Are Internet bubbles on a 10-year cycle? Like the economic booms and busts that have occurred over the course of last 30 years, similar Internet peaks and valleys seem to follow suit according to John Doerr of Kleiner Perkins Caulfield & Byers. He refers to them as "waves" and it appears that we are currently transitioning from a simmer to a slow boil presently.
At the Web 2.0 Summit in San Francisco this week, Doerr and several of his croniesJohn Doerr from the Dot.com bust era of the late nineties shared notes. Doerr indicated that technology is in the middle of a third wave of innovation. It follows the previous two waves that included the PC revolution in the 1980s and the Internet boom in the mid-nineties. The current wave, he clarifies is focused on smartphones and social networks' social graphs.
I refer to this period as 'coming to slow boil' because just in the course of this last week, there are dozens of stories surfacing on this topic from the Wall Street Journal to the New York Times. With titles such as "A Bubble By Any Other Name," and "As Technology Deals Boom, the Talk Turns to Bubbles" may sound alarmist - upon closer examination - they might be cause for all of us to take heed.
Back in March, when director of Havas Media Lab, Umair Haque hypothesized in a Harvard Business Review post that theUmair Haquere were signs ahead signifying a "Social Media Bubble" was looming, he received very little attention from the blogosphere. Yet some of the insights noted made compelling associations to the financial crisis the world had been experiencing this past year.
Haque compared social media connections to the loose connections homeowners and mortgage companies had during the subprime housing bubble. As banks and brokers played fast and loose with people's debt, those that owned homes were distanced from those entities that had control over their mortgages. And eventually these tenuous connections broke and became the source of the housing market collapse.
According to Haque, he determined that "social media (was) trading in low-quality connections -- linkages that are unlikely to yield meaningful, lasting relationships." With followings of thousands on Twitter and hundreds on Facebook, it is almost impossible to have true relationships with that many people. This past week, I posted a story about PATH.com, a new social network for mobile phones that contends that the most 'true' relationships anyone can maintain are a maximum of 50 people.
In essence, social media has altered the meaning of "relationship," and Haque describes these new types of connections as mere illusions of mutually satisfying relationships in the real world. "Just as currency inflation debases money," asserts Haque, "so social inflation debases relationships."
Fred WilsonFred Wilson is a noted venture capitalist and principal of Union Square Ventures which amongst other successful start-ups has helped fund Tumblr and Zynga, the social gaming company that is one of Facebook's main revenue sources. While Wilson thinks that the last six years have been a boon for Web entrepreneurs and VC firms, in a posting titled, "Storm Clouds," he sees less-favorable indicators ahead that paint a less than rosy future for tech companies.
He notes "unnatural acts" by investors that are riding the frenzied high of "hot deals" where they ante up large sums of money ($5-15 million) for investments that are solidified in a matter of a few days with "little or no due diligence." This coupled with massive talent wars for software engineers, where social networks like Facebook are poaching employees from Google at a rather fast clip - and you have the makings for a boom heading for a bust.
So will the Social Media Bubble burst? Will it follow the financial crisis where exuberance can no longer be sustainable? Is social media's foundation sturdy enough to withstand some of these pitfalls, or is it built on sand, ready to fall like a house of cards similar to the dot.com bust of the late nineties? Your thoughts readers?
And while you're thinking about it, enjoy this video that dates all the way back to October 31, 2007. Using the background music and tempo of Billy Joel's "We didn't Start the Fire," - take in how optimistic we all were about the Internet bubble only three short years ago.