Trends vs. Fads

This post from Barry Ritholtz and the relevant article he linked got me thinking about trends and fads. The post and article deal with employment numbers and how they may be skewed because of the increase in self employment. As I was thinking about it, wondering if it is a fad or a trend, I began to think about how a company can tell the difference. When the marketplace appears to be changing, how do you know if it is a temporary fad or a permanent change?

I can see examples where companies have failed on both sides. Kodak, for instance, didn't acknowledge that digital photography was here to stay, was going to get better and better, and would someday dominate the photography market. The didn't respond to a permananent shift in the marketplace. On the flip side, tons of dot-coms went out of business because they followed fads that they thought were permanent market changes. AOL-Time Warner, for example, merged with the hopes of creating Internet access and content delivery synergies, but so far they haven't emerged. Most people don't watch tv or movies on their computers. It is important to respond to real trends of change, but ignore fads (or at least recognize them as fads and milk them short-term). So how do we tell the difference?

I'll confess up front that I don't have any solid answers. After much thought though, I'll offer the following. It's not technology. That could be part of it, but a new technology doesn't imply a permanent change because people may or may not embrace it. To me, the two key points are 1)how much do people embrace the new mode of thinking or doing something, and 2)does it improve their lives by making them happier, making them more productive, or allowing them to do something they couldn't do previously.

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Digital photography is much easier than film photography. You can look at your pictures immediately and decide if you want to save or delete them. Then you can load them onto a computer and not have to waste time dropping off film. As camera and printer technology improves, it will become cost feasible to get film quality from digital pictures. Content devlivery, and many dot-com ideas, didn't improve anyone's life or make anything easier. Their day may still come, but the 1999 obsession with them was just a fad.

I'm sure there has been some formal study done on this at a University somewhere. Maybe I'll try to find that. For now though, I'm very interested in what some of you may have to say about necessary and/or sufficient conditions for being a long-term trend instead of a short-term fad.