The Hype Cycle: Why Tech Goes Through Booms and Busts

Everything from 3D printing to virtual reality have been played up by media outlets, over-hyped, then spat back out as foolishness in a process that Gartner (IT -0.50%) calls "the hype cycle."

In this clip from Rule Breaker Investing, which can be found at Fool's podcast page, Motley Fool co-founder David Gardner walks listeners through the five stages of the hype cycle: the technology trigger, inflated expectations, the trough of disillusionment, the slope of enlightenment, and the plateau of progress. Understanding the hype cycle can help investors look at technologies more impartially, and avoid those that might be near a bust.

A full transcript follows the video.

This podcast was recorded on Oct. 14, 2015. 

David Gardner: Now, before we start talking about the five-stage hype cycle, a word, briefly, about hype. To me, anyway, hype has a negative connotation. For example, The Motley Fool started, I know some of you were with us back in the day, launching on AOL in 1994, and we were really critical of people who "hyped" stocks. And we don't like that. We don't like hyping stocks, because to us, it signals, usually, if it's a systemic thing, kind of a pump-and-dump approach, and certainly back in the early days of the Internet, turns out even still today on the Internet, you see among especially micro-cap stocks, people who are hyping them. And in general, we don't like hype.

But, at least in Gartner's parlance, and what we're talking about this week, hype is just a thing. It is when a lot of awareness is built up about something, and the consequences of that in the stock market. And that's what we're going to talk about this week. But, I just want to make sure you understand that hype is a balanced word. And in fact, I'm going to say a word here in favor of hype, for a sec. 

If you're a basketball fan, who is the most hyped professional basketball player of our time? And I have to admit, I don't watch much National Basketball Association basketball, but I'm pretty sure it's LeBron James. I might ask at the same time, who is the greatest basketball player of our time? And while I'm not a huge student of the game, I think a lot of people would say that LeBron James is, if not the best, certainly one of the very best, one of the top basketball players of our time. 

In my experience, often, hype is built up appropriately. The big hyped singer on The Voice or American Idol, or what's the most hyped social media platform you can think of today? Facebook. Often, this is related to merit. Often, the things that are the best get a lot of acclaim. Not always. There's some hidden gems out there. But, I want you to understand that hype, to me, is often justified, and in the case of what we'll be talking about this week, you'll see why.

Enough about hype, let's go to the five phases of progression of the hype cycle.

Number one: every hype cycle is touched off by the technology trigger. That's what Gartner research calls it. I'm using their terms for this podcast. Technology trigger. That's what starts the hype. So, the Human Genome Project started a lot of hype. 3D printing started a lot of hype. Cloud computing, the list goes on. I'm sure you can come up with some of your own.

I love video games, so, whenever there's a new console, a new cycle of consoles, like the PlayStation 4, that's a technology trigger creating hype. Twitter itself. Really interesting new platform, lot of hype around there. New technologies are developed inevitably in innovative economies. We all want this, in general. They're pretty cool, they create some great solutions, often some superior solutions, because they exist. And so, they just happen, and that's what sets off the hype cycles. So, phase one, technology trigger.

Which takes us to phase two. This one, Gartner calls "the peak of inflated expectations." Phase two. So, this is when all that dreaming about what the Human Genome Project could do, or what 3D printing can do, whatever the technology trigger is, as we all dream together, maybe it was on the cover of Time magazine, or you heard your friends talking about that new technology stock that they bought. Whatever it is, all of that dreaming that builds upon itself inevitably becomes not just dreaming, but expecting.

After all, we've seen in our own lifetimes how many early emerging technologies have become an amazing gain. I just think of Skype versus payphones. In the generation I've been alive, how I called my parents from college, and how my kids call me, and it's a darn sight better today. In fact, speaking of sight, you can actually see your college student, even if they are halfway across the world, for free, as often as you want today.

So, we've seen so many technologies come along and improve our lives that it's natural that you start to expect something great from that new technology. The problem is, of course, that technologies are usually not nearly ready to deliver those expectations that were born of dreams.

And hence, phase two, the peak of inflated expectations. And this is in fact the peak of the hype cycle. In fact, ironically, the visibility for this technology, whichever one it is we're talking about, will never be greater than at this very stage. We're going to go on to talk about the next three stages and how good technologies do become adopted, but ironically, there will never be more buzz about that thing than right at this stage.

