If Big Tech Were Spinning Its Wheels, Would We Know?Not necessarily, says an economics prof who worries about the slowing pace of innovation but not of hype
What’s that, you say? Isn’t innovation just humming along? Not if we look closely at what the numbers represent:
The percentage of start-up companies in the United States that are profitable at the time of their initial public stock offering has dropped to levels not seen since the 1990s dotcom stock market bubble. Uber, Lyft, and WeWork have incurred higher annual and cumulative losses than any other start-ups in history. All the major ride-sharing companies, including those in China, Singapore, and India, are losing money, with total losses exceeding $7 billion in 2018 alone. Most start-ups involved in bicycle and scooter sharing, office sharing, food delivery, peer-to peer lending, health care insurance and analysis, and other consumer services are also losing vast amounts of money, not only in the United States but in China and India. These huge losses are occurring even though start-ups are remaining private companies twice as long as they did during the dotcom bubble. The size of these losses endangers the American venture capital system itself.Jeffrey Funk, “What’s Behind Technological Hype?” at Issues in Science and Technology
Funk, a technology consultant recently retired from the University of Singapore and a specialist in the economics of new technologies, fingers hype, promoted as much by university research departments as by news media, as a barrier to honest communication about the trend:
Here I discuss economic data showing that many highly touted new technologies are seriously over-hyped, a phenomenon driven by online news and the professional incentives of those involved in promoting innovation and entrepreneurship. This hype comes at a cost—not only in the form of record losses by start-ups, but in their inability to pursue alternative designs and find more productive and profitable opportunities, and in the inability of America’s decision-makers to acknowledge that innovation has slowed.Jeffrey Funk, “What’s Behind Technological Hype?” at Issues in Science and Technology
When Mind Matters News started our first yearend review of Top Ten AI Hypes 2018, we’d seen the mad claims as merely amusing, easily punctured by a knowledgeable computer science prof. But in Funk’s view, hype does more damage than that. Instead of funding modest but viable proposals, investors waste capital on “irrational exuberance.” Media, losing all contact with skepticism, cover the froth and not the broth. Apocalyptic prophecies like Ray Kurzweil’s Singularity (2005) and Martin Ford’s Rise of the Robots: Technology and the Threat of a Jobless Future (2015) are taken for blueprints for the future. Natural market patterns—not quite laws of nature, to be sure, but pretty reliable over the long run—are taken to be suspended. And, when bubbles collapse, many are unclear what happened and end up looking for someone to blame.
The slowing Funk refers to is in fundamental innovations like transistors and lasers. The apparent progress often turns out to be in patent applications for a bewildering array of comparatively insignificant mobile phone apps. Terms like “total disruption” are frequently used to describe innovations that don’t change much and are themselves soon replaced. For that matter, much of the disruption is not creative. Sometimes, it is just a high level of noise and confusion. When innovations like Watson, which won at Jeopardy, flop in something substantial like medicine, we tend to move on to the Next Big Thing without considering what we could learn. All these behaviors blow a bubble for the next collapse.
In such an atmosphere, the core reason that an innovation is successful can be misunderstood as well. Uber, which Funk mentions above, illustrates that point:
Uber claimed that its business model was based on cutting-edge technological innovations, which would overwhelm incumbents in any market anywhere. In reality, Uber’s “technology” is less sophisticated than what airlines and other industries have been using for decades. Although Uber may have been an early adopter of smart-phone-app-based cab hailing, this service has been easily replicated by other companies, including traditional cab operators, and Uber has no significant advantage here. More importantly, there is no evidence that any of it creates meaningful efficiency gains, or that similar technologies led to major competitive upheavals in any other industry.Hubert Horan, “Uber’s Path of Destruction” at American Affairs
So the economic basis of Uber’s ride-hailing business is not key tech innovations unique to Uber but spare capacity. Many urban dwellers own cars that are only in private use a few minutes a day. Enabling the owners to make money by offering public use is definitely an innovation. But the technology itself is the same as the traditional taxi company uses. So Uber succeeded handsomely in presenting itself as a “heroic innovator” (Horan) while actually doing something fairly conventional (if sometimes locally controversial). One could say the same of Airbnb, which applies search, booking, and rating technologies to spare capacity in private homes. The innovative part would be getting millions of private homeowners to house paying guests for less than hotel rates. But that is not, in principle, a high tech idea. It was a common practice in ancient Greece. Recent claims about innovation sometimes amount to little more than adding deluxe travel tour features.
Because tech hype makes it hard for us to see the underlying patterns and drivers of patterns in the economy, we need to step back now and then and ask questions like is this really new? Will it last? And will it make any difference? Oh, and watch for our Top Ten AI Hypes of 2019.
Here’s the citation for the paper: Funk, Jeffrey. “What’s Behind Technological Hype?” Issues in Science and Technology 36, no. 1 (Fall 2019): 36–42.)
Enjoy the fun at Top Ten AI hypes of 2018