The Technology/Application Dynamic Feedback Loop

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I’ve been viewing from afar the reactions to Mark Cuban’s post about the Internet Being Dead and Boring after reading Fred Wilson’s opinion to the contrary. I didn’t really have much to say about this, and I sort of agreed with Fred and hated saying so because I’m jealous that he got to see Wilco play at the Warsaw and I didn’t. Then I read this, in Advancing Knowledge and the Knowledge Economy, and thought it might be worth pointing out:

The complementarities between the invention of new [information and communication technologies] and the coinvention of applications inject a dynamic feedback loop in which advances to ICTs lead to unpredictable inventions in applications, which in turn raise the return to improvement in ICTs.

Dominique Foray, the author of the chapter quoted–“Optimizing the Use of Knowledge”–goes on to point out the externalities generated by this feedback loop: falling investment costs due to user learning, and improvements in the technology by suppliers investing further in a winning product. Foray then says:

The coinvention of the related applications takes time! This is why the first episode of the “new economy” was characterized by productivity growth limited to the producer sector (the computer industry) prior to its impact on the many user sectors.

This is obviously more true today than it was when he wrote it a couple of years ago. It’s also an interesting place to stand when looking at Wilson and Cuban’s disagreement. Cuban talks about the internet as if it were the technologies, and these are not growing nearly as quickly in functionality as they had been. Wilson looks at the internet as the applications, and the experimentation and growth happening in applications is phenomenal.

Maybe they are both correct. But Wilson’s point of view is more interesting because the growth in applications signals future growth in productivity in all parts of the economy, not just the computer/telecom industry. This, in its dynamic feedback turn, means that technology suppliers will eventually re-up their investment in the technology infrastructure, causing the continued improvement that Cuban misses so much.

So maybe both of them are correct today. But I’m guessing that five years from now Wilson will still be right, and Cuban will have become wrong.