Big tech and its limits

This is the section of his post that caught my eye, comparing the history of regulation of cars with that of technology:

Obviously, the reason for writing about this [in mid 2020] is because a Congressional Committee has got a lot of airplay by calling the ‘big four’ to testify. Mark Zuckerberg of Facebook, Jeff Bezos of Amazon, Sundar Pichai of Google, and Tim Cook of Apple all appeared. Maybe Microsoft’s Satya Nadella didn’t get the memo.

There have been five such technology ‘surges’ (her word). The first, based on cotton, canals and water power, started in 1771; the second (rail and steam) in 1829; the third (steel and electricity) in 1875; the fourth (cars and oil) in 1908; and the fifth (information and telecommunications) in 1971.

Each surge follows a similar pattern. A first phase-the “installation” period-sees financial or investment capital investing in infrastructure; there’s a crash, when market expectations run ahead of take-up; and production capital then picks up the pieces as the technologies become embedded in everyday life and everyday commerce.

A surge starts with a distinctive technological innovation that then shapes what follows. For the first surge, of cotton and canals, it was Crompton’s Spinning Jenny. For the cars and oil surge, it was Henry Ford’s assembly line. For the ICT surge, it was the microprocessor, in 1971, and the associated invention of the internet protocols at around the same time.

As seen above, the whole cycle follows an S-curve. The crash is normally around half way through the cycle in terms of time, but earlier than that in terms of diffusion.

The dot.com crash, for example, is 30 years after the start of the information and telecommunications surge. At the time, the take-up of domestic internet use was of the order of 20–25%, even in leading markets.

And similarly for the autos surge. In 1929, despite Henry Ford’s best efforts, the car was still mostly the preserve of the rich and the upper middle-classes.

So, when Ben Evans airs a chart headed “Tech was very small until recently”, he’s actually telling us that Perez’ model is right. It’s an S-curve that has accelerated through the middle stage (and is probably about to slow down as it hits the ‘maturity’ phase).

Let’s just play that again, taking the start date back to Perez’ 1971 and the invention of the microprocessor, and mapping on the four quarters of the S-curve-and the crash.

But then again: even then, it wasn’t that small. Evans makes this claim a couple of times, but Microsoft’s market cap after its IPO in 1986 was more than $500 million. During the 1990s its software was on 90% of all PCs shipped-which even in a smaller market was still substantial. There was a reason why the US Department of Justice took Microsoft to court over anti-trust allegations.

In my own work with the Perez model, I have noticed that regulation tends to catch up in the final quarter of the S-curve. Penetration levels are high, and markets are saturated. There’s still noise about an exciting future, but innovation is running out of steam.

So why does an experienced and deeply well-informed tech commentator and investor such as Benedict Evans miss all of this? Part of it is the endless story that tech is different, that things are speeding up, etc, which has been part of the self-serving sales and investment hustle that has inflated the size of IPOs.

But part of it is that he’s over-focussed on the companies themselves, and not on the overall pattern of development. The majority of the big tech companies became visible only during the Production period. Amazon was founded in 1994; Google, 1998; Facebook, 2004.

Ford, despite having invented the mass production car industry, struggled in the Production phase until Robert McNamara was drafted in to run the business after World War II.

Obviously Benedict Evans is right when he says, in his post, that regulation is complex. That doesn’t mean that it isn’t necessary.

Her article quotes the US Representative Jerrold Nadler. He makes the kind of connection that Perez makes between different technology surges.

One of the things that happens in every technology surge is that the technology embeds itself in our culture and metaphors. This makes it harder to see what’s happening as it runs out of energy. Taking a 250-year view, digital tech looks a lot like other technologies.

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