Building a Tech Bubble

In recent months more and more technology analysts and pundits have started to sound the alarm that we are on the cusp of another technology bubble bursting, in this case it being the Web 2.0 bubble burst, with the most recent alarm coming from PC Magazine's John Dvorak. And if you expect me to disagree with all of these pundits, guess again. Of course another bubble burst is coming. There's no more prognosticating in that statement then there is in the prediction that I will have a cup of coffee within an hour or so of completing this column. However, I do disagree with John Dvorak in his belief that this bubble burst will be worse than the .com bust. If we start seeing lots of 2.0 companies with no business model investing millions in Super Bowl ads, then maybe I'll come around. However, all of this talk about bubbles did get me thinking about the classic cycles of busts. Because when you analyze past technology bubbles, you'll always see the same progression from pure technology to pure marketing. By paying attention to this progression, you might even be able to tell when a bubble is getting too big for its own good and is likely to burst.

Jim RapozaIn recent months more and more technology analysts and pundits have started to sound the alarm that we are on the cusp of another technology bubble bursting, in this case it being the Web 2.0 bubble burst, with the most recent alarm coming from PC Magazine's John Dvorak.

And if you expect me to disagree with all of these pundits, guess again. Of course another bubble burst is coming. There's no more prognosticating in that statement then there is in the prediction that I will have a cup of coffee within an hour or so of completing this column.

However, I do disagree with John Dvorak in his belief that this bubble burst will be worse than the .com bust. If we start seeing lots of 2.0 companies with no business model investing millions in Super Bowl ads, then maybe I'll come around.

However, all of this talk about bubbles did get me thinking about the classic cycles of busts. Because when you analyze past technology bubbles, you'll always see the same progression from pure technology to pure marketing. By paying attention to this progression, you might even be able to tell when a bubble is getting too big for its own good and is likely to burst.

So how does one begin to build a technology bubble? Let's picture a graph with technology on one side and marketing on the other. At the beginning of a bubble, it's all technology.

This is the point of entry of the inventers. These are the people who have the idea of a new groundbreaking technology, such as eCommerce, social networking, PC software, whatever. At this end of the spectrum the participants are brilliant technologically but have no marketing skills whatsoever. The only people who are paying attention to their breakthroughs are those with similar technological inclinations.

The next phase is where the innovative entrepreneurs come in. These players understand the technology but also have enough marketing skills and salesmanship to build products that people actually want and are able to start real buzz around a new technology.

This leads to the equilibrium point for technology and marketing. This is also the stage in a technology bubble where the biggest, best and most enduring solutions are created, whether it's Microsoft, Amazon, Google or eBay.

For a technology these are the salad days. Everyone is excited, interesting new products and companies are launched and real innovations continue.

Unfortunately this is also the stage where the people who are all marketing and no technology decide that it's time to get in on the action.

You know who these "entrepreneurs" are. These are the snake oil salesman. The guys who talk a good game and can convince everyone from venture capitalists to the press to the general public that they are the biggest, coolest, most important new thing out there.

So what if their product doesn't do anything or has no way to actually make money or is a bad version of another product that's already out there. These players are so good at marketing themselves and their products that they are able to generate irrational exuberance.

But these guys are really just a bunch of hot air. And you know what happens to bubbles when they get too full of hot air. Pop.

And so the bubble bursts, taking down the shameful hucksters who caused the burst (though also typically taking down a few legitimate companies that deserved better).

But the bubble isn't always a bad thing. For the technologies involved it can be a cleansing experience. With all the hype and hot air removed, the technology can settle down to doing its intended job. After all, despite the damage of the .com bust, eCommerce is doing just fine.

So keep an eye on your bubble cycles and know when to avoid the hot air. And remember, somewhere out there right now is a technology-savvy and marketing weak inventor who is starting the first puffs for a whole new technology bubble.