What if we're looking for the next tech boom in all the wrong places?
As the saying goes, most generals are trained to fight the last war — which is why most predictions made at the beginning of a conflict are completely wrong.
The same, I suspect, is true for all of us awaiting the big technology turnaround. It'll happen, all right, but not for the reasons we expect, and not led by the companies we know.
In other words, sitting around waiting for Cisco and Yahoo! to come back and lead us out of this financial morass, is an exercise in futility. When those two companies return, they (especially Yahoo!) will be different companies, with different business strategies, managed by different people. Market leadership will instead belong to a new group of companies we likely haven't even heard of.
From here on, every hot company you ever knew on Nasdaq will be an established, comparatively safe, long-term investment. The Promethean fire will be handed off to a new set of high-risk/high reward companies.
From the Center to the Edge
I first began to understand this about 20 years ago, when I was working on my first book, a history of Silicon Valley.
Here I was, writing about the great technology firms that had captured the world's imagination in the early 1960s — Hewlett-Packard, Ampex, Memorex, Varian, Watkins-Johnson — that were now either courtly old gentlemen or empty husks. Yet, just a few years before they had been the locus of all the entrepreneurial and investment excitement on the planet.
Those firms had been supplanted in high growth and high excitement by the chip companies — Fairchild, Intel, AMD, Motorola, National Semiconductor — but even as I wrote, those firms too — having been goosed for an extra decade by the invention of the microprocessor — were losing their edge.
Now, a new crowd had come alone: scraggly, long-haired old schoolmates of mine who had graduated from locker shockers to telephone hacking and now to personal computers. Apple, Eagle, Sinclair, Commodore, Atari and IBM Boca Raton were now the big deal, making themselves and everyone along their business channel (investors, VCs, chip suppliers, content creators, distributors, retailers, etc.) rich and powerful.
But even as I was writing the book, which I finished soon after the Macintosh introduction, the world shifted again. A shakeout ended the reign of the PC and ushered in a succession of new players — software, workstations, servers, Web browsers, e-commerce — right up to the present.
The Names Are Not the Same
What is interesting, looking back, is that if you were to make a list every five years of the dominant companies in high tech — not the biggest, but the most innovative, fastest growing, most influential, most imitated and discussed — the list would not only change every time, but it would almost always change entirely.
The only exceptions have been a handful of firms, justly celebrated and rewarded, that managed to dominate in two or more different markets: HP (instruments, calculators, printers), IBM (mainframes, PCs), Intel (memory, processors), Motorola (chips, cellular telephony) and Microsoft (software, Web — now you see why Gates would do anything to crush Netscape).
By comparison, other great, but troubled companies have failed to cross markets: DEC (which owned minicomputers, but walked away from PCs and blew the Alpha EXP processor), Apple (Steve, why did you abandon the Newton?), Atari (owned games, screwed up PCs). One can almost glimpse the future of, say, Oracle (owns databases, but has failed at other ventures) and Cisco (bought a lot of companies, but what does it have to show for it?).
But these sterling (and tarnished) examples aside, if there is one fundamental truth you can draw from the last 40 years of high technology, it is that no industry or company can lead the market for more than four or five years before it is supplanted. And who takes its place? Almost always a start-up, run by unknowns or near-unknowns, driving a brand new technology.
Ebay, for example (once again, full disclosure — I'm a shareholder), no longer has to worry about Amazon.com or Yahoo! auctions, but the appearance on the scene of some new consumer service that lures the masses to some new time-consuming activity.
Reinventions Led by New Inventions
What's interesting about this model of technology history is that it repudiates almost everything you hear from the pundits on TV or in print. It says that tech never comes back from a downturn. Instead, it reinvents itself and takes off in another direction, led by new inventions and new entrepreneurs you not only didn't predict, but likely can't predict.
That's a chilling thought. And you can bet that the smartest folks out there are already thinking it. It probably explains why Gates has gone back to the lab and is scrambling to come up with something radically new like an electronic tablet. It likely explains the absurd burst of interest in the "IT." And why John Chambers, trapped in his market, is suddenly saying the most apocalyptic things ever heard from a major corporate CEO.
A few weeks ago I offered some suggestions where the next tech boom might come from. Looking back, I realize that all were merely extrapolations from the most interesting technologies emerging from the lab right now. Now, on second thought, I would give those techs only about a 50:50 chance of emerging as dominant.
And the rest of the odds? They go to the unknown.
Watch the Fringes
That raises an interesting question: Is there any way we can characterize that unknown? Are there early warning systems that can spot the “Next Big Thing” in time to retrain, or reinvest or rewrite our resumes?
Only a few. First, radical discontinuities typically emerge from the fringes — corporations usually snuff out strange new ideas. So look at college kids, clubs and other cults. Watch your kids — mine are bored to death with computer games, dreary Web sites and even Napster — and listen closely if they start whispering about something new and cool.
But especially watch for bright young engineers and scientists who suddenly leave successful companies — particularly if they are joined by a industry veteran or two — to jump into very quiet start-ups. That scenario has occurred too many times in tech history to be an anomaly.
But most of all, look around you at all the early adopters you know. Listen to what they are saying. They read the magazines and talk to the insiders. They will know the next dominant technology long before you do.
But don't make any moves based solely on their enthusiasm — remember, they are true believers, and will sort through a lot of junk before they find an occasional jewel. Rather, study them for a while. Do they use the product more and more? Is their interest waning or deepening? Are they developing a new everyday language for this technology, a new subculture of those in the know?
If so, dive in hard, because the next boom is on.
Michael S. Malone, once called “the Boswell of Silicon Valley,” is editor of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. To read his story on Stephen Wolfram, click here. For more, go to Forbes.com. And you can talk back to Silicon Insider via e-mail or through an ongoing bulletin board.