up with what was going on. 2007 started quieter, news on the major tech blogs slowed down just a bit. It was time to pull back, so we took a deep breath and entered the digestion phase.
What Are Suppose To Do Now?
The point of a digestion phase is to think. If the value created by the companies is greater or equal to the money put into them, then we are fine, we can continue to grow. If the technologies that we invented will be used not only by a few hundred thousand people, but by millions, then we are fine, we can continue to grow. And if these new tools work well by themselves and together enhace our online life then, great, we are in good place.
But if the answer to some of these questions is a no, then we need to pause. If the answer to all of these question is a no, then we might need to take a step back. In the worst case scenario, it may mean that we will slow down and maybe even slide back. We may not like this, but this is just how all cycles work.
How do we assess the value? Ultimately the measure is dollars. Can these new tools generate enough money to justify themselves? On the surface, certainly yes. After all the social factor in all these tools is so strong and so many people seem to love these tools and spend time using them. In reality, things are not so simple. Even monetizing a phenomenon like Facebook is not simple, a site like Digg is even harder.
Mark Pincus had a brief post on his blog in April 2006 commenting on MySpace revenue. According to his post, the 2006 revenue forecast was $200 million and most of it was based on monetizing banner ads. But a recent post on ZDNet suggests that MySpace revenue has climbed significantly since then. The post explains that 2008 revenue will exceed $800 million, making the site's half a billon price tag well justified.
Google will need to work much harder to justify its $1.65 billion acquisition of YouTube, but Wall Street loves Google regardless, so this equation may be entirely different. And if CBS plays the Last.fm card right, they will have an interesting opportunity to play in the hot online music market, but they need to figure out best way to turn this network into dollars (text and banner ads might not work given the culture).
Refactoring The Social Web
refactoring. It means improving the software without changing what it does.Another characteristic of the digestion phase is a cleanup. Because we rushed to create a lot of new stuff, we might not have done all of it quite right. For us to be able to build on existing things, the foundation needs to be solid. In software engineering, Martin Fowler coined a great term -
The digestion phase gives companies a great chance to improve their services. These improvements may include performance and scalability changes, user interface enhancements, the creation of an API, and compliance with standards. This is the time to simplify and to remove things that are not needed.
We are not quite ready yet for many more new ideas, but they are brewing anyway. Because every year technology is moving faster and faster, new things will happen sooner rather than later. And each digestion phase is becoming shorter and we are becoming more used to exploring, embracing, and internalizing new technologies. Digital Life, Attention Economy, Intelligent Machines, Semantic Search and Web Sites as Web Services are just a few new ideas that we are already are thinking about.
There is a little doubt however, that these new ideas will prove to be at least as powerful as the previous ones. If the latest wave proved anything it proved that there is a virtually limitless amount and passion, enthusiasm and creativity coming from the tech community. The power of ideas and the ability to turn them into useful things is what propels us forward as a society. It is exciting and humbling to realize what we are capable of.