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The Coming App-ocalypse – are we seeing Dot-Com 2.0?

Bubble 2.0?

I recently received a note from a colleague from ZeroHedge (http://www.zerohedge.com/news/2014-11-21/not-so-fab-1-billion-valuation-...) that was officially calling the beginning of the bubble bursting based on the untimely (or timely depending on your perspective) demise of the startup Fab. I had never heard of Fab, but according to ZeroHedge, Fab “started out as a dating site for the gay community and then relaunched as a flash sale site for home decor – raised $150 million just over a year ago (at a $1 billion valuation), but as TechCrunch reports today, multiple sources have confirmed that Fab is in talks to sell to PCH International for $15 million in a half cash and half stock deal. Pets.com?”

And Therefore…

Its a fair question indeed – are we seeing the same pattern we saw in the last bubble (i.e. Dot-Com 1.0) being repeated? Certainly, crazy valuations of equally crazy or non-existent business models are a cause for concern, but more important than that are the fundamentals of what is driving the speculation in the first place. In Dot-Com 1.0 we saw simultaneous speculative investment across at least 3 major areas: internet backbone infrastructure, internet edge/access infrastructure and services, and consumer-facing internet-based applications (i.e the dot.com’s). The former two infrastructure aspects were meant to support the headline story throughout the bubble investment period. This storyline was that the number of internet users were doubling every year / 18 months (due to all the dot.com investment), exhibiting a Moore’s Law like behavior, with the follow-on conclusion “and therefore we need [huge internet backbone carriers | new optical infrastructure components | new multi-service edge infrastructure components | new competitive exchange carriers | a dot.com version of name your large brick-and-mortar business].

Similarly in Dot-Com 2.0 – we see an “App” centric user-modality, combined with growth in mobile users (and now “Internet of Things” end points) and increasing requirements for content sharing (social) and context sensitive information augmentation (local). We also see the similar pattern of “and therefore we need…” except this time the infrastructure focus is PaaS/SaaS (public and private) and the associated infrastructure components to drive higher efficiencies in compute, storage, and networking, and obviously the App version of every human activity. It all seems so eerily similar… But is it?

Its about Distribution

While I am not so bold as to say there is no way valuations and 2nd and 3rd order investments have gotten ahead of our ability to consume these new technologies, or that we don’t have equally (or more) stupid business concepts in Dot-Com 2.0 than we had in 1.0, I do think that there are some important differences this time.

Things are different because of distribution – i.e. the distribution of users, data, and localities where answers need to be produced quickly. Dot-Com 1.0 was very focused on taking every day, known business models and replacing them with their web equivalent and basic information sharing via text/graphics (HTTP and eMail). However, many of the activities were largely the same, just replaced with their online equivalent and there was never any data to say that the fundamental infrastructure would be unable to support the growth of users alone. Did we need to eventually? Absolutely. Was the Internet going to crash and burn and not support the new potential being created by the web-centric world – not really.

Rational Exuberance

This time we have a more complete cycle of change in consumer and business behavior by the potential of new application architectures. Businesses are not just either responding to threats by their online doppelgänger or just supplementing their existing business with a new marketing/sales channel, but they are now creating new business models/products and vastly better productivity models that rely on the simultaneous connectedness and distribution of users, data, and applications. This is fundamentally different for the underlying compute, storage, and network architectures. Will the existing architectures break overnight and cease to support the potential growth in these new application-driven ecosystems? Probably not. Are we ahead of ourselves in the investment of these new architectures like we were in Dot-Com 1.0? I think not. If we were to compare the number of startups and investment dollars chasing scale-out application infrastructure for compute, storage, and networking we would see a vast difference between now and the previous generation of optical networking gear, multi service edge gear, etc, that was supporting the infrastructure boom the last time around. What we see this time is largely the incumbents trying to transition into the new world, leveraging their existing assets as much as possible, with a much smaller number of startups betting that incrementalism will at some point cease to be sufficient.

So while we certainly have our fair share of irrational investments and everyone will shake their heads at the obscene valuations and acquisition prices of some players in the market, there is certainly way way more rationality playing in the underlying infrastructure segments that will support the growth of this new application-led world. That is a healthy approach to disruption, and probably the best defense to ward off the App-ocalypse.

[Today’s fun fact: “Way” is the most frequently used noun in the English language. And in some demographics – probably the most frequently used adjective as well.]
[Photo Credit: http://mporat.tumblr.com/post/17547826135/a-second-internet-bubble]

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More Stories By Michael Bushong

The best marketing efforts leverage deep technology understanding with a highly-approachable means of communicating. Plexxi's Vice President of Marketing Michael Bushong has acquired these skills having spent 12 years at Juniper Networks where he led product management, product strategy and product marketing organizations for Juniper's flagship operating system, Junos. Michael spent the last several years at Juniper leading their SDN efforts across both service provider and enterprise markets. Prior to Juniper, Michael spent time at database supplier Sybase, and ASIC design tool companies Synopsis and Magma Design Automation. Michael's undergraduate work at the University of California Berkeley in advanced fluid mechanics and heat transfer lend new meaning to the marketing phrase "This isn't rocket science."

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