I’ve long been a fan of Carlota Perez and her work on innovation and and financial capital. I think it brings an important historical context that helps us understand what is happening today and to better predict what might happen over the next few years. Over the weekend Chris Dixon wrote the following in a post about her work and his view on where the opportunities for innovation will most likely come going forward:
Technological revolutions happen in two main phases: the installation phase and the deployment phase. Here’s a chart (from this excellent book by Carlota Perez via Fred Wilson) showing the four previous technological revolutions and the first part of the current one:
Each revolution begins with a financial bubble that propels the (irrationally) rapid “installation” of the new technology. Then there’s a crash, followed by a recovery and then a long period of productive growth as the new technology is “deployed” throughout other industries as well as society more broadly. Eventually the revolution runs its course and a new technological revolution begins.
I think it might actually be more useful to think of the PC and the internet as separate revolutions with the PC related bubble crashing in the late 1980s and the PC deployment period thereafter overlapping with the installation period for the internet. It doesn’t make that much difference though because whether their has been one ICT revolution or two we are thirteen years into a turning point/crash that has been going on since 2000 and hopefully we will soon enter a deployment period of steady growth as internet technologies and network based business models drive productivity improvements and economic growth. My reading of the tea leaves is that there is a good chance that the financial instability that has dogged us since 2008 is in its final phases.
Innovation in the installation period is in the core technologies (e.g. routers, search engines) and in the deployment period it shifts to applications that are higher up the stack and to utilising the new technology across all industries. Note that realising the maximum benefits usually means changing the structure of an industry rather than simply making its existing structure more efficient. Netflix’s recent release of high budget drama House of Cards is a case in point – their decision to make all thirteen episodes available from the first day could herald the end of linear TV. New ecommerce models where web retailers focus on providing great search and discovery and drop ship goods direct from manufacturers without taking stock is another good example, as is the whole collaborative commerce industry and the transformation of education by free to use online services.
I think the opportunities come in both directly disrupting what I will call traditional industries and in providing the picks and shovels for the disruptors.