Computing Applications Viewpoint

Life Beyond the Bubbles

The technology, Internet, bandwidth, and content bubbles all burst, scattering not only broken dreams but new seeds of innovation and enterprise.
  1. Introduction
  2. Parallel Bubbles
  3. The Legacy
  4. Author
  5. Sidebar: What Should We Do Now?

There was a time, several years ago, when programming was an art and hackers wore T-shirts and sneakers. Computers were a magnet attracting passionate and heterogeneous scientists and thinkers. They overcame their personal differences, creating their own language and subculture. Some were brilliant, some were charlatans, but most were original and creative. You don’t change fields and take chances in new areas if you lack smarts, guts, and a sense of adventure. It was an open society with open discussions, albeit with rudimentary communication tools. The result was a great collection of ideas, concepts, designs, prototypes, and software. Despite some wasted effort much value was produced.

In the meantime and quite independently, investors flocked to the world’s stock markets, pushing technology companies’ market valuations to new heights. The result was a valuation boom and enormous paper wealth for millions of investors. Their appetite for technology increased and their knowledge improved thanks to the emergence of a new genre of technical journalism.

The more aggressive of them combed through the technology that had been created by the innovators, and lo and behold a miracle occurred—not of technology but of financial engineering. The technology for the most part was ready to be packaged and sold. The investors began picking out dormant ideas, concepts, and technologies, packaging and marketing them to corporations and individual consumers alike. A new business market emerged, with venture capitalists, angel investors, lawyers, market experts, publicity gurus, financial wizards, stock analysts, and investment bankers.

We technologists thought we were the stars. But we really played only minor roles. As in the movie business, the producers, directors, scriptwriters, and distributors pulled the strings. They took the financial risks, called the shots, made the development decisions, and ultimately reaped the rewards.

Companies evolved like film projects. Technologists launched them, pushed them, sold their stock, then moved on to new ones. Themes were developed and promoted as if they were enormous soap bubbles; there was certainly substance but also much hot air (see the sidebar "What Should We Do Now?").

Back to Top

Parallel Bubbles

The Internet and the Web were available to everyone; for their users, mainly scientists, they were also free. Anything useful and free propagates like fire. Clever people managed to capture and translate this dynamic environment into a business model. Their philosophy was: "If there are enough users we will eventually make them customers."

Many companies staked their existence on this model. Some grew impressively. However, though they knew their markets, they could not generate sufficient revenue. Their financial performance depended almost exclusively on investor attitudes about the future. It also depended on established companies’ fear of losing this new game, thus forcing their participation.

This situation couldn’t and didn’t last, as investors began to demand real profits, exposing a basic and very serious flaw. People who get something for free for a time later refuse to pay for it (unless they’re addicted). But few of these technology services were potent enough to hold onto their users. Eventually, the Internet bubble burst, causing enormous damage to the technology market and destroying much personal, as well as investor and corporate, wealth.

Are technologists to blame for creating disruptive technologies? Of course not. Any new technology is potentially disruptive. The difference between disruptive and evolutionary depends on financing. If financing is gradual, much more time is needed to establish a market for a new technology—a delay providing adequate reaction time for existing players. The whole thing—establishing a market presence, winning customer loyalty, and generating revenue and profits—is evolutionary, not revolutionary. Investor speculation and exploitation, not technology, are disruptive.

Meanwhile, another bubble (related to the Internet) was being inflated. Demand for Internet bandwidth was being extrapolated based on four ultimately misleading myths:

  • Abundance of killer applications. If there is a Web, surely many killer applications are waiting to be exploited;
  • Multimedia. If text and pictures are such a success, imagine what could be done with audio and video;
  • Wireless services. If multimedia services are so great, imagine what would happen if they were delivered wirelessly; and
  • Global reach. These innovations should be for everybody everywhere, not just for the developed countries and privileged elites.

The result was a bandwidth bubble based on a projected need for unlimited global bandwidth. All telecommunication companies invested heavily in bandwidth, installing local, regional, and global wire and wireless capacity ahead of the projected utilization. The telecommunication operators worldwide used debt or equity to finance these networks. The telecom technology providers projected unlimited growth. Then the global telecom market turned sour for one simple reason: users refused to pay and play as customers. The banks lost faith, the investors became extremely cautious, and the bandwidth bubble burst.

With so much bandwidth planned or available and waiting to be filled, another conclusion also seemed plausible: All types of knowledge and entertainment had to be provided in the form of video content. Whether as educational instruction, business TV, old films, new films, every conceivable thing that might someday be used as content suddenly seemed valuable and a potential business asset. Somewhere, somehow it would be needed and used as content. The market’s motto was "content is king." Storytelling became synonymous with content production, and a content bubble was in the making.

The companies therefore sought to vertically integrate production and online content distribution. Very large companies were formed to exploit this appealing concept, uniting many sectors and combining artistic creativity and technological know-how. Investors enthusiastically supported the effort until it became apparent to one and all that it could not sustain itself.

The reasons had little to do with technology. Indeed, only digital technology could possibly enable the necessary integration in principle and (after considerable effort) also in practice. The new content-based market’s inherent flaws were again reflected in consumer reactions. First, the time people have to look at screens is limited, and the more they look at them in an office, the less willing they are to look at them at home. After all, some time should be left for real reality; no one should live only in a virtual world. Second, active participation and interaction in the video world requires much more effort then passively watching TV, and few people want to undertake the effort. Third, consumers were used to having free TV for entertainment, free radio for music, free schools for education, and more. Though they suddenly had to pay, they refused to change their tastes and habits—even if the new technology represented a far better way to deliver educational and entertainment media. The issue is whether all that technology and its mass-market potential truly represents a market or even a need.

Back to Top

The Legacy

The party is definitely over. That is, investors are no longer willing to finance new potential bubbles. Soap (technology) creates bubbles, as well as hot air (money). No air, no bubbles. We should ponder the consequences. What legacy (negative and positive) did the bubbles leave us, as well as future generations?

Great skepticism prevails today among investors, as well as among consumers, politicians, and technologists. Before the bubbles burst, anything related to IT inspired a de facto positive reception and perception. In the future it is likely to bring a negative reaction, so expect to live the next several years with this handicap.

The press has already changed direction, sending negative signals. Gone are the glory days of the "new economy" with its high flyers. Today, we have scandals, layoffs, mergers, consolidations, de-mergers, and closures. Gone is talk of the "information society" with computer literacy for all, new learning methods, knowledge supremacy, and lifelong learning.

Today, the world is preoccupied with raw materials, climate change, joblessness, health care and insurance, even war, and other down-to-Earth concerns. We imagined we were immune from economic cycles. However, although our situation changed abruptly, we can expect to be back.

Ironically, the bubbles have also left us with some positive results. They helped produce a population of capable, experienced Internet and computer users who are a wonderful base for launching future services. We have in place a great communication infrastructure that, together with deregulation, will keep communication costs down for years to come. We penetrated all sectors with digital technology, and the scope of possible applications has expanded. Finally, we now have a great pool of human talent capable of producing and exploiting digital technology. This situation was financed, albeit inefficiently, by the speculating investors. Today, we are positioned to reposition and expand when the time is right.

Back to Top

Back to Top

Join the Discussion (0)

Become a Member or Sign In to Post a Comment

The Latest from CACM

Shape the Future of Computing

ACM encourages its members to take a direct hand in shaping the future of the association. There are more ways than ever to get involved.

Get Involved

Communications of the ACM (CACM) is now a fully Open Access publication.

By opening CACM to the world, we hope to increase engagement among the broader computer science community and encourage non-members to discover the rich resources ACM has to offer.

Learn More