The Third Wave

Steve Case saw the first two waves of the internet.  Now he is predicting a third.  But, it’s not going to happen overnight.  Here is his third wave.  I am quoting from the Washington Post article and I suggest you read the whole thing.

The third wave of the Internet is about to break. The opportunity is now shifting to integrating it into everyday life, in increasingly seamless and ubiquitous ways. These third-wave companies will take on some of the economy’s largest sectors: health care, education, transportation, energy, financial services, food and government services. These third-wave sectors — all now ripe for disruption — represent more than half of the U.S. economy.

The third wave will be different from the second — and will pay homage to some aspects of the first. Although there will be continuing opportunities for new apps and more lean start-ups, the challenges will be new in this next wave, and will require a different kind of entrepreneur.

The third wave will be more disruptive to our daily lives than the first two.  Just imagine what driverless cars could do to an urban environment.  Imagine all the current jobs that will go away.  Now, try to imagine what kinds of jobs will be created in that kind of environment.

There is fear that software, and the coming iterations of hardware, will eat the world and no one will be able to eek out a living in it.

I also think that Case is correct that the third wave will be engineered inside and outside of Silicon Valley.  For that to happen though, things have to change big time.  The reason that Silicon Valley is so dynamic is the network it has established.  It has been built up over several generations.  The evidence that it’s a powerful network is the cost per square foot of real estate in Palo Alto and San Francisco.  Silicon Valley is about the people that live there.

For years, if you wanted to engineer something cool, you went to the Valley.  Case is correct, that is changing.   I have watched Chicago’s entrepreneurial ecosystem build.  It’s really something now.  It’s possible to fail here, and that point can’t be understated.  There are support networks of entrepreneurs for entrepreneurs.  There is some access to capital. The ecosystem is still in it’s infancy.

One of the things that entrepreneurs are telling me is interesting.  It’s cheaper here, so that helps with burn rates.  Capital can be more efficient.  They say in Chicago, there isn’t much danger for things like employee poaching.  In Chicago, they build businesses.

In the Valley, the CEO can walk in one day and have everyone quit to go for the next hot thing.  People have seen so many unicorns that they look to ride the next rocket ship.

Great businesses are not built overnight.  The holding period for VC backed companies has lengthened from 5-7 years to 7-10 years, trending closer to 10.  Public markets have not been hospitable to tech startups, and the economic incentives in effect keep companies private longer.

As the internet starts to work its way into the fabric of every thing we do, Case is correct.  Great businesses are going to be built outside the Valley close to where corporate networks are already established.  Because that’s where the people are.