[this post also appears in Mark Raskino's GBN Blog]

I was asked recently by Economist correspondent Ludwig Siegele, whether Chris Anderson’s ‘Long Tail’ is following the Hype Cycle. This might sound like a contrived conjunction of two abstractions but actually, it is a very good question.  The Long Tail is a new management science idea, some might say ‘management tool’. If it is a powerful insight it will be turned into business strategy method and applied to make money. It is therefore a management science innovation which, business managers can either choose to believe and adopt, or not. We think such things do follow the Hype Cycle.

For the Hype Cycle to be in play, two conditions must be met. First there must be social excitement wave surrounding a new innovation that companies are considering adopting. Second, the innovation cannot simply work first time and every time ‘out of the box’ it must require evolution through application across markets to reach its potential efficacy. Both of these do appear to be in place for the Long Tail.

Chris Anderson’s original insight and subsequent book created a surge of interest in this new way of looking at sales and inventory business model dimensions in the Internet era. His suggestion was that the value of the vast virtual-store inventory tail of e-commerce would outweigh the head – those high volume products a store based retailer has shelf space to keep in stock. Many managers have been trying out the idea and researchers have been testing it. For example in 2005 a US retail CIO told me he thought the long tail effect was impacting his business. ‘Customers come in our stores expecting that we can stock every item in every size, because that’s what they are used to on the website – but there is no store format, no matter how large, that we could build to meet their expectation’. However in 2008 other researchers claimed that Anderson’s theory was disproved by e-commerce sales data and Chris has partly accepted their analysis. So the idea may be in the Trough of Disillusionment but it is not dead.

It’s bubble has been pricked, it is deflated but not done. The concept is now being refined by the market – as a big thought hits the reality of use. For example, in the original idea the long tail of inventory was more valuable than the short head. However data appears to suggest that is not the case for some of the online businesses that should clearly demonstrate it – particularly those in music and video retailing.  That does not remove all value from idea – it simply conditions it.

Perhaps the tail will never outweigh the head – that doesn’t matter if many more managers extract more business value by focusing some of their attention on that tail, as a result of bearing Anderson’s eloquent mnemonic insight in mind.  Perhaps there are secondary effects too – e.g. people attracted to the tail are cross-sold items from the popular head list, so both grow in proportion.

Why does it matter?  Because you need to understand how ideas move through the Trough of Disillusionment even better than you understand how to deal with Peak of Inflated Expectations. Good new management idea viruses, apparently killed off by a few well aimed attacks, usually don’t die. They simply lay dormant for a while and morph. If your competitor is learning to adapt to them, you may suffer a nasty cold later on.

Chris Anderson has a new book out – its called Free: The Future of a Radical Price. This one is already creating some controversy and it has been attacked by Malcom Gladwell (of Tipping Point and Blink fame).  If you are a middle ranking leader in a large company, trying to decide which of these management ideas to apply and when to get serious about using them- it does make sense to scrutinize their progress with you cast your ‘hype cycle eye’. Don’t jump in just because it’s ‘in’, but equally – don’t stay out just because it’s ‘out’. ]]> http://blogs.gartner.com/hypecyclebook/2009/07/13/yes-the-%e2%80%98long-tail%e2%80%99-is-probably-passing-through-the-hype-cycle/feed/ 0 http://blogs.gartner.com/hypecyclebook/2009/06/11/the-ft-suggests-the-hype-cycle-might-apply-hedge-funds/ http://blogs.gartner.com/hypecyclebook/2009/06/11/the-ft-suggests-the-hype-cycle-might-apply-hedge-funds/#comments Thu, 11 Jun 2009 17:55:15 +0000 Mark Raskino http://blogs.gartner.com/hypecyclebook/?p=653 In a Financial Times online article dated June 2nd, Mr. David Smith – the Chief Investment Director of GAM (part of the Swiss wealth management company Julius Baer) discusses the hedge fund bubble burst of 2008. As part of his analysis he says:

The research group Gartner tried to prove the potentially positive outcomes of bubbles in its theory of the “hype cycle”, in which mass adoption of any product begins with a “technology trigger” that generates significant interest. This leads to a “peak of inflated expectations”. When reality fails to live up to these hopes, the industry enters a “trough of disillusionment” in which many businesses leave. Those that remain continue through to a “slope of enlightenment” in which a more practical understanding of the technology’s potential is reached. The final stage is the “plateau of productivity”.

