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Visions of life-changing technology succumb to economic downturn
By Jennifer Davies
STAFF WRITER

August 4, 2002

Large companies have completely stopped innovating, with a few exceptions."

Bill Stensrud, Enterprise Partners

"Optimism is the basis of creativity and innovation," Michael G. Zey, Ph.D., author of "The Future Factor".

By now, we were supposed to be able to surf the Internet in our cars, and our cell phones were supposed to notify us when we were low on milk. Instead of watching movies on television, we were going to download and view them on our computers. As we walked by The Gap, our wireless phones were supposed to let us know about the latest sale on our favorite style of jeans.

Fueled by massive amounts of investment and an unbridled optimism, young technology Turks told us the future was upon us.

But the giddy predictions of the late 1990s technology boom have, for the most part, failed to come to fruition, toppled in large part by the faltering economy.

When the technology bubble burst in 2000, it was not only the Nasdaq that took a hit. Another victim might have been innovation. Companies that used to wax delirious about futuristic applications are no longer concerned with the Next Big Thing. Instead, technology companies large and small are focused on proven products as they try to shore up their bottom lines in a desperate fight for survival. Venture capital funds have dwindled, and research and development budgets at technology giants have been cut.

With the focus on the here and now, some say futurology – predicting future conditions based on current trends and technology – is dormant in corporate America. While futurology surrounds us in pop culture in movies such as "2001: A Space Odyssey" and most recently the Tom Cruise thriller "Minority Report," the business world seems reticent to even mention its grand vision for the future anymore.

Technologies that were supposed to transform our daily lives have been scaled back or forgotten. And the breathless marketing that surrounded those technologies has all but disappeared.

The talk surrounding Bluetooth, a short-range wireless technology, no longer focuses on how your microwave will be able to communicate with your toaster, helping coordinate meals. Now the emphasis for Bluetooth is on being able to print documents without having to hook up the computer and printer.

No one even mentions the prediction that by now we were supposed to be able to stream MP3s to our dashboard instead of listening to the old-fangled radio. Visions that every appliance in your house was going to be connected wirelessly and be able to tap into the all-knowing Internet have not panned out either. Gateway and America Online's plan to build Internet "appliances" for kitchens that would download recipes and video cooking tutorials died in rough economic conditions.

Futurology has a long history of failing to deliver on time. We are nowhere close to driving hovercraft, as "Blade Runner" predicted we would be doing by 2019, nor do we vacation on Venus, as "The Jetsons" would have had us believe.

Michael Zey, professor at Montclair State University and noted futurologist, said there is no question that economic cycles feed interest and resources in innovation, with movies and television shows closely mirroring our perceptions of the future. When the economy is on an upswing, mainstream science fiction tends to be more positive about technological advances, such as the 1950s space exploration movies.

"Optimism is the basis of creativity and innovation," Zey said. "When people perceive the economy as positive, they tend to look at the future more brightly."

As the economy struggles, the vision of the future becomes more pessimistic, concentrating on the ills of innovation.

Zey said "Minority Report," in which Steven Spielberg commissioned some 50 futurologists to imagine what the world would be like, reflects our current ambivalence about technology. Though there are cool futuristic cars and small, convenient cell phones in "Minority Report," the movie paints a darker picture of the state of privacy and freedom.

While pop culture continues to think about the future, the business world is more concerned with the here and now.
The waning excitement over next-generation technologies is nowhere more evident than in the world of venture capital investment. Venture capitalists, who fueled much of the go-go technology economy, have throttled back on their investments. The late 1990s saw a huge increase in venture capital investment, reaching a high of $27 billion in the first quarter of 2000. The most recent quarterly numbers from PricewaterhouseCoopers found the total down to $5.7 billion.

Early-stage companies, often on the cutting edge of technology, are also finding it more difficult to attract funds. Just 19 percent of the companies receiving venture funds in the latest quarter were start-ups looking for their first investment infusion.

