As I’m coming back to the blog after a bit of a summer vacation, I find that I now have some perspective on the “Facebook bubble,” and a clearer idea of what investors and industry wonks are hoping to see. Current thinking about high value firms and technologies seems to revolve around what the Gartner Group has called “the nexus of forces”: social, mobile, cloud, and information/data. Actually, I’m more fond of the phrase my business partner uses…the Four Horsemen. If you look at recent M&A and media coverage, you see that there is a significant premium set on firms based on these technologies, along with a fifth variant, gamification (or more broadly, motivational apps, in the spirit of SuperBetter). Since cloud is an enabling infrastructure technology for all of this, let’s focus on these four horsemen of the app apocalypse: social, mobile, gaming, big data.
Clearly, the hype among these four has rocketed Facebook, Zynga, Pinterest, Airbnb, Instagram, and the thousands of other emerging, growing, dying, and struggling clones and variants into the limelight. And while the stock market has both rewarded and punished those firms far enough along to be public, the real issue is in how those technologies will provide the platform for the real apocalypse: their own demise.
Steve Blank captured this sentiment earlier this summer in his provacatively titled comments on Why Facebook is Killing Silicon Valley. His post generated a lot of commentary–and critique–but it gets at a two key issues related to real innovation. First, I don’t think we can pretend that the VC and investment community’s role is to foster innovation. Frankly, they are in it to make money, and quickly. I can hear in my head the rationale that one VC I know has for every hard decision and tough action: “it’s my fiduciary responsibility to my limited partners,” i.e., his job is to generate a return…period. Second, and more importantly, we make money in different phases of innovation. Steve includes the classic multiple s-curve innovations adding up to growth that Peter Diamandis and Ray Kurzweil have both described, most recently in Peter’s book Abundance: Why the Future is Better than you Think. The basic principle is that the exponential growth of Moore’s law can be applied to any information technology-based industry. What that tells us is that each generation of information technology evolution has a growth curve (a profit opportunity for investor), and then a plateau in which it becomes commodity, at which time it lays the groundwork for a transformation into the next enabling technology.
We can’t forget that over 15 years ago the dot com bubble was started by the IPO of a browser technology: Netscape. Do we really believe that Facebook or Pinterest are the end product here? As I write this entry using Netscape’s free, open source descendent, Firefox, I clearly see that what was once innovation becomes commodity infrastructure. Perhaps what we have to acknowledge is that the law of growth is not exclusively Moore’s Law, but a combination of Moore’s and an inversion of Clark’s law (“Any sufficiently advanced technology is indistinguishable from magic”) into “technology that looks like (money making) magic today becomes commodity tomorrow.”
Some combination of social media, mobile technologies, motivational technology, and big data will definitely underlie the next generation of personal computing innovation, but their growth and death are not unusual or a tragedy. As an investor, I want to do my best to gauge timing to enter the exponential growth curve phase of a company and its industry early, but we also need to recognize that these generations of success are short, with their deaths feeding the next round of innovation.