Silicon Insider: In Search of the Next Boom

B U R L I N G A M E, Calif., April 10, 2001 -- 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 — whichis why most predictions made at the beginning of a conflict are completelywrong.

The same, I suspect, is true for all of us awaiting the big technologyturnaround. 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 backand lead us out of this financial morass, is an exercise in futility. Whenthose two companies return, they (especially Yahoo!) will be different companies,with different business strategies, managed by different people. Marketleadership will instead belong to a new group of companies we likely haven'teven heard of.

From here on, every hot company you ever knew on Nasdaq willbe an established, comparatively safe, long-term investment. The Prometheanfire 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 workingon my first book, a history of Silicon Valley.

Here I was, writing aboutthe great technology firms that had captured the world's imagination in theearly 1960s — Hewlett-Packard, Ampex, Memorex, Varian, Watkins-Johnson — that werenow 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 thechip companies — Fairchild, Intel, AMD, Motorola, National Semiconductor — but even as I wrote, those firms too — having been goosed for an extradecade by the invention of the microprocessor — were losing their edge.

Now, anew crowd had come alone: scraggly, long-haired old schoolmates of minewho 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 businesschannel (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 theMacintosh introduction, the world shifted again. A shakeout ended thereign 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 listevery five years of the dominant companies in high tech — not the biggest, but the most innovative, fastest growing, most influential, most imitatedand 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 moredifferent 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 crossmarkets: 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 onefundamental 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 orfive years before it is supplanted. And who takes its place? Almost alwaysa start-up, run by unknowns or near-unknowns, driving a brand newtechnology.

Ebay, for example (once again, full disclosure — I'm a shareholder), nolonger has to worry about Amazon.com or Yahoo! auctions, but the appearanceon the scene of some new consumer service that lures the masses to some newtime-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 reinventsitself and takes off in another direction, led by new inventions and newentrepreneurs you not only didn't predict, but likely can't predict.

That's a chilling thought. And you can bet that the smartest folks outthere are already thinking it. It probably explains why Gates has gone backto the lab and is scrambling to come up with something radically new like anelectronic tablet. It likely explains the absurd burst of interest in the"IT." And why John Chambers, trapped in his market, is suddenly saying themost apocalyptic things ever heard from a major corporate CEO.

A few weeks ago I offered some suggestions where the next tech boommight come from. Looking back, I realize that all were merely extrapolations from the most interesting technologies emerging from the lab right now. Now, onsecond thought, I would give those techs only about a 50:50 chance ofemerging 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 cancharacterize that unknown? Are there early warning systems that can spotthe “Next Big Thing” in time to retrain, or reinvest or rewrite our resumes?

Onlya 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 withcomputer games, dreary Web sites and even Napster — and listen closely ifthey start whispering about something new and cool.

But especially watchfor bright young engineers and scientists who suddenly leave successfulcompanies — particularly if they are joined by a industry veteran or two —to jump into very quiet start-ups. That scenario has occurred too manytimes 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 theinsiders. They will know the next dominant technology long before you do.

But don't make any moves based solely on their enthusiasm — remember, theyare true believers, and will sort through a lot of junk before they find anoccasional jewel. Rather, study them for a while. Do they use the productmore and more? Is their interest waning or deepening? Are they developinga new everyday language for this technology, a new subculture of those in theknow?

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.