Some corporations have also scaled back on their research and development budgets. General Electric, known for its aggressive R&D strategy, has cut back its R&D spending from 3.5 percent of its revenue a decade ago to 1.8 percent last year. In 1992, GE spent $1.9 billion of its $53 billion in revenue on R&D; last year the figure was $2.3 billion of $125.9 billion in revenue.

Though Intel CEO Craig R. Barrett made the point last year that successful companies don't save their way out of recession – rather, they spend, or invest, their way out – the chipmaker has trimmed its R&D budget slightly as well. In its latest quarterly report, Intel said it expects to spend $100 million less than the $4.1 billion budgeted for research and development.

Because of this, technology start-ups are still the place to look for innovation, said Bill Stensrud, a venture capitalist with Enterprise Partners in La Jolla.

"Large companies have completely stopped innovating, with a few exceptions," Stensrud said. "They can't afford it."
But with the foundering economy, is the future further off than ever before?

Not necessarily, said Larry Smarr, head of the California Institute of Telecommunications and Information Technology at UC San Diego and UC Irvine. The innovation of the late '90s never really kept pace with the marketing hype. The technology hangover that many companies and consumers now feel is a result of promising too much too soon.

"The ratio of hype to reality had just gone off the charts," Smarr said.

Jim Brailean, CEO of PacketVideo, a San Diego company with technology that delivers video to wireless devices, said the innovation of the le '90s wasn't really about technological leaps.

"What you saw in the bubble phase was technology taking a back seat. There was more innovating on the business plans and not the technology itself," he said, pointing out that many of those inventive business plans were themselves faulty.

PacketVideo attracted attention for its futuristic technology that would allow parents to watch their children on their cell phones and let moviegoers view film trailers on their wireless devices. With the downturn in the economy, the company has streamlined its operations, gutting much of its marketing and public relations budgets. Brailean said the company has focused much of its attention over the past year to perfecting its technology in test trials in Japan.

"To be honest, we have hit most of our technology targets on time," he said.

That's not to say that its technology has reached its target market – consumers.

While PacketVideo waits for the mainstream to start using its wireless media, its research and development is divided between fine-tuning its technology and coming up with new ways to use it, especially in the area of homeland defense.

Innovation is also quietly thriving in universities and labs, with the federal government investing more money than ever in new technologies, Smarr said. President Bush's proposed 2003 federal budget allocates billions for such technology, including $2.4 billion for anti-bioterrorism research and development.

Another key area of federal investment is nanotechnology, the science of controlling individual atoms and molecules in creating computer chips and other devices thousands of times smaller than current technologies permit.

The federal budget for its nanotechnology initiative has grown from $270 million in fiscal 2000 to the proposed $710 million for fiscal 2003.

Not only has the source of funding changed from the private to public sector, the time horizon for innovation has also become more realistic. Where during the days of dot-com dominance youthful CEOs would predict the quick death of the dinosaurs of industry, entrepreneurs and technologists no longer expect to create a new market or technology overnight. As with everything else since the dot-com disaster, Smarr said, the rhetoric and expectations have become more realistic.

"It always takes longer than people think," he said. "It's not just about technology. Innovation has to eventually turn into products and services. Training the consumer on how to use the technology is a key part of the equation."

In fact, now may be the time in which more innovation is occuring – albeit quietly.

And corporate America is not the only source of innovation. The commercial Internet was an outgrowth of work done initially at the Massachusetts Institute of Technology, then funded by the federal government and taken up by Stanford University and other schools. The Internet burst upon the mainstream in the mid-1990s, but work on the technology had gone on quietly since the mid-'60s.

While many remember the 1920s as a prosperous time in which the automobile became part of mainstream society, it was during the 1930s that much of the modern-day innovation occured, Zey said. Among the advances were the building of the first jet engine and the development of the prototype of the first digital computer.

"It is usually at the period when things appear not to be happening that there is actually real innovation occuring," Zey said.