In a world with a broad class of investors that are all well aware of Clayton Christensen and Carlota Perez's models, do they still matter?
Who are Web3’s two most important people? Satoshi and Vitalik? Maybe they’re Clayton Christensen and Carlota Perez.
Both Clayton Christensen’s Disruptive Innovation and Carlota Perez’s Technological Revolutions models came to prominence during the rise of Web2. The former teaches us, as investors, that incumbents are blind to innovations that serve some small segment of a growing market. The latter teaches us, as investors, that financial exuberance will eventually latch onto the toys enjoyed by that small, growing market, pull the future forward, and make it real faster than its inherent economics support.
These models are remarkably explanatory, in hindsight, for maybe two centuries of technological innovation, and hence highly lucrative for those who adopted those frameworks between 2003 and 2017, when they became broadly popular. That’s obviously within range of the rise of Web3; in other words, we already knew the playbook well when Web3 came along. And as a result, those models became more causal than explanatory for the success of Web3.
In Christensen’s parlance, the PC reduced friction for a small, early market of people who spent time in word processing and spreadsheet calculations. By comparison, what real-world problems did early crypto solve for a small, early market? My primary suggestion (a few more further below) might seem cynical but it’s real: People love numbers that go up and down. They love the stock market, they love sports, they love App Stores charts, and they used to love the box office before it became irrelevant. As a numbers-go-up-and-down product that’s open 24/7 and built by hackers, crypto trading was fun for an early market of people that like to try new stuff. Classic Christensen.
In citing the numbers-that-go-up-and-down-game, I’m hardly dismissing the ideology that Satoshi unleashed on the world—extra-governmental, extra-corporate currencies—nor the thousands of open-source developers who saw a much better, post Web2, post central bank future, but I don’t think it’s controversial to say that the vast majority of people who have played the numbers-going-up-and-down game the last 10 years weren’t previously experiencing all that much friction with TradFi, which has only grown more user friendly (having a fun, modern rewarding job in finance is a different story — Iterative Capital’s thesis on this topic is by far the best). We can at least agree that the friction that crypto removes from TradFi is a much more distant proposition than PC’s were for people using typewriters.
Christensen’s model is more causal than explanatory for Web3 because it instilled so much confidence in early adopters. Web3 was, at the time Christensen’s model became widely known, a cheap toy, and we already knew what can happen with products that appear to be cheap toys. (Contrast this with, say, early VR, which was an expensive toy. Unit bias and fractionalization mattered and matter bigly for crypto.)
The causal nature of Carlota Perez’s model is even more literal and more stark. Perez’s framework was dropped early and often during the crypto run-up and crash of 2017.
2/ I was rereading Carlota Perez’s excellent book on Technological Revolutions the other day (published in 2002, well before the bitcoin white paper), and she points out a highly relevant fact:— AriannaSimpson.eth (@AriannaSimpson) December 24, 2017
This was not only an argument to hodl, but a call to avoid being cynical about all the capital that had been burned after the ICO run up. More specifically, it was an argument that we should view the overfunding as a natural and positive development for crypto, as it helped to fund constructions of the rails that would (in fact) later support the deployment phase, a la broadband in the late 90’s. In other words, Perez’s model was in progress and would reward anyone who saw it through (narrator: “It did”).
(Update: Via @maxkufner, it seems Perez herself doesn't believe crypto to be a technological revolution and is well aware that many people do).
FWIW, as far as I understand, Perez doesn't consider crypto to be a new technological revolution at all, but a extension of the current ICT paradigm:— Max Kufner (@maxkufner) January 23, 2022
"I definitely don't think it's a revolution, even though many who have read my book believe so."
We arrive at an interesting question: Do Christensen and Perez’s models matter anymore in a world where everyone is an investor and everyone is aware of disruptive innovation and cycles of financial capital? Are those models like financial strategies that, like almost every financial strategy, gets arbed away with broader awareness?
Some supporting evidence: Facebook has eaten Christensen’s model for breakfast. Zuck saw how Bill Gates’ Microsoft got disrupted and bought all the things that would disrupt him. He’s refashioned the company to eat the future. They also went early in crypto via ~libra~ diem, though the jury’s still out on that one. Facebook, Microsoft and others are experiencing second and third waves of growth precisely because they’ve been willing to disrupt themselves in ways that many of their predecessors didn’t.
Further supporting evidence. Even if you think we’re following Perez’s cycle of technological revolutions and financial capital, we’re way off from her timeline. Something has changed. Maybe it’s just the speed? Maybe.
a lot of people who cite Carlota Perez seem to think this part is 2-3 years pic.twitter.com/ftelJNdgF1— Jonathan Libov (@libovness) December 29, 2018
What’s more, crypto must be the first disruptive innovation-type product that succeeded primarily because of the belief of future financial returns more so than any of the near-term human needs it satisfied. I cited one human need it did solve—24/7 access to numbers that go up and down—and there are obviously others, though you kind of have to squint to avoid seeing them as pursuits of future returns:
That’s all cynical but optimistic. Cynical because citing the promise of future returns and features like numbers going up and down diminishes the very real ideological change that Satoshi introduced. Cynical because Web3 relies so heavily on marketing to sustain product innovation:
It’s interesting that some social phenomenon like Facebook, basically just grew organically with little marketing— Joe Weisenthal (@TheStalwart) July 16, 2021
Whereas others like crypto has been supported by an extraordinary amount of paid advertising.
And that last human need—people love being a part of big wave—is difficult to extricate from the belief of future financial returns; the venture arena is prone to identifying new waves because they entail an entirely new class of large outcomes (I’ve made this mistake), rather than a needle-in-a-haystack like odds within an existing, waning wave.
What’s different between Web3 and other false-start waves in tech is that everyone is an investor now. Not just because crypto is naturally fully liquid, but also because it rose toward the end of a booming decade in tech, leaving us with a much larger class of individual investors, all of whom can readily cite Christensen and Perez. That’s cynical inasmuch as it’s divorced from all the world-changing ideology that Satoshi and Vitalik unleashed on the world.
And yet, none of that is inherently bad! Almost everyone agrees that financial returns and web3 just being cooler and in-group-ier than Web2 is pulling a far better and more equitable future closer to the present. But I think it also means that Christensen and Perez’s models don’t matter as much as they once did. They can’t; we know too much.