The New Tech Bubble (opens in new tab)

I think it goes back to the learnings from the original tech bubble: companies with a real business plan survive, those with a nebulous product don't make it.

For example: Amazon was a rising star during the late-90s tech bubble, and it's still around today. And it's very much a player in the tech space. How many of us use AWS?

Google has a solid business platform and has definitely made it by all measures.

Netflix is another example. Good product, has upset the industry, sky's the limit type stuff.

Could all of these golden companies fail? Absolutely. For example, look at Microsoft right now - they are still innovating in some spaces, but really struggling in others. Will they go the way of IBM? (Hey, I hope so, but let's not start dreaming now).

Then there's Facebook and Twitter - arguably the stars of the current tech bubble. Are they worth what people say they are? Really depends on what happens over the next few years. Both are definitely becoming platforms that people do all kinds of interesting things on. But at the same time, people could get tired of social networking. (That's my personal bias shining through).

So...it's a bubble for some and not for others.

I call bullshit. This article is heavy on speculation and light on (if not absent of) actual analysis. Tell us, beyond valuations you disagree with, what fundamentals are unsound here. Are businesses IPOing despite being unprofitable? Are companies burning cash and garnering additional investment despite no steps toward profitability? What, exactly, other than a sneaking suspicion that Facebook might not be worth it's valuation? Clearly some people, the people buying Facebook stock, disagree with you. Why are you right and they're wrong?

From the article: This time is indeed different, though not because the boom-and-bust cycle has miraculously disappeared. It is different because the tech bubble-in-the-making is forming largely out of sight in private markets and has a global dimension that its predecessor lacked.

This may be a private tech bubble though. To me it don't seems like tech stocks are too inflated compared to the revenues we can see. Facebook may be overvalued, the Skype buy was very expensive, VCs invest like crazy, but all of that is private investment. Does anyone here see a risk for the stocks also?

This is the cover of this week's Economist, despite the fact they really only have two other articles in it...one talking about the Skype purchase and another talking about the increased investment of web technology companies in both the US, Europe and China.

Bubbles require genuine belief of a large group of experts and leaders. They need to be convinced that eyeball counts will rise forever, that real estate will keep going, and that the growth potential of users is near infinite. They will come up with lots of analysis to protect their viewpoints and their belief will get more profound with every passing minute. I dont see that type of blind naivete in today's tech community

I think a lot of the responses here call out some definite omissions in this article (detailed analysis, the preparedness of certain companies, etc.). All of these points are valid, however, I don't think the concept of another bubble should be entirely dismissed. The thing to pay attention to does not revolve around the major companies like Facebook. The focus, rather, should be on the smaller companies that seem to get ridiculous valuations and investments for seemingly cheap ideas. Yes, Angry Birds is great but millions of dollars in investments? The bust will come from mindless investments like these. People will get bored with this game or that app and any dev that can't keep up will find themselves having to answer for insane investments that went nowhere. Luckily, like some have said, we've learned from the past in regard to bigger web firms, but until recently, "small business" didn't have a large voice in the web. You love the bakery down the street, but are their cookies worth millions? Probably not.

We'll see.

There is a bubble of tech bubble articles. No?

Edit: What I mean here is that we seem to like to read about "the new tech bubble". It still is largely a speculation, no matter what arguments are presented. The present time may, just may be a golden period for tech innovation, rather than a bubble.

The fact that "are we in a bubble?" is the question on everyone's mind is highly telling.

Are we in a Bubble? Who cares?

Really. Who is investing in startups right now? Rich people who think they can make more money investing in startups than they can investing in other investment vehicles.

What happens if these rich people lose their money? Nothing. No bail outs. No massive loss of income for "normal" citizens. Rich people get a little less rich. Some rich people who put all their money into angel investing lose all their money.

Who is getting funded? Teams of two and three engineers who have built a product and have gotten some form of traction. Last published figures I've read said that Angel List has gotten 300 startups funded this past year. How much money are these startups getting? Anywhere from $50k to $1M.

300 startups * $1M = $300M in funding in angel capital this past year. The National Venture Capital Association's numbers [1] states that Total VC in 2010 was $23B, which is still 1/5th of the VC that was spent in 1999, and is in line with VC investment over the past 10 years.

$300M in angel funding is roughly 1.3% of the average VC funding per year over the past 10 years.

What _is_ different this time around, is that there are hundreds of smaller bets being placed, rather than dozens of huge bets.

Are all of these hundreds of startups going to have decent exits? No. Are a number of them going to turn into successful businesses, perhaps.

But, what is going to happen is that hundreds of founders are getting an amazing education on raising capital, starting a company, shipping product, and trying to make money. What really excited me is what Silicon Valley and the tech landscape is going to look like in 10 years. What this surge in angel investment is doing is educating massive numbers of engineers in how to build and ship product.

As far as I'm concerned that's a huge win for everyone, regardless of how many exits there are this time around.

Is this a Bubble, really, who cares? Writers that need to sell magazines.

ref:

[1] http://www.nvca.org/index.php?option=com_content&view=ar...

They're hedging. They even go as far as to say "you heard it here first". I'm sure they would rather be in a position of being overly cautious than have people lose faith because they didn't report on a coming bubble.

In terms of actual analysis, they're falling into the trap all other journalists seem to be by just repeating the bubble rumors that are floating around. You'd think Economist could come up with more substance for their argument.

If by "bubble" they mean companies that aren't profitable are being valued at enormous amounts, and continue to garner investment even without any clear revenue or exit strategy, then yes we are in a bubble.

The problem is the web industry considers investment to be revenue... in which case you're never in a bubble because profit doesn't really matter. Success in the web industry is simply getting someone to throw money at you.

I have not really studied this issue in depth, but from what I can tell most of the increasing investment activity that they are referring to is occuring in the private investment world - not on stock markets.

With that said, it seems that it would be difficult to call this activity a "bubble". "Bubble" in the popular nomenclature are typically used to refer to developments that can have widespread consequences when they "pop" (Re: the housing bubble, the credit derivative swap bubble, etc, etc).

There has been a lot of private investment activity in the tech world recently, but I think that it would be fear mongering to refer to this activity as a bubble. The Internet in general (and the web specifically) is still a relatively recent development. It makes sense that you will see a lot of investment activity in this area.

This same type of thing tends to happen whenever a major technological advancement spurns rapid innovation (Re: the gilded age). It is merely capitalism at work - not necessarily a bubble.

Tech bubble or not, judging companies based on how much finding they raise alone is bad. Put profitably first and you shall survive any disaster. I don't think we are in a bubble because people who invest usually consider profitably over potential to flip to the next sucker. Investors I've spoken with seem to be wanting in for the long haul.