Although the dot-com boom ended with a resounding thud in 2000, investors should remember that the prior 18 years' worth of stunning market gains were largely due to a stream of game-changing ideas in technology that sharply boosted U.S. productivity.
A quick timeline of that decade shows just how an impressive an era it was.
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In the mid-1990s, the Internet became a part of everyday corporate life. The advent of email led to a rapid increase in corporate communications and executive decision-making.
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That time also saw the development of high-speed networks, allowing large corporate files to be whisked across the country in seconds.
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The early signs of e-commerce took root as Amazon.com and eBay began a retail revolution that is still boosting productivity to this day.
The next decade also saw solid advances in terms of computing power, communications technology, sharply improved display technologies (which led to innovative TV sets), and key gains in the fields of wind and solar power.
More recently, our economy has benefited from:
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The advent of social media (such as LinkedIn (Nasdaq: LNKD), which you probably hadn't heard of five years ago but is now worth $26 billion).
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Mobile computing, which has led to mobile commerce and advertising, known as m-commerce.
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Cloud computing, which has paved the way for robust data analysis, known as Big Data.
Trouble is, if you look out on the horizon, it's becoming increasingly apparent that there is no new megatrend in the offing. Most companies are focusing on incremental advances, from faster computer chips to higher-resolution TV sets to more accurate robotic surgical arms.
But to thrive, technology doesn't need evolution -- it needs revolution.
Take Nuance Communications (NUAN) as an example. The company has been a long-standing pioneer in the field of speech recognition software. Nuance's sales have roughly doubled in the past five years (to $1.65 billion in fiscal 2012), and the current crop of smartphones have introduced speech recognition to the masses. But shares of Nuance have been sliding for the past year because the company is delivering few new groundbreaking innovations.
To look at what tomorrow's game-changing technologies might be, we can look at where venture capital money is flowing. VC firms tend to heavily speculate on winning business models that will be mainstream in five or 10 years.
And judging by recent funding trends, VC firms are underwhelmed. According to Ernst & Young, the amount of VC money invested around the world fell 20% in 2012 to levels seen back in 2009, when the global economy was still on very tentative footing. Out of the 323 VC firms in business at the start of 2012, 53 of them closed up shop by year's end. Here in the U.S., VC funding slipped 15% from 2011 levels to around $30 billion.
The current year isn't looking much more promising. According to the MoneyTree Report, there were 1,223 VC-backed investments in the U.S. in 2012. We're on pace for around 1,150 deals this year.
In a look at VC activity in this year's second quarter, analysts at PricewaterhouseCoopers noted that software (with $2.1 billion in new investments), biotech ($1.3 billion), IT services ($654 million) and medical devices ($543 million) attracted the bulk of the funding.
Clean technology, which was a key area of focus for VCs five years ago, received less than $400 million in fresh capital in the most recent quarter. "Investors cannot seem to flee the space quick enough," note analysts at CB Insights, who add that in years past, a single clean energy VC deal was often greater than $500 million. Interest in the formerly hot fields of computer networking and semiconductors are also falling well below past peaks.
Although the VC industry deployed $6.7 billion in the second quarter, most of that went towards existing VC investments that needed further capital to stay afloat. The dollars earmarked for new investments, also known as the initial round of founding, were around $1.1 billion, according to PWC. The analysts at Ernst & Young add that "VC funds are adjusting their investing strategies, preferring to invest in companies that are generating revenue and focusing less on product development, pre-revenue businesses."
(As a side note, the U.S. remains the main focus for global VC investors. California's Bay Area took in $11.2 billion in VC money in 2012, followed by New England ($3.6 billion), Southern California ($3 billion) and the New York metro area ($2.4 billion). In contrast, the U.K., Germany, Israel, France and Canada each took in $1 billion or less, according to Ernst & Young).
So what types of companies are the wave of the future? These are the top six recipients of VC funding in 2012, according to VentureBeat: