Beyond the Technology Hype

By Bambi Francisco
April 5, 2005 11:54 AM

If there is one industry that's full of hype, it is that of the Internet. Considered a disruptive agent, the World Wide Web is fraught with perilous assumptions about what can be, and what can be sustained.

 

The biggest lesson I can take away from my experience covering the Internet since Netscape went public back in 1995 is that our imaginations can take us on a wild ride beyond reality all too quickly. While right-brain-dominant thinking may be suitable if you're an academic or technologist working at Google Labs, it can be shortsighted if you're an investor or financial journalist. 

 

I have to constantly remind myself that there is typically a glut of innovative products and services that often overwhelm or flood the market well before real, sustainable and habit-forming demand exists. By the time the market comes around, the pioneers are sometimes forgotten.

 

Remember PointCast's "push technology?" No, yes, maybe? There you go. Even though the idea behind push technology -- searching the Web for personalized content that would be pushed to the user -- was conceptually on the mark, it was well before its time. The company, and many others, spent more time and money educating a market.

 

In one of the more indelible examples in my mind of how inflated demand early on can undermine reality was the rise and collapse of online advertising during its infancy. Companies, mostly venture capital-funded startups, spent exorbitant amounts of money on banner ads back in 1999 and 2000 when less than 5 percent of people were on broadband.

 

As many of us on the Web know, the experience was a crawl compared to today's relatively quick delivery of information. It was painful just getting online, much less looking at ads there. Because the money kept flowing in, online advertising was considered effective. Yet that question of effectiveness and return on your dollar was never asked. To my chagrin, I never asked it.

 

How do you as a financial journalist not get caught up in the hype?

 

Remember that demand doesn't materialize overnight. There is a finite amount of demand at any given time. Think about going to a restaurant where a lavish spread of hors d'oeuvres and desserts are laid out. You're ravenous, like everyone else. You eat an enormous amount, and before you know it, you're satiated for the next couple of days. In that vein, in finance, we shortsightedly forget that the initial burst of demand is never sustainable. 

 

For one, realize that most everything reverts to the mean. That means adoption growth should grow at a fairly steady rate over time. The faster it accelerates in the short term, the faster the product hits a saturation point.

 

Figure out where that demand is coming from and whether it's sustainable. In the last six months, I noticed a stepped-up display of new product unveilings. This was particularly the case with Internet search and portal services. Desktop search was launched. First Google, then Yahoo, then Ask Jeeves, then Time Warner's AOL, then Microsoft's MSN. Then TV search was launched. Both Yahoo and Google unveiled their services in the same week. Then digital-media organizers were launched. Enhancements to local search, such as Amazon's A-9 product, were launched.

 

Every week seemed to be yet another announcement of some new service. I wasn't even finished testing out a product/service when something supposedly more intuitive, functional, cheaper and faster came along. When you begin to notice this pattern, a signal should go off that tells you that there are too many products out there.

 

This is what I kept contemplating: There can't possibly be a need for a service or product until people are even aware of that need. And, until people are conditioned to want a need, or they're addicted, there can't be sustainable demand that drives future sales. Therefore, all the signs pointed to a very hyped situation that suggested to me that companies were more interested in trumping their competitors than serving the consumer.

 

My conclusion was that companies were trying seriously to get investors excited about new revenue drivers that will sustain their rapid growth. I was so fed up with the releases that I wrote a piece titled: "Hey, what about the consumer?"  It was at the start of February when Internet stocks began to really take it on the chin. The timing was perfect.

 

But what happens if you can't write a commentary to air your grievances? How do you write about such hyped services as a financial journalist?

 

I would make sure to bring out the point that these products are in early stages, with very little traction. And in this information age, products become obsolete well before they reach broad penetration. Countless tweaks and consumer education need to be in place. After you've become a skeptic, then remember that hype, like a lie, is rooted in the truth to some extent.

 

As Paul Saffo, a technologist at the Institute for the Future, said: "In a two-year period, less happens than we would have thought, and in a 10-year period, more happens than we could have imagined."

Additional Francisco article for Marketwatch on Net Stocks.

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