I blame the Segway. In 2001, it was billed as the "IT" device, and given over-the-top endorsements by tech celebrities like Steve Jobs and John Doerr. It was "as big a deal as the PC" and "bigger than the Internet." Nevertheless, no one had any clue what it was, and speculation raged. The marketing strategy was a masterpiece of hype, and in the end, a recipe for disappointment. In December, the miracle invention was revealed to be an electric scooter - a plaything for campus cops and tourists.
Today, the hype cycle is a given for new tech products. Apple Inc. ( AAPL ) and Samsung Electronics Co., Ltd. (KRK:005930) tease new smartphones with mystery press events , which in turn play out something like Napoleon's coronation: glitzy, golden, and overambitious. Buzz for new consumer gadgets - the kingmakers of our time - can build for a year before we find out anything concrete; the rumor mill has been discussing an Apple television since January. It's not just techies who get a little carried away. Apple rallied hard last year into the iPhone 5's introduction last September, only to begin its long decline the following week. Samsung had a similar experience several months earlier, as the Galaxy S3's release marked a peak for the company's stock.
Microsoft Corporation ( MSFT ) was the victim of anti-hype in 2012, and it languished for much of the year. Windows 8 was vilified long before its launch, and it wasn't until the new operating system hit the shelves in mid-November - and was merely mediocre - that the company began to climb against the market indices. Currently, Intel Corporation ( INTC ) is riding high on the release of its Haswell chip, which has generated a rash of media stories and a surge in Web traffic in the last few months. That's an encouraging sign for those who argue that the PC isn't dead , but like other product cycle rallies, this one should probably be taken with a grain of salt.
New devices and technologies are routinely advertised as revolutionary, but then, revolutions rarely live up to their promise, and old regimes often enjoy a longer life than we expect. The iPhone 4 remains a bestseller for Apple. BlackBerry ( BBRY ) has been on deathwatch for several years now, but continues to survive on the momentum of past successes and, now, renewed hope for the BB10.
No one will be shocked by the idea that, at times, the market gets ahead of itself, but hype can also affect the data that investors turn to in order to stay grounded. Witness the PC industry. According to Gartner, computer shipments fell 11% year-over-year in the first quarter, after running negative for the second half of 2012. This was generally interpreted as evidence of the PC's demise, but the numbers could also reflect anticipation for a big upgrade like Haswell. Alternatively, an analyst at Sterne Agee suggests that computer manufacturers will wait for Windows 8.1, expected later this year, before refreshing their product lines. It's also possible that the market is holding out for an anticipated fall in the price of Ultrabooks . Collectively, the PC world is making big promises about the future, and consumers might be interpreting that as: Wait six months and you'll get something much better.
Meanwhile, smartphone makers promise little. Haswell and Windows 8 were known quantities six months before their release, but Apple and Samsung keep their lips sealed about future handsets. Factors like carrier subsidies and long, one-year product cycles discourage buyers from waiting for a future device they can only speculate about. The biggest improvements - new form factors, lower price points, compelling apps - are often unlooked-for, and consumers don't know what they're missing until it's staring at them from a store shelf.
Hype can drive an entire industry, and make it look better than it actually is. Because investors like the cloud, CEOs like it, too; naturally, CIOs (chief information officers) love it. Even if the new technology weren't great, or the cost/benefit was ambiguous, there would still be an incentive to adopt it. On the other hand, market enthusiasm allows cloud companies like Salesforce.com, Inc. ( CRM ) to fund long-running losses, and drive growth by discounting their prices. The result is a slew of good numbers, and a few bad ones that are easily brushed aside with a little soapboxing about the new economy or the Web 2.0 or " vive la revolution ."
The market tends to look its best at a peak, and companies their strongest before a fall. It's a good point to bear in mind, not because it allows us to predict anything, but because it keeps us from placing too much faith in predictions. With the Nasdaq (INDEXNASDAQ:.IXIC) at all-time highs, up 15% year-to-date and 30% since the beginning of 2012, investors are less cautious than they have been, and there's nothing to say they're wrong. It may be a good time, though, to assess the dangers of an enthusiastic market, and to make sure we're not getting ahead of ourselves.
Disclosure: Minyanville Studios, a division of Minyanville Media, has a business relationship with BlackBerry.