As MIT's Technology Review completes its transformation from a sleepy alumni magazine to "The Authority on the Future of Technology" it devotes the entire June/July Issue to the topic to "The Next Bubble? - The Future of Web 2.0." The cover photo (at right) shows Leah Culver, co-founder of Pounce, blowing up a bubble. You need to turn to page 35 to see the result.
Editor-in-chief and Publisher Jason Pontin recalls his experience as editor of Red Herring which in the first six months 0f 2000 had 500,000 readers and $100 million in revenues and was out of business the following year He sees a similar enthusiasm today for companies with unproven business models, but more than the potential loss of capital he fears for the future disappointment of the entrepreneurs who put their hearts, souls, and considerable time into the ventures which will not survive the inevitable correction. Still, he recognizes that speculative manias are an inescapable feature of entrepreneurial capitalism and in fact were responsible for the investments in many businesses, such as transportation and the Internet, that influence us today.
This issue of the magazine takes a close look at social networking which Pontin notes is a "nice return to the Web's foundations." In fact the last page writes about how Robert Fano (right, with Marvin Minsky), who was my graduate adviser at MIT, organized Project MAC on the theory that "general-purpose,
independent, on-line use of computers by a large number of people" appeared feasible as far back as 1963. That probably explains why he was so tolerant of my doing my thesis work with the group that became the Media Laboratory even though they espoused the idea, thought irresponsible at the time, that ordinary people could have personal computers and that an entire bit of memory could be devoted to lighting up a single pixel on a screen.
Freelancer Bryant Urstadt delves into the details in an article Social Networking Is Not a Business* (*But It Might Be Soon) in which he describes the large user bases and equally large amount of venture capital that have been attracted to KickApps, Ning, and Bebo, not to mention Facebook, MySpace, and LinkedIn. He also points out how revenues and, especially earnings have lagged behind those numbers. More tellingly, CPMs vary wildly, from $70.00 at sites that have desirable demographics, such as Technology Review, to $0.13 at Facebook where no one has figured out how to get the social networkers to click through and buy anything. Jason Calacanis is quoted as saying social networking sites are "a really bad place to advertise." The reason is that while 2% of Google users click on a given ad, in Facebook the number is less than 0.04%, a disparity explained by the difficulty of targeting users who come to the site to socialize rather than do research on purchases. As the article explains, attempts to get around the problem by gleaning users intentions from their transactions and demographics embroil the sites in privacy problems, as happened with Facebook's ill-starred Beacon program - "an advertiser's dream - and like many things that are good for advertisers, very annoying to ordinary folks." The are also issues of "content adjacency" - advertiser's concern at having their ad placed next to user-generated content of uncertain taste. The consensus of the pundits quoted (Andrew Braccia, Chamath Palihapitiya, Paul Kedrosky, Roger McNamee, Marc Canter, Ron Conway) is that the advertisers will eventually get over their squeamishness and follow the users to where they are spending their time, and that revenue can be generated from a long list of transactions such as commerce.
Other articles cover many of the other hot topics in this space, such as: who owns user's personal information, Facebook's IT infrastructure, Network Neutrality, and even a photo tour of Twitter's world headquarters.
While I agree with the authors in this issue that the high tech industry does have cycles of irrational exuberance followed by painful crashes, I prefer to take the longer view and see those cycles as the tide moving in and out of the beach. When it comes in it brings lots of interesting stuff ashore, and even though the tide goes out, most of the stuff stays behind. If the investment of money and human capital was completely rational, we probably wouldn't have railroads or the Internet. Each expansion brings in waves of new people, but the ones who stay understand the cyclical nature of things and learn to enjoy the bubbles as they expand and remain philosophical when they contract.
In summary, this issue of Technology Review offers a good summary of the issues facing the tech world these days.
