"The hype machine is broken"

May 18, 2005

Justin Hibbard points to a striking article by Howard Anderson in the new issue of Technology Review. Anderson, an MIT lecturer and big-time East Coast venture capitalist, says he's quitting the VC game. Why? "First, technology supply is bloated," he writes. "Innovation is not dead, but demand for new technologies is moribund and will continue to be weak for at least the next five years ... The problem is that the buyers of new technology cannot possibly utilize all this stuff. There is a very real limit to what can usefully be deployed."

And the old marketing tricks just don't work anymore. "The hype machine is broken," writes Anderson. "For years, technologists told the world that 'information is strategic' ... Executives spent like crazy people. No longer." The changes, moreover, "are structural, not cyclical," he says. "Venture capitalists view themselves as pragmatists, but if they think the dynamics of the business haven't changed, they're as self-deluding as the next person."

The article, "Good-Bye to Venture Capital," was clearly difficult for Anderson to write, but his honesty is admirable. (Though I tend to agree with this VC's contention that the shift to utility computing is giving tech entrepreneurs new opportunities for profitable innovation.) And if, as Hibbard suggests, I deserve some of the blame for breaking the hype machine, I happily accept it.

Posted by nick at May 18, 2005 10:46 AM