Speculative Bubbles: Good for Innovation?

In a 2009 presentation, IT pioneer Bob Metcalfe argues that

Speculative bubbles accelerate technological innovation.

So he argues that we should “try not to outlaw bubbles,” but adds the warning that one should

Just be sure to have a chair when the music stops.

(See Metcalfe’s presentation “Enernet: Internet Lessons for Solving Energy.”

I would be hard-pressed to argue that the real-estate bubble was a good thing, except that it revealed the extreme perversity of the financial services industry. But I have long felt that the so-called “Internet Bubble” of the 1990s was a great thing in many ways, except possibly for investors swept along in the exuberance. The money and effort that were funneled into developing Internet startups helped to fuel an important surge of technology innovation and an intensive training period for new technologists and innovators, and we are still benefiting from that surge today.

In the notes from his presentation, Metcalfe adds some notes that are right on-point:

We saw from the many Internet Era bubbles that investment, speculation, inflation, competition, and collapse are tools of innovators against the status quo. Bubbles accelerate technological innovation. DC’s reflex (the reflex of the status quo) with each bursting of a bubble is to outlaw bubbles. This is counterproductive.

In the Internet Era, we had many bubbles, including generations of bubbles in memory, storage, LANs, wireless, PCs, spreadsheets, Internet browsers, databases, operating systems, VOIP, telecom equipment, optical technologies, programming languages, e-commerce, …

They all kept the Internet coming, against the vicious rearguard resistance of the status quo.

They go hand in hand with Christensen Disruption. The status quo declares innovations insufficient, non-standard, unsafe, and just plain HYPE!

During the mid-90s, some marketing professionals I respected then and still respect now dismissed Internet communication and marketing in just those kinds of terms. Nowadays, hardly anyone would deny the importance of the Internet as a component of a sound marketing program.

So I think I would have to agree that not all bubbles are all bad all of the time.

AB — 23 May 2011