Time to call the Bubble?

To an economist, a pessimist is someone who has successfully called the last 2 recessions nine times.

10 March is the 11th Anniversary of the dotcom bubble bursting.

At Christmas I gave myself the task of calling the Web 2.0 bubble. So with trepidation, I think the bubble will burst this year.

From the figures we can ascertain the market valuations of the companies involved are more out of line now than they were when the bubble burst in 2000. Despite the rhetoric we have too much money chasing too little innovation. That argument is worth many a thesis. For a cogent argument that there is far less innovation around than is claimed, I would recommend the Big Potatoes, written by a smart bunch of thinkers and practitioners.

That was my first criterion for the bubble being unsustainable.

The second criterion was that talk of IPOs or private sales would be at unsustainable multiples of revenue. That for me is evidence that the owners are selling out to realise value, seeing no more upside. We have recently seen many examples of that. The new economy gurus have been writing again that this time it’s different; yawn...

My final criterion was of a more qualitative nature. I was waiting for a social media guru to say something so outrageously stupid that I would have to suppress a laugh. Furthermore they would get knowing nods from those who should know better. Well it’s happened..

Try this for size:

‘The problem that companies have is that they just don’t get Web 2.0. You don’t plan, you just do it. The benefits are there, get on with realising them. The tools are cheap, planning is expensive and a waste of time’

In January, McKinsey produced an excellent report on social media, which indeed provides good evidence that there are business benefits, both internally and in the market place, from using social media.

The real meat of the McKinsey research is that the benefits of the technologies are aligned to what they describe as features of the ‘networked enterprise’. Highly networked organisations get higher benefits.

When I saw this research I asked a former colleague who specialises in organisational development and change management for some views.

This is completely unscientific, but the figures are interesting. I asked two questions.

  1. How many UK companies fit the ‘networked enterprise’ description?
  2. What would it cost to get them there?

His views were no more than 10-15% of companies were a good fit for the network enterprise. For a £100K IT project he gave me a ball park of £3m to £30m as the organisational costs.

So, surprise, surprise, social media in the enterprise space is a business project not an IT project. The return is not on £100K but on multiple millions of investment.

Some organisations are much better placed to reap the benefits than others. Indeed some will get significant benefits for little outlay.

What this research pointed me towards was the need for an ‘organisational maturity’ model to help companies understand their fitness for the connected world.

One group I’ve come across who are in the early stages of developing a model that might help is SciO. SciO is an interesting group of systems practitioners. The early stage of their model is available for usage and feedback. Have a look. It’s got a good grounding in theory that will in time produce a robust model of practice, in my opinion.

So, am I a pessimist?

Looking back on the bursting of the dotcom bubble, there are some interesting lessons for the future.

The number of users and devices on the internet is actually higher than forecast back in 2000. It was the consensus that IPv4 addresses would be OK till 2017-18. We will run out this year. The value of e-commerce today is in line with forecasts from 2000. The value that investors ascribed to those numbers was what was wrong, not the underlying developments.

Don’t get me wrong, I don’t think social media will go away. When the bubble bursts, the real work begins. Web 2.0 will be transformative. It will be disruptive. It might even be fun.

What that needs is more innovation. The guys behind the ‘big potatoes’, for me, are on the right track.

Live long and prosper.

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About the author
Chris is a technology and policy futurologist. Chris has been in the IT industry since 1980. His roles have spanned Honeywell, ICL, HP, Microsoft and Capgemini. He is a Fellow of the BCS and a Fellow of the RSA.

See all posts by Chris Yapp

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