The Best Innovations are Still Ahead

Ben Bajarin / March 25th, 2013

I enjoy technology industry history. After the dot come bubble burst, I had a conversation with the then-CEO of National Semiconductor, Brian Halla. He’s also a tech history connoisseur and he explained to me what is called the Boom Bust Build-out Theory. The theory, in short, details how every major industry during the industrial revolution until now went through an initial boom, followed by a bust, followed by a market build-out.

The “boom” period is a period of euphoria where entrepreneurs, investors and early adopters rally around the new product or industry; followed by a relatively short “bust” where tough economic realities are faced; followed by an extraordinary “build-out.”

During the boom, an industry first gains traction and investment money floods the market. The result is that the supply outpaces the demand of the current market state. This is because the early interest is driven by early adopters, which is not a large market. The over-flooding of capital, combined with an immature market, leads to the bust. The bust, however, causes a drop in price of essential market components, which leads to innovation.

In an example with the railroad industry, the “bust” led to such cost declines in essential components that it made it possible for enterprising entrepreneurs to create the frozen car, thus spurring the meat packing industry. The two-year railroad bust, however, was followed by a global build-out that lasted a century. That build-out occurred all around the world and forever changed transportation and commerce.

A similar cycle of boom and bust in the automobile industry led to the creation of the V8 engine, power steering, electric indicators and safety glass.

Looking over the history of the personal computing industry, we can spot many similarities with mega industries of the past. The technology industry was not immune to the boom, bust, build-out cycle and if the signs are true, we are right at the beginning of the build-out stage.

Much of the innovation we are seeing today around smart phones, tablets and new PC form factors is the beginning of this build-out. Just look around at the innovative PCs, desktops, smart phones and tablets, all coming to market with things that seemed impossible just a few short years ago, and all at mass market prices.

The devices we use are going to get smarter, thinner, faster and more. The internet in five years will look and feel nothing like it does today. The build-out that we are at the very beginning of will drive new businesses, new markets, new technologies, and new opportunities.

One of the more interesting elements to what I am point out here is the hardware renaissance happening in the tech industry. Hardware startups are popping up everywhere these days making things from wearable health monitors, automotive intelligence, smart home solutions, computerized toys, and more. The industry bust led to such a drop in critical components that it made feasible for entrepreneurs to very easily and inexpensively start creating hardware solutions to solve every day problems.

Where we are today is both an opportunity and a threat for non-nimble industry incumbents. New innovative startups can come out of no where and disrupt legacy business or established companies can enter new markets effectively.

When a companies growth slows, or begins to slow due to market saturation of a specific category the two key ways to drive new growth is to enter new markets, or create new markets. The cycle that we are in allows innovative companies opportunities like we have never seen before technologically.

Take the iPad for example. For Apple this was a new market creation strategy. They packaged a product together in ways that have never or could never have been done before at mass market prices and completely created a new category in which to compete.

When I look at the cycle the technology industry is in today, it gives me great confidence that our best and most innovative years are ahead of us. Who will dominate these years ahead will be the continual storyline. But without doubt some of our most exciting innovations are still to come.

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • Rich

    “The internet in five years will look and feel nothing like it does today.”

    Ben, five years is not a lot of time for something to change so radically. Could you suggest what it will look like?

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