The Entrepreneurial Engineer

Thursday, November 09, 2006

Boom vs. Boom

The MySpace and YouTube sales together with the rumors of a FaceBook sale got me thinking about the dot.com bust and the current round of big acquisitions. Is there a difference? Or is this yet another tulip craze? I actually think it is real, and I think there are a number of factors to take into account:

Technoecomomic forces. The technoeconomic forces of the first boom and the current one, if it is one, are the same. The internet (a) reduces transaction costs (see Ronald Coase), and (b) increases network returns (see Brian Arthur), but the difference is that the first boom was anticipatory: the infrastructure was not there to realize the benefits fully.

Infrastructure now in place. In the current boom(let), the infrastructure of search and advertising are now in place. Google is a central actor, and in some ways the Google IPO was central milestone in proving that the internet can generate real businesses with real returns. The first boom was about eyeballs (on web sites), but the current boom is about taking eyeballs and turning them into profits.

From widgets to self-expression. The first boom was about infrastructure and web widgets of various flavors. The current boom(let) is about lifestyle, self-expression, and identity; it is more human centered, less technology centered. The remaking of Apple as a music company in ITunes is a landmark in this shift, and the Friendster to MySpace and Facebook evolution is all about going from mere communication to community and projection of persona. This shift causes three other shifts: bigger bangs, younger actors, more communal enterprises

Bigger bangs. With infrastructure in place and the playing field shifted to self-_expression and lifestyle, the successes are faster and bigger. This gives us Big Bang capitalism with a vengeance. There is a positive reinforcement loop at work here. More entrepreneurs have always bred more entrepreneurs, but if this occurs bigger and faster, the new entrepreneurs become angels and VCs more quickly, and the cycle accelerates.

Younger actors and customers. The shift to lifestyle, changes the demographics of the boom(let) as well. Cultural change takes place among those who are not already set in their ways, the young. High schoolers and undergraduates now use AIM + Facebook/MySpace + Mobile phones in place of email. For them email is dead. This occurred quickly. Brin and Page (Google) were grad students. Karim (YouTube) got his BS from Illinois in 2004 and Zuckerberg started Facebook at Harvard in 2004 as undergrad. Future changes will occur at the HS and undergrad demographic. Current undergrads have noticed (at Illinois for sure), and they want to be like their successful peers.

Creative communal activities. David Brooks coined the term "BoBos" to refer to Bourgeoise-bohemians, those who accepted capitalist processes together with a creative ethic, and Richard Florida has chronicled the rise of the creative class. The new boom(let) reflects these changes well, I think. The new businesses are a pastiche of creative, marketing, financial, and technical effort. Stock and stock options create a kind of creative commune in which everyone benefits if the enterprise is successful. This is a change from capitalism of times gone by, and perhaps Marx's historical materialism was right in the sense that paternal and hierarchical capitalism of the 20th century would be overthrown by something more communal. It wasn't communism that arose, however. It was a more integrated and creative kind of business organization in which success was more evenly shared than in earlier industrial forms of organization.

Where does this lead?
It seems to me that these features will become hypertrophied as time goes on. Young becomes younger. Creative becomes more creative. Communal becomes even more communal. Lifestyle/identity becomes more like Hollywood and fashion than technology driven. My own work in Nextumi is at the edge of these trends, and my research in genetic algorithms has been redirected at helping enterprises and groups become more innovative and creative through the use of collaborative technology and machine learning together in a new synthesis (http://www-discus.ge.uiuc.edu/).

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