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Are We in a Bubble?

That was the question I got asked the most during my time in Austin and San Francisco this month. Perhaps it’s become the new ice-breaker at networking events. But also people are genuinely curious and unsure about whether the tech scene has entered another bubble. My answer to that perennial question over the years has never been focused on money and the valuation of companies. That’s the way most commenters have addressed it over the past couple of months. Rather, I look at the state of product innovation in startups and big Internet companies. Are we still seeing innovation in web products and across market segments? For the most part, I think the answer to that is yes.

Based on the current state of innovation, I’d argue that we are NOT in a tech bubble at this time. We’re seeing a lot of innovation in mobile, especially. Also with evolving trends like Internet of Things and tablets. The ‘social media’ market is one where we are seeing copycat products and ‘me too’ features, so that market has perhaps jumped the shark. But overall, I’d argue that we’re not in a bubble.

Firstly to reiterate that I don’t define a bubble simply in money terms. High valuations are one indicator, but I think the amount of innovation and exploration happening in the tech scene is a better one. Paul Graham recently described a bubble as a “mania,” which I agree with. I’ll add that an indicator of mania in the tech market is when lots of copycat products are being released, together with a rush to implement trendy features whether they’re actually relevant to the product or not. We’ve seen some of that in recent times, for example with companies trying to create a unique social network around their products – when in many cases the product doesn’t need that. However, it hasn’t gotten manic.

The Web 2.0 Years

The last tech bubble in the Internet industry was popularly labeled Web 2.0. It started around 2004, when an excitement started to bubble up in Silicon Valley around new types of web services that were two-way and tapped into the wisdom of the crowds. Products like YouTube, Flickr, MySpace, Del.icio.us, Moveable Type, Bloglines and Feedburner came onto the scene in that 2004-05 era. This was also, not coincidentally, the time when Google began to get really big. Tim O’Reilly, whose company O’Reilly Media coined the term ‘Web 2.0’ in 2004 and started a conference around the moniker, has always maintained that one of the best examples of Web 2.0 principles was Google AdSense. For further context about Web 2.0, read my interview with Tim O’Reilly from November 2004.

There was genuine innovation and a rush of activity (and money) in the tech scene from about 2004 to 2008, but particularly in the first couple of years. Near the end of that period, we saw a lot of copycat and ‘me too’ activity. Web 2.0 became a bubble and innovation dried up.

Post Web 2.0

In 2009, things got quiet again. Mostly that was due to the world economic downturn, but also there was less innovation in web products and too many stale offerings on the market.

In 2010, things started happening again. Trends like social media and mobile began to ramp up, propelling the likes of Twitter, Facebook and Foursquare into mass popularity.

2011: Lots of Innovation!

What’s most encouraging about 2011 is that we’re not only seeing a continuation of the popularity of Facebook, Twitter and co – we’re also seeing new products emerge that are offering something new and different.

While SXSW 2011 didn’t offer a breakout new product, as it has in the past with Twitter and Foursquare, it did bring to the fore a new type of communications product: group messaging. We don’t know which of these products ‘won’ at SXSW. Some say it was GroupMe. Although many, including Team RWW, used Beluga – which was bought by Facebook earlier this month. Still others think that Yobongo, which allows you to talk to strangers in real time, got the most traction. Regardless, group messaging is an innovative product type that has only gained market momentum this year.

The mobile market is still early in its trajectory, I believe. We’re far from being in a bubble there. The battle of the App Stores – especially Apple vs Android, but also featuring players like Microsoft and Nokia – is relatively young. As for mobile products, the online music market is a great example of where innovation is happening (think Rdio, MOG, Spotify) but it’s far from being a solved problem. There’s jostling for position in that online mobile music market, including by existing products like Pandora and last.fm. This is very healthy for consumers and a sign that a bubble is a ways away yet.

Finally, there are markets which have a ton of promise but which are still early in the commercialization phase. The Internet of Things (IoT), when real world objects get connected to the Internet via sensors and similar technology, is a prime example. I started covering this beat for ReadWriteWeb a couple of years ago, when it was largely experimental development by forward-thinking geeks and small esoteric companies (like Pachube). In 2011, we’re seeing more IoT commercial development – including from large companies like Cisco, IBM and HP, all of whom are investing big time in sensor technology. See our report from CTIA earlier today for further information about the huge potential of Internet of Things: How 50 Billion Connected Devices Could Transform Brand Marketing & Everyday Life.

What do you think, are we in a bubble? I’ve made my case for saying that we are not. But I’d love to know what the ReadWriteWeb community thinks about this question.

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

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