This is the second essay from "Cycles for Builders" series. A follow-up on, what I believe is, the main cycles theory relevant for today which is Carlota Perez's Technology Revolutions and Financial Cycles theory. If you've missed this first part, read here.

Let's now have a look at four other popular cycle theories and how they apply to our current situation for Web2 and Web3 companies? Which sectors or even niche verticals are in the early stages of what cycle and which are in the later stages? It's just a short walkthrough but it may get you interested in learning more 😉

1. Kondratiev/Schumpeterian Long Waves & Creative Destruction

The Kondratiev/Schumpeterian Long Waves theory suggests that technological and economic development moves in long, cyclical waves driven by major innovations. Not that suprising, right.

Each wave begins with a breakthrough (like steam, electricity, or the internet), sparking rapid growth and new industries. Over time, these innovations mature, leading to consolidation and slower growth, until the next disruptive technology triggers a new wave.

Schumpeter adds the idea of "creative destruction," where new innovations inevitably displace old systems.

• Web2 Companies:
  Many Web2 firms - think large internet platforms, established e-commerce, social networks, and cloud service providers - are part of what we could consider a mature phase of the current Information and Telecommunications wave. They are often in a consolidation stage where growth is steady, markets are saturated, and incremental innovation is more common than radical change. In Schumpeter’s terms, these companies are the “incumbents” that have already ridden the upswing and are now optimized for efficiency. Ready to be disrupted but not giving up!

• Web3 Companies:
  Web3 projects of any type - focused on blockchain technology, decentralized finance (DeFi), non-fungible tokens (NFTs), and DAOs, can be seen as early players in what might be a new cycle of disruptive innovation. They represent the “creative destruction” phase where new technologies are beginning to challenge established norms. Although still in an early (or even experimental) phase, they might be setting the stage for the next long-wave upswing. We all kinda hope for that 😁.

In today’s context, Web2 companies are in the mature, late phase of the current wave, while Web3 companies may represent the early stirrings of the next cycle, experimenting with technologies that could eventually reshape entire industries, or not.

2. Diffusion of Innovations & Crossing the Chasm

The Diffusion of Innovations theory explains how new technologies spread through society in stages - from Innovators and Early Adopters to the Early and Late Majority, and finally Laggards.

This framework is highlighting a critical gap between Early Adopters and the Early Majority. Many promising technologies fail here because they can’t evolve from niche enthusiasm to mainstream practicality.

• Web2 Companies:
  With products and platforms that have crossed the “chasm,” Web2 companies have largely penetrated the mainstream market. Their technologies have moved from early adoption (innovators and early adopters) into widespread usage by the early and late majority. These companies have become integral to everyday life, with established business models and revenue streams.

• Web3 Companies:
  Web3 projects (no, even Bitcoin or Stablecoins are not exceptions) are largely still appealing to innovators and early adopters, working to refine their products and messaging to gain traction with the broader market. Blockchain protocols are being tested by tech enthusiasts and crypto-native communities. This places Web3 ventures before the process of “crossing the chasm.”

In today's context, Web2 firms are spreading through late majority and reaching for remaining laggards, while Web3 projects are still in toy-store era with us, the enthusiastic crowd of early adopters.

3. Gartner Hype Cycle

Gartner's Hype Cycle illustrates the typical journey of emerging technologies through five key phases: Innovation Trigger, Peak of Inflated Expectations, Trough of Disillusionment, Slope of Enlightenment, and Plateau of Productivity. It captures how initial excitement often leads to overhype, followed by disillusionment when reality sets in, before reaching stable, practical adoption.

• Web2 Companies:
  Most Web2 technologies are in the “Plateau of Productivity” stage of the hype cycle. The initial buzz has settled, and these technologies are now valued for their reliability, scalability, and predictable performance.

