Takeaways: Steve Case’s The Third Wave

What follows are the key points that I took away from The Third Wave (not a full summary). Commentary is in [brackets].

First Two Waves

Case breaks the evolution of the Internet into two past waves, and a third wave, which he feels is starting now (as of his 2016 writing).

• First Wave: 1985–1999. Creating the Internet, focused on the core technology and getting people access.
• Second Wave: 2000–2015. Apps, platforms, and social media businesses, driven by the rapid increase in Internet use plus mobile / smartphones.

Third Wave

Case envisions the Third Wave as an “Internet of everything,” integrated into every aspect of our lives. The Internet will transform from “something we interact with” to something that “interacts with everything around us.” This, he expects, will begin to disrupt industries that have, so far, been slow to change like healthcare, education, and food.

Tech as an enabler, not the solution itself

Third Wave entrepreneurs will need to spend time focused on things that go beyond technology to implement their solutions. “During the Third Wave, products will be tech-enabled, they won’t be tech-centric. They’ll use apps, but the product won’t be an app.”

Three Ps: Partnerships, Policy, Perseverance

Case feels these three Ps were critical to First Wave Internet companies (like AOL), and will be critical again to Third Wave companies, whereas Second Wave companies could take a different approach (building an app or platform, building audience, and then monetizing it). [Note that these 3 Ps are typical of what’s required of most non-Internet startups too.]

Partnerships. Partnerships will be required for building credibility, opening doors, and getting past industry gatekeepers.

• This is necessary because disrupting an entrenched industry, especially one with gatekeepers and regulation, can’t realistically be done alone, and especially not by a newcomer to the space.
• Examples Case sites include MOOCs (like Coursera) starting out by saying they wanted to disrupt and displace entrenched universities, but winding up needing to partner with them to succeed; healthtech companies needing credibility to get in the door with providers; and Steve Jobs needing to get music labels on board to make the iPod and iTunes successful (Case points out that an unknown startup couldn’t have done that, and many MP3 players failed as a result before the iPod).
• A company’s product still has to be great, Case says, but partnering skills might be the thing that makes or break the business. [We followed a similar playbook years ago at FitLinxx, designing a superior fitness tech product, and then partnering with established companies like Cybex, Nautilus, and Precor for credibility and distribution — it would have been impossible to penetrate the market without both].

Policy. Government will play a key role in Third Wave industries, from regulation to being a customer. Entrepreneurs need to have a fluent grasp on policy issues and navigating the government agencies relevant to their industry to succeed.

Perseverance. Third Wave disruptions will be long slogs. Be prepared for many near-death experiences before becoming an overnight success, as Case experienced at AOL. [Same with most startups, but his point is that the Second Wave playbook of building an app, building an audience, then monetizing that later, won’t be sufficient for disrupting more challenging industries.]

Entrenched Companies

Big companies that have so far been immune from disruption need to beware and adapt to survive.

• They have the raw talent and resources, such as labs filled with PhDs, to be the disruptors themselves, but are they organized to be mobilized? [See presentation about taking on an industry Goliath by being nimble and strategic].
• Clay Christensen’s Innovator's Dilemma: the challenge for successful companies is focusing on and delivering on customers’ current preferences while preparing for their future preferences
• As an entrenched company, if you can’t build the future, at least invest in it to own a piece of the action.

Rise of the Rest

Historically, three quarters of venture capital has been concentrated in Silicon Valley, New York, and Boston. Case envisions entrepreneurial clusters emerging all over, and that marginalized cities can and will become entrepreneurial powerhouses.

He feels it’s important because startups create the bulk of new jobs and economic growth where they are clustered, but most of these gains are currently going to just a few regions right now leaving others behind.

He feels it’s possible for other cities to emerge as entrepreneurial hubs, in part due to the evolution from Second to Third Wave. In the Second Wave, where the focus was the technology itself, it made sense for entrepreneurs and their investors to cluster in tech hubs. But in the Third Wave, where products will be tech-enabled but not tech-centric, the benefit from being in a tech cluster won’t be as high. Instead, being surrounded by experts in the industry you’re disrupting may be more important.

Other cities also generally have a lower cost of living so startup dollars go further.

He recommends that cities that want to become entrepreneurial hubs do a few things:

• Identify the sectors that play to their unique strengths and enable them to have the greatest impact (e.g., robotics in Pittsburg; agtech in the midwest; health tech in Baltimore).
• Overcome being too risk averse
• Create opportunities to interconnect: entrepreneurs to one another, investors to promising startups, and leaders of established businesses to entrepreneurs.

[Techstars, the worldwide network that helps entrepreneurs succeed, is focused on all of these things: supporting community efforts with Startup Week and Startup Weekend events, bringing accelerators to cities around the world, and helping large corporations partner with startups to drive the future of their industries.]