Understanding and Predicting Tech Supercycles
Oct 26, 2022 . 7 min read . 60 views
Understanding Tech Supercycles
Brad Gerstner recently spoke about tech supercycles on the 20VC podcast.
In classic economics, supercycles are extended periods of time where commodity prices are well above or below the long-term trend.
In the context of tech, supercycles are periods when a piece of tech drives mass adoption of new consumer behaviour.
Brad used the concept of supercycles to identify big trends early on which later led him to invest in some of the biggest companies such as Facebook, Bytedance, Snowflake, etc.
Supercycles From The Past 25 Years
In the podcast, Brad speaks about the 3 major supercycles in the past 25 years that led him to all the venture success that he has till now.
Supercycle 1: The Internet
Even in the early days of the internet, it was very clear that millions of people will eventually be using the internet.
To understand where the value lies we need to understand the core innovation behind the internet first.
So, the internet is a backend tech innovation. It let computers talk to each other.
Building upon the core innovation we can now understand that as the number of computers increased the amount of information available on the internet increased.
Here, Brad hypothesised that the winners of this cycle will be the companies that organise this information in an effective way.
A few winners from the internet supercycle:
- web search companies such as Google, Yahoo
- product search companies such as Amazon, Airbnb
- people search companies such as LinkedIn, Facebook
Supercycle 2: Mobiles
The mobile was predominantly a User experience innovation. The mobiles made interactions both with other humans and web services much easier.
As per Brad, the key value driver behind the mobile tech was the idea that this device was going to be the principal and replacement mechanism for entertainment, communication, interactions, etc.
A few winners of the Mobile supercycle:
- Tiktok
- Youtube
- Tinder
- Spotify
Supercycle 3: Cloud
The last supercycle that Brad mentioned in the podcast episode was the move to the cloud.
Cloud is a backend innovation.
As per Brad, they saw early on that all the world’s storage and computing was going to move into the cloud it would be more performant and lower cost than every company doing it for themselves.
A few winners of the Cloud supercycle:
- AWS
- Snowflake
- Notion
- Airtable
- Figma
Predicting The Next Big Supercycles
In the rest of this post, I will try to identify and break down some of the big supercycles that we might see in the next 25 years.
Supercycle 1: Artificial intelligence and Machine learning
To understand the core innovation behind Artificial intelligence let’s look at machines first.
Machines were a technology that helped us automate routine and predictable tasks.
The industrial revolution led to two kinds of benefits
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Machines helped companies save money Overall machines are cheaper at performing routine tasks than human labour.
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Machines helped companies make more money Machines provided scale that otherwise is much more difficult with human labour. Imagine if a company before was making 10 cars in a year now suddenly started making 100 in a year.
Coming back to Artificial Intelligence and Machine learning. The core innovation here is that machines are now able to find by themselves the best way to perform a given task.
Some of the early pioneers of the AI movement are companies such as OpenAI and Stability AI.
However, I think the real value here is in Automated Intelligence. Automated Intelligence takes the automation capabilities of Machines and combines them with the Intelligence capabilities of Artificial Intelligence.
This means that now given a task machines can find a way to create the desired output and can also repeatedly perform the task to optimise for the best results.
Some Applications of Automated Inttelligence
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AI-Generated content a.k.a Smart Tiktok/Youtube/Spotify The biggest cost drivers for a content platform are its content creators. What if the content was automatically created and served by the AI?
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AI-driven marketing and sales Imagine the AI system comes up with copies and graphics for your new app’s marketing campaign. The AI creates the marketing materials, serves the ads, collects the feedback, analyses the feedback, optimises the marketing reach out and repeats. This process can now be done at a scale which was not possible before. Similarly, for the digital sales cycle, the AI can write a bunch of intro emails, scrap the internet to find potential clients, email the potential clients, analyse the responses, optimise the initial reach-out copy, and repeat the entire process.
The key here is to find High Value and High-Frequency workflows which could benefit from Automated Intelligence.
Supercycle 2: The Metaverse
So in order to understand the metaverse let’s look at the core tech behind it and what it can enable.
Metaverse is primarily a User Experience Innovation that enables people to exist in more than one plane at once. It does this by creating a parallel digital reality.
Metaverse in many ways is similar to mobile innovation. Just like mobile, it also requires several other technologies such as the decentralised internet, blockchain, DeFi, AR/VR tech and AI to mature before the metaverse can truly be realised in its full sense.
The true metaverse is decentralised and interconnected kind of like the Oasis in Ready player one. Users can carry items and currencies from one world to another.
However, this vision might still easily be 15-20 years away if not more.
Now that we have a bit of understanding of the tech behind metaverse we can begin analysing where the opportunities might be.
Not everything that exists in the real world needs to be re-created in the metaverse. I think the real opportunity for the metaverse is to recreate experiences that are magical in real life and not just that amazing in their current digital form (web2).
An example of this is remote work. People crave social interactions while having more flexibility on where they work. The current remote work experience overall is a bit jarring as it is limited to work and misses the fun part of working. Metaverse potentially could help here to create a world where it feels like how it would feel otherwise in a physical office.
Similar to mobile, Metaverse would begin by redefining social(work, communities, gaming, friends and family) and then slowly makes its way into immersive commerce.
Today e-commerce lacks the sense of real-world perception. Imagine actually seeing and selecting the vegetables that you are buying versus selecting a stock image and expecting the company to make the right choice on your behalf. If done right, shopping on the metaverse could feel magical. Besides, the metaverse will give rise to a whole lot of new digital avenues to spend money such as immersive theatres, museums, etc.
The key here would be to find and recreate experiences which feel magical in the real world and are only somewhat satisfactory in the current digital world.
Coming up next..
- Supercycle 3: Electric Mobility
- Supercycle 4: Cryptocurrencies
- Supercycle 5: Remote work
- Supercycle 6: web3/Blockchain tech