A New Era of Micro-Bubbles

Having lived through two of the most intense bubbles in the history of technology industry – the PC Bubble, and more recently, the Internet Bubble – I have been fascinated by human propensity of falling for the same tricks again and again. Regardless of the outcome of the past bubbles, we fall victim to greed again and again. More recently I have been worrying a lot about the wireless frenzy and of course the VoIP bubble of sorts. In an effort to understand the Bubble phenomenon a little better, I caught up Carl Haacke who has come up a wonderful new book, Frenzy: Bubble, Busts and How to Come Out Ahead. He and I swapped emails, and chatted about the telecom bubble, the current frenzy around VoIP and of course the China bubble. Here is an excerpt from the e-interview.

1990s bubble is a fading memory, but have we learned anything from it?
First, I’m not so sure it’s that distant. Whenever it comes up when I talk to people, they recount stories or features of that period as if it was yesterday. The Internet and the continuing transformation is a living part of today’s news, whether its about search wars between Google, Yahoo and Microsoft, or wireless video games, or social networking software. It’s all very much alive.

In terms of learning…Everyone says history repeats itself and yet very rarely to people stop, take a step back and see what the patterns of history can teach about today and tomorrow. Those who don’t look at the mistakes of the past are destined to repeat them. The sad thing is that it’s the mistakes of the past that are so avoidable. In general, business bubbles arise out of a sense of incredible incalculable opportunity and the total collapse of a disciplined approach to managing these opportunities. In this environment a few forces emerge that create some common mistakes when thinking about strategy and investments.

Telecom had a huge bubble, which popped. You think we have over come the problems that bubble created or the worse is yet to come?
Clearly the affects of the telecom bubbles lives with the industry today. Voip continues to create many uncertainties for future business models. At least in the US, wireless data traffic is pretty big, but Americans are still not really huge users. There are a lot of efforts to get SMS, picture delivery etc… to the mass market. Certainly young people are the leading edge and growth in these niche markets is moving at a decent clip. They will usher in future generations who consider it norm. But that kind of growth where it will shift into the mass market moves at the pace of demographics. Which isn’t that fast.

In terms of what’s to come, I’d expect to see a fairly rocky road on the way to long-term incredible growth. That means I don’t see an industry-wide echo crash. But there will be ongoing battles for platforms and standards that will be bloody. Now we are entering the transformation phase where the true benefits become realized and built out across the economy. It will not be a smooth ride. There are still a wide range of technologies and platforms competing for dominance. We have no idea how the market will determine the best use of landline, VoIP, or various wireless technologies for voice or data connecting the growing range of nodes from the home to the hand to car to wherever.

Eventually, we’ll have a map of technology market shares for various uses and places. Some companies will be well positioned for that industry end state. Those who plan well by influencing all the appropriate interconnected constituents in the network of relations will progress faster and more effectively than others. For me that speaks to the remaining power of the incumbents and challenges of the start-ups.

Voip, social networking, digital lifestyles – are these micro-bubbles and do they have any impact outside of silicon valley?
Definitely. They really follow the same patterns, the same mistakes, as larger bubbles. In terms of their impact outside the valley, I think it probably depends on the specific niche. VoIP is certainly creating shockwaves through the larger telco industry in classic David and Goliath style battle that has some echoes of the Internet era. Blogs with some social networking and mainstream media are also following that pattern. Much of social networking however is creating new markets rather than competing directly with existing markets. I say directly because there is ultimately a battle for every minute of people’s attention, so to the extent that people are spending their time in digital lifestyle/social networking etc… they may be reducing their time in other paying activities.