There is a bubble in the tech industry, but it has nothing to do with the behavior of venture capital, as so many people are discussing. There’s a bubble because the tech industry is trying to be the new media industry, and very few people in the tech industry understand what’s really happening to the economics of media.

There is a bubble in media, and if it pops before we can get our arms around it, any hope for finding profitable business models may be lost.

To be fair, their are some seeds of understanding in all the talk about VCs:

Chris Anderson kicked this off by pointing out that technology adoption is still increasing rapidly and that, with expensive networks already built, it’s much cheaper to build software to capitalize on them — this is precisely why there is a bubble.

Dave Winer thinks that users should control the investment capital, and he’s right that the users are the only ones right now who understand what they need.

Scoble thinks that people should be chasing “Venture Users why it’s turning into a bubble.

Fred Wilson predicted a “Looming Attention Crisis” several months ago, and it’s no surprise that he referenced Umair Haque.

If you really want to understand why there’s a bubble, you have to invest the time in reading Umair Haque’s theory of media economics — Umair is possibly the most brilliant mind looking at what’s going in media, and thus in technology. I invested a few hours in wading through Umair’s slide deck on media economics and I was stunned — it’s all right there. Because Umair understands all the nuances, he’s hard to read and hard to digest, but, man, does he get it.

I’m going to attempt now a high-risk endeavor — I’m going to recast Umair’s argument and add a few nuances:

When there were only a handful of content choices, there was plenty of attention to go around — and attention could be bought through marketing.

When there were only a handful of distribution channels, and the cost of entry was high, a handful of players could profitably compete for a slice of the attention pie.

Digital and network technology has lead to an explosion of content and distribution channels, i.e. a proliferation of media.

The proliferation of media is destoying the economics of Old Media, which depended on a finite media universe.

The proliferation of media is a bubble because it’s being driven by speculation — the 20 million bloggers and dozens of Web 2.0 sites popping up everyday are speculating on the unbundling of content and distribution.

As a result of the speculation in media, there is now too much media competing for too little attention.

The negative economic consequence is that attention is not being allocated efficiently — it’s becoming increasing difficult for people to figure out which of the infinite number of content choices at their fingertips are most worth their time.

The economics of media — which are the new economics of technology — depend on the efficient allocation of attention.

When the cognitive dissonance of too much media choice becomes too great, individual media behavior, i.e. the allocation of attention, will become chaotic and haphazard. When this happens (and it already has), no one is going to be able to build a profitable business model because the two types of media dollars — advertising and content fees — won’t be able to flow efficiently.

The speculation in media that is being driven by the technology industry and blogging is still based on old media economics — it assumes that each site can gather a sufficiently large slice of the attention pie to finance its existence. But if media attention becomes completely fragmented and chaotic, no one will have sufficient scale or a sufficiently coherent audience to capitalize on their investment in media creation — even if the only real cost is time.

If all of the advertising dollars pass through Google, the only one who will be left with a meaningful share of those dollars will be Google. Same with content fees.

The idea that we’re living in an “attention economy” is nothing new. But unless the media/technology industry starts listening to Umair and focuses on creating new ways to help people efficiently allocate their attention in a world of infinite options, the bubble will pop. And it won’t be pretty.

So let’s focus on the user. What the user needs is help allocating a finite amount of attention. And the solution needs to be personal — perfectly tailored to each user’s needs. The user needs a personal killer app.

It will be a huge challenge to realize Umair’s vision of “snowball economics” through the creation of “reconstructors” that thrive off of “microplatforms” and “smart aggregators.” (If you’re not familiar with Umair’s lexicon, I suggest you invest the time to learn it.)

Good thing we’ve got a open network and an infinite supply of cheap development bandwidth.

UPDATE: When the Edge Becomes the Center

Skepticism of the media bubble argument rightly focuses on the question of whether the average person is (or soon will be) suffering from the ill effects of information overload. Paul Kedrosky’s response to this post highlighted the key issue — are those of us who complain of media overload really just “edge cases,” i.e. most people have better things to do than subscribe to 1,000 RSS feeds?

Paul Montgomery captures this view in his comment below:

the majority of people WANT blockbusters. It may seem to media economists that everyone should have a highly sophisticated strategy for consuming media in reconstituted microchunks through smart aggregators, just as they do, but a significant portion of the populace may not want to invest a lot of their precious time figuring out this Media 2.0 environment and will instead stick to a few trusted sources.

Alex Barnett, pushes back on this counterargument, using his wife as an example:

My wife is not a geek. She doesn’t blog and she doesn’t use an RSS reader. I don’t know if that makes her ‘average’, but hey. Anyway, she is interested in things. She does use the internet to find news stories of interest to her – celebrity news (oh well ;-) and info related to her profession. When I asked where she goes to get her news, she mentioned six or seven sites she visits for about an hour in total throughout the day, each day. And she has to ‘find’ the stories each time. So I’d say she is the perfect example of someone who would benefit from having a service that would bring her the news that matches her interests, regardless of who generated it.

I’m with Alex on this — Paul and Paul are right that most of us having this conversation are operating at the vanguard, but I think there is a wave (even a tsunami) following us. To understand why, we need to look beyond blogs vs. newspapers (i.e. text media) at the most mainstream media of all: video.

Google, Apple, BitTorrent, and others on the technology vanguard are doing to video media, i.e. TV and movies, what blogs are doing to newspapers. The day is not far off when you can watch any TV show or movie, both studio-created and consumer-created, at the touch of button (and in the palm of your hand). This will make digital video recorders and 1,000 cable channels look like minor issues

When you can watch any video content ever created any time you want, what are you going to do when you plop down on the couch to veg? What happens to the economics of media when there are 100 million Americans “watching TV” in the evening, but they’re each watching different shows?

When we reach this point, the center will suffer the same cognitive overload malady as those of us at the edge. It may be true that most people want blockbusters, but what if Umair is right and it will soon be economically impossible to produce blockbusters in the traditional sense?

In a world of infinite choice, who will be the new “trusted sources” that Paul refers to? Can the notion of trusted media brands survive the chaos?

That (I’ve said it before and I’ll say it again) is the “next Google” question.