One key factor missing from Gartner’s analysis is capital. The surge to the “peak of inflated expectations” can only occur if capital is cheap and freely available. And this is a key point to remember when analysing the hedge fund bubble of 2008.

The Gartner Hype Cycle was created to analyse technology innovations progress through their markets from an adopters point of view. While we are always very happy to see its use extended to other fields, it is not a general economic theory about bubbles and we would not wish to give that impression. We are not economists.

Mr. Smith makes a good point about the availability of capital. While the hype cycle will be in play for even the simplest and cheapest of innovations, its magnitude can certainly be amplified considerably by freely available capital. The dot com bubble is the most obvious example. The Silicon Valley funding of web 2.0 is another.

Hedge funds are not a new invention; they have been around since the early 1950s. Forbes Invstopedia suggests there was a hedge fund boom peak in 1968, followed by a crash in 73-4, then another boom in the 90’s which saw a major fallout in the early 2000s. So we have just passed through a third wave.  It therefore seems likely hedge funds form a repeated cyclical, or boom-bust investment market, like property, that rises and falls repeatedly.  Over the medium term (perhaps 5 to 10 years) this can sometimes be mistaken for a hype cycle. We have noted the difference before in this Blog.   In the Hype Cycle two underlying curves create the shape: the social excitement bell curve plus the innovation performance maturity S curve. It is not obvious that hedge funds in their current form are a new invention, maturing in their technical performance, in this decade.

So on balance, it seems unlikely that the Hype Cycle model can be applied to the current situation of the hedge fund industry. However it is possible that the hype cycle applies to some financial instruments – where they are genuinely novel innovations. For example, as we have raised in this blog previously, it is possible that the Hype Cycle applies to the instrument at the epicenter of this recession – the CDO.

I am certainly no expert in financial investment vehicles. So if anyone cares to expand on this debate, I would be very happy to hear from them.

Try telling that to a bunch of squirming 11-year olds. I don’t remember much about the book, but the places that the hero Christian visited along the way obviously etched themselves deep into my psyche.  The “Slough of Despond” was clearly the inspiration for the “Trough of Disillusionment” on the Hype Cycle, so I though it might be worth looking back to see if some of the other locations on Christian’s journey offer us any insight into the side roads and less-traveled paths of the technology pilgrimage.

My favorites::

Doubting Castle – those top executives who never exhibit the enthusiasm you’d hoped for. The only way out according to Bunyan is the key “Promise” – commit to what you can deliver, but keep it realistic.

The Valley of Humiliation – to avoid that “oh @$%&, my project’s a disaster” sensatation, make sure you evaluate the real benefit to your organization rather than being driven by external hype, and re-evaluate periodically as you learn more (see next entry).

Wicket Gate – pilgrims can only enter the straight and narrow path to the Celestial City through this gate. Innovators should use their own “stage gate” process to build in decision points about which innovations to continue with and which to put on hold until they mature further.

What else should we watch out for in the technology adoption landscape?

Actor 2.0 (and higher res close up here )

Kick ass robot

Beyond wearable

Minority report prequel

Immersive reality

If you have others that made you say ‘wow’ out loud recently – please let us know.

In a non-tech corporation, the biggest problem in your business-IT function isn’t controlling the hype of an over zealous IT industry anymore. Maybe it was a decade ago, but not today. Many of the incumbents are happy to keep taking repeat maintenance revenues for the stuff you already have without offering game changing innovations or seriously helping you to internally-market new ideas. They are battoning down their revenue stream hatches, waiting for the recession storm to pass.

So if you hope to ‘leverage the downturn’* by introducing major new technology enabled business process changes, business model changes or competencies … where will the energy come from?  Mature, large company management cultures are usually dominated by silo complexity and political inertia. Add the fear of recession job losses and they can go into a glacial torpor – the hope being that ‘if we change nothing we might survive’. Nobody dares take a risk that would mark their card personally, notching them up the the HR department’s severance-list spreadsheet .

Right now, I think some industry hype is a valuable thing. It’s maintaining a sense of momentum under very difficult circumstances. It creates a sense of compulsion – to investigate at least, to experiment hopefully and to implement perhaps.  So think twice before hitting out at cloud hype, green hype and social media hype. These are high energy sources that might overcome inertia and help your industry move on to a new level of performance over the next few years. Like all energy sources they are precious and deplete all too rapidly.

If you think hype offends, try moving your project idea through the business case approval process, to action, during the trough of disillusionment.  Or wait 5 to 10 years until the plateau of productivity is very firmly established…. assuming your position and your company survive that long.

Innovators question everything – including the received wisdom that hype is a problem. Exploit this powerful market/social force to your advantage, rather than sitting on the sidelines hoping the recession will just go away.

Hype will help power the creativity in ‘creative destruction’. One person’s hype is another person’s evangelism anyway. Hype forms in our collective social excitement about the new and the novel. It is both necessary and inevitable – so use it.

* I so dislike this expression but it’s short and functional

Here (with their kind permission) is a key chart from the paper:

Benecol Hype Cycle - Uusitalo, O and Grønhaug, K. (2006)

This is another example of using a stock price as a proxy indicator for ‘expectations’ – the variable on the Y axis of the Hype Cycle.  This works because for the period tracked, the fortunes of the company originating the innovation (Raisio) were so closely linked to a single innovation.

It’s a nice piece of work that demonstrates well, how the Hype Cycle can be measured – at least aproximately – and how it can be applied to a technology innovation outside the domain of IT.

In addition to the expected benefits in terms of encouraging new technologies and approaches, he commented that he had also found an unanticipated upside in terms of increasing the level of trust that the business had for IT. He had created a joint sandpit environment with one particular area of the business, to examine relevant new technologies. After working together for a while, the business manager in question requested that a whole set of IT infrastructure that his unit ‘owned’ (because they wanted the flexibility to make their own decisions about acquisition and management) be rolled back into IT.

By demonstrating that IT could be imaginative and flexible at the leading edge of innovation, the entire IT department gained credibility in the eyes of the business.

I love this quote from architect Simone Giostra, referring to his Chinese customers and their attitude when commissioning a stunning LED video wall display that covers one entire elevation of a building in the Beijing Olympic village:

“A developer in New York (usually) asks me ‘has this been done before?’ But the client in China asked me “are you sure this has never been done before?’” So he wanted to be absolutely sure that this was the first time this had ever been done in the world before. So that explains the different mentality and why you are seeing so much truly Utopian architecture in China”

I recommend viewing the video so you can hear his remarks and see this very impressive new technology

Even those organizations famous for their idea origination, bring some things in from the outside. In his ‘publishing 2.0 blog’,

Scott Carp explains how Google adwords was adopted from outside then adapted

“The new version of AdWords adopted Overture’s pay-per-click auction model, where advertisers bid on how much they will pay per click. If Google had copied Overture entirely, the history of the web might be very different… but they didn’t. Instead, Google introduced a breathtaking innovation.”

Here we seem to have adoption and adaptation going on, not just invention.  Note how massively successful Google became by adopting what Overture had already invented and then adding to it. We think this is an important distinction.  The majority of commercial innovators will improve if they acknowledge more fully to themselves that they are not acting as originators. Instead they are adapting something into a context. It might only need a 5% twist to turn something into a big winner for your organisation. Finding that twist is the important effort (and frequently happens during the trough of disillusionment). Too often, commercial innovators waste effort ‘re-inventing’ becuase they carry the mindset of inventor not  adoptive-innovator.