In some ways, it's funny, because I think back to my own company, The Motley Fool, and I don't think we ever got two more publicity than in our fourth or fifth year when my brother and I were on the cover of Fortune magazine, we were regularly on all kinds of talk shows. Part of it was, we were writing books back then.

That's when I was on The Today Show and Charlie Rose and Good Morning America. And everything we do at The Motley Fool today is bigger and more successful than back then, but we probably never had more visibility, and may never again, because of the hype cycle, because of the peak of inflated expectations. What people thought the Internet could do back then, The Motley Fool, anyways, was a big fish in a very small bowl at the time. But this isn't just true of my company 15 years ago. This is true of all technologies. The peak of inflated expectations hits.

Which naturally then takes us to number three. And the third stage -- again, Gartner's terms, I like them all -- the third stage, "the trough of disillusionment." Booms often go bust at some point. Especially for things that stay in the game over the course of time. Let's take Amazon.com stock. That stock has boomed and busted multiple times over a couple decades. But, booms, especially when we're talking about inflated expectations, go to bust. And that's what happens in the trough of disillusionment.

So, that technology's immediate impact, we start to realize, was clearly overstated. And so, there's a collective turn against it. Headlines, media, consumers. In fact, a tremendous amount of cynicism is usually born during this period. We are looking backwards, thinking about all that hope, all the hype, sometimes just a year ago, seems now ridiculous, maybe even embarrassing, to think what we thought at one point. We look back in almost a form of self-horror, at what we recently all thought would actually happen.

Did we really think personalized medicine was going to happen after the Human Genome Project? Did we really think that 3D printing would instantly create everything from airplanes right through to medical solutions? And the answer is, we did. And as we're going to cover next two stages, we're going to see these things are for real in some ways. But this is the trough of disillusionment that were talking about. And that is, of course, phase three.

Oh, one more thing to say about that. You know how I just said that at the peak of inflated expectations, whatever the technology is will never have more hype and awareness than right at that moment? Well, conversely, right here in the trough of disillusionment, it is from this point that we're actually all up from here, because the world will never be more disillusioned, more cynical, and more clearly thinking that it was wrong about this technology than right at this point.

Number four. Number four is "the slope of enlightenment". So, during this phase, you've now gotten to the point where this technology is actually being used, has actually been deployed, and now, we're able to see, as consumers or technologists, as business people ourselves, we're able to see the actual ways that this technology is being adapted, will be manifest, for all of us and for our society. 

And really, at the heart of the slope of enlightenment is the word acceptance. Acceptance ensues. After all, if it was really a substantial world-beating, earth breaking technology back there in phase one, probably, it is going to have some meaning, right? While people's expectations go way up and way down, presumably, we're talking about, in the cases I talked about earlier, console cycles or 3D printing or cloud computing or the Human Genome Project, these things are actually really important and real. And it's during phase four that we're all a little bit enlightened. We come out of the trough, and we realize, yes, this is for real, it is now being used.

By the way, right after we do this, I'll go back over each of these briefly and give some examples of where I think a few things on our minds are today, and then I'm going to close with a few reflections overall about this framework from Gartner.

All right, number five. Number five is "the plateau of productivity." And this is the end of the hype cycle. This is where we become smart implementers and practitioners of this technology. So, we're now standing on the plateau of productivity. It's a plateau. We can see a long way ahead of us. We can see a long way back. And looking back, we're able to see, yeah, it really was hyped when you think about it. I mean, people did expect too much of it back in the day, and all those magazine covers and conferences and big stories about it were, in fact, way too early, in some cases, or in some cases, unrealistic.

However, we can now also look around us and say, wow, how relevant it is, how visible it is in our society today, whatever the technology is. And somewhat ironically, I just said how relevant and how visible, but one other aspect of the plateau of productivity is that, ironically, it's nearly invisible in some ways. In other words, it's become well-practiced enough and well-implemented enough that we kind of take it for granted, at this point. And that's the long plateau that continues, by the way, to close this little song and dance, until probably, that technology is itself disrupted, or maybe loses relevance, like the horse and buggy. Or, maybe it just continues on forever, because, maybe like e-commerce, it doesn't seem to be going away any time soon.

So that was a short summary -- well, not that short, took about ten minutes or so -- but, that's a short summary of Gartner's hype cycle.