Technology Waves and How to Ride Them

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A few days ago in our team meeting I asked if anyone had ideas for what this week’s Divinations should be about. Someone suggested I write about how to create a viral product launch, since Lex’s launch went so well. My first reaction was that it was a good idea for a column, but readers might not love hearing that step one is “wait for a generational technology breakthrough.” Or, perhaps a bit more actionably, “build something using GPT-3.”

The truth is, Lex’s virality is entirely dependent on the underlying technology wave it is riding. I’ve launched many apps in my career using very similar tactics as I did to launch Lex—none of them went this well. Sure, there’s value in learning marketing techniques, but if you apply them to products that don’t generate “holy shit” moments, you won’t get the same result. Furthermore, it’s rare to achieve that kind of visceral reaction to a product without tapping into a new, rapidly-improving technology.

“That’s the post!” my co-founder Dan said. “You should write about technology waves.”

I’ve seen a lot of technology waves in my time: cloud, social, mobile, wearables, crypto, and now AI. Every time, the same story plays out: there is a long gestation period, followed by a breakthrough story that kicks off a hype cycle. Lots of silly decisions get made, and most of the hoped-for value never materializes. But then the dust settles, the tourists leave, and a smaller group of people keep building; before you know it the technology gets woven into our lives in a boring-yet-useful way.

Astute readers may recognize this story as the Gartner Hype Cycle:

There is no simple “correct” answer for where you want to be in this cycle. In theory it’s best to be the first mover that creates the original technology trigger that kicks off the whole cycle, but often those companies don’t capture the value in the long run. For example, the profits from the PC era mostly flowed to Microsoft and Intel, but those profits depended on ideas that originated elsewhere, like GUIs (invented by Xerox) and spreadsheets (Visicalc).

Sometimes things seem like technology waves but actually turn out to be mirages. It once seemed like scooters were going to be an amazing business, turns out that’s false. At one point people thought chatbots would be the future of all software, that didn’t pan out. Voice interfaces like Alexa are stagnant. And does anyone remember checkin apps like Foursquare?

The most valuable wave to ride is not necessarily the most hyped one. When you’re looking for a wave to ride, the best have three things in common:

1. They’re big, in the sense that they have the potential to dramatically change how people do things.
2. They’re early, and the potential for change has not yet been captured.
3. They have underlying technology that is improving rapidly and is set to continue improving for a long time.

Of course, finding these waves and riding them is easier said than done. This post is about how to do it.

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There’s a common misconception that you have to dedicate your entire life to a specific wave in order to successfully ride it. It often feels annoying to see people flocking to “the current thing” to get rich quick—so much so that some people are attracted to the opposite extreme, where an entrepreneur dedicates their whole career to a singular pursuit, ignoring all external signals.

I think a more balance approach is the right one. It’s good to have some enduring obsessions that you keep coming back to, because without consistent effort over many years it is unlikely that you will become expert enough to be able to successfully ride a wave when it’s happening. But I also think it’s good to keep your head up and pay attention to the world around you, and gravitate towards areas where significant change is happening.

It reminds me of the old Warren Buffett quote: “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” The same thing applies to technology: when a talented entrepreneur focuses on areas of experimentation where nothing much is happening, usually nothing much ends up happening. And when something exciting does end up happening, it’s usually because they were able to leverage something exciting and new to transform a sleepy space.

So stick to your obsessions, but keep your eye open for waves that can be useful to you.

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Why are waves so important? Because entrepreneurship fundamentally depends on change. If nothing ever changes, then the existing patterns of economic activity remain functional, and there is no incentive to switch. The whole reason why startups exist is because something in the world changed, and the previous patterns of activity became sub-optimal.

This matters for all kinds of new businesses, not just technology startups. When a neighborhood grows, new restaurants spring up. When new regulations like GDPR come into effect, new legal specialties emerge.

This is why the “why now” slide of a startup pitch deck is so important. If there’s no clear change you are responding to, then it calls the entire story into question.

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But sometimes huge latent changes are waiting to be discovered a surprisingly long time after the “why now” moment has passed.

• YouTube took off because they allowed anyone to upload videos to the web and send the link to anyone else, who could view the video as long as they had Flash installed. But Flash Video was released 3 years before YouTube was built.
• We’re currently living through a surge of excitement around GPT-3 and “generative AI,” but GPT-3 was released nearly two and a half years ago, in June 2020.
• The original iPhone was released in June 2007, and 3rd party developers could build apps starting in 2008, but iconic mobile-enabled businesses like Uber and Instagram weren’t launched until 2010.
• What about Airbnb? Besides the web, what technology shift made that possible? You could argue it in some ways was dependent upon Facebook, because it helped people feel more trust in who they were staying with, but I think that’s a bit of a stretch.
• And what about Facebook itself? Again, besides “the web,” it’s hard to see exactly what technology shift enabled it to exist.

The world moves surprisingly slow when it comes to some things. Discovering the best uses of new technology paradigms is one of them. It may seem obvious what kinds of businesses would be built on platforms like the iPhone or Flash Video, but these ideas are only obvious in retrospect.

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Or maybe not. Maybe the ideas actually were obvious, but they took so long to emerge for some other reason.

As evidence for this view, before Uber, there were plenty of startups that tried to build iPhone apps to hail taxis. Before Facebook, there was MySpace and Friendster. Before Instagram there was Hipstamatic and a plethora of photo-sharing apps—including Facebook! And before YouTube, there was Vimeo, DailyMotion, and many other video sharing sites.

So what does this mean? My interpretation is that the general idea is often obvious, but the nuances are often not, and execution is exponentially more important than most people realize.

Facebook’s important nuance was starting with trusted connections through closed networks like elite universities. Instagram’s important nuance was combining beautiful filters with a follower-based network. YouTube’s important nuance was focusing on fun/personal videos, rather than amateur filmmakers. Uber’s important nuance was to hail a private car, rather than a taxi.

But these are just the most obvious and famous execution details. Underneath there is a whole world of complexity. Every startup involves an astounding labyrinth of decision-making, and some teams are much more efficient at navigating the maze than others.

If I had to sum up the most important ideas here in a few points, it would be:

• Cultivate your enduring obsessions over decades, not years
• But keep an eye on big, important shifts in technology and society
• Don’t worry if you think you’re a few years late
• And remember that, above all, execution is most important