• Web3 Companies:
  The position of Web3 on the hype cycle is mixed and often debated. Some aspects - like the initial excitement over NFTs or certain DeFi projects - might have reached the “Peak of Inflated Expectations” and are now possibly sliding toward the “Trough of Disillusionment” as market realities set in. However, other segments (e.g., foundational blockchain infrastructure) might still be at an early stage, with significant potential to evolve toward the “Slope of Enlightenment” if the technology matures and gains trust.

It means in today's context that Web2 firms are cash-cows where nothing but profits is expected and Web3 is still climbing toward broader understanding and utility.

4. Ray Dalio’s Long-Term Debt/Financial Cycle & Macro Environment

I believe that Ray Dalio’s Long-Term Debt Cycle Theory is important for builders because it explains how economies move through long periods of borrowing, spending, and eventually deleveraging. And it today's over-financialised world this influences everything.

He believs that over decades, rising debt fuels growth until it becomes unsustainable, leading to a phase of financial tightening, defaults, or restructuring. This cycle includes periods of boom, followed by correction or crisis, and eventual recovery.

• Web2 Companies:
  Operating in a relatively stable financial environment (though still subject to business cycles), established Web2 companies are better positioned to weather macroeconomic shifts. Their mature revenue models and predictable cash flows make them more attractive in a period where we might be approaching the late stages of a long-term debt cycle.

• Web3 Companies:
  All startups, and Web3 space in particular, are dependent on more speculative capital that is freely available in boom periods. As such, they are more sensitive to shifts in macroeconomic conditions - especially if we enter a phase of financial tightening or a deleveraging cycle. In a downturn, speculative sectors tend to retract faster than those with stable business models.

Funny thing is that while small companies are more dependent on macro conditions they usually don't pay much attention to it. While in contrast, big companies pay a lot of attention to macro environment shifts even though they will weather almost any storm.

Sector & Niche Vertical Considerations

A few observations on stage of development for different verticals. Because contrary to popular Web3 chatter, Web2 is not dead and it's certainly not done innovating. It's not impossible to imagine new innovations challenging Web3 projects in areas of finance, energy, gaming or privacy.

• Within Web2:

  • Mature Verticals: Social media, search engines, established e-commerce, and cloud services are largely in later, mature phases.

  • Evolving Verticals: Fintech and climate tech innovations are still evolving, although many have already crossed into mainstream usage. Also many underground efforts on privacy front continue to innovate in response to regulatory changes and competitive pressures.

• Within Web3:

  • Early Stage/Niche Verticals: Decentralized finance (DeFi), NFT marketplaces and digital art, DAO-based communities (still learning to govern), and the whole blockchain Infrastructure

  • More Mature Segments are in my eyes some parts of DeFi, Bitcoin and Stablecoins - everything that is closer to integration with traditional finance world and brings new beneficial onchain features to banking or payment systems could be seen as bridging the gap.

Final Word

I assume we all agree that Web2 companies generally represent the established, mature part of the current macro technology cycle. Their technologies are well-diffused, widely adopted, and the hype has given way to a focus on productivity and efficiency.

I'm sure many will disagree with my general view that Web3 projects are still largely in the early stages of innovation, still in the process of proving their value, navigating and surviving market hype, and working to cross the chasm from early adopters to at least early majority of mainstream users.

Ultimately, mapping the cycle stages for your project/company helps you tailor strategy, investment, marketing and even risk management (should you have any) to most likely realities and anticipated shifts in market realities and sentiment.

And I appologize for ugly ChatGPT generated images. I hope they illustrate the point and make you think a bit. 😃

I'd love to hear what you think about this. Was it useful or interesting? Shoot me an email or just DM.

Till next time, let's BUILD BETTER!

BFG

Coming Up Next:

In the upcoming essays I will look at what are potential underdog themes and edge ideas that present opportunities for small, fast-moving teams while everyone else is still looking the other way.

I will also look how you can trace the pain with CVC (Customer Value Chain) before you start building.

Stay tuned 😉
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