4 Signs We're Not in a Tech Bubble(us2.campaign-archive1.com)
us2.campaign-archive1.com
4 Signs We're Not in a Tech Bubble
http://us2.campaign-archive1.com/?u=05dd73e60ccac15ccb49357c8&id=2ea8948f1e
12 comments
I agree. It seems to me that a bubble exists where there are expectations disproportionate to performance. I don't see why ANY of the points the article mentions rules out a tech bubble.
Granted I dont think we are in the same sort of tech bubble we were before the .com crash, but you can only learn so much from studying history. Events rarely repeat themselves exactly. All you can get are general cautions. One caution is to be careful about business models and so forth, and I think that this means being caution about Groupon, Pandora, etc.
Yes, I think we are in a tech bubble, just a different stage and a different sort than last time.
Granted I dont think we are in the same sort of tech bubble we were before the .com crash, but you can only learn so much from studying history. Events rarely repeat themselves exactly. All you can get are general cautions. One caution is to be careful about business models and so forth, and I think that this means being caution about Groupon, Pandora, etc.
Yes, I think we are in a tech bubble, just a different stage and a different sort than last time.
Probably not a popular opinion around here but Id say we are well on our way to the precipice.
I hear the line about how the companies are better this time around but I'm really not so sure about that on a macro scale. I'd be much more encouraged if more (funded) startups were seriously aligned to try to combat the country's obvious problem areas - health, education, finance, etc. There are some good ones out there but the majority of funding is getting piled into a lot of stuff that is dead on arrival due to a lack of need and this problem just seems to be getting worse.
On top of it the money and hoopla is exponentially drawing in a lot more folks naively looking to make a quick buck and when they show up in force it usually means the game is largely up.
I hear the line about how the companies are better this time around but I'm really not so sure about that on a macro scale. I'd be much more encouraged if more (funded) startups were seriously aligned to try to combat the country's obvious problem areas - health, education, finance, etc. There are some good ones out there but the majority of funding is getting piled into a lot of stuff that is dead on arrival due to a lack of need and this problem just seems to be getting worse.
On top of it the money and hoopla is exponentially drawing in a lot more folks naively looking to make a quick buck and when they show up in force it usually means the game is largely up.
well, the trouble with the real problems is the barrier to entry.
liberals like to blame the health insurance companies for the problems with health care, and yes theu get some blame, but really it's the doctors and the pharmaceutical companies and all the other service providers. One day I was talking to my doc about a prescription and what it would cost and she estimated it would be $80 a month, but then I showed up at the pharmacy and it was $4.86 and I know that's close to a real price because I'm on a high deductable plan. Now this is a happy ending, but it shows the doc is in la-la land when it comes to knowing what whatever she prescribes costs.
education? well at the K-12 level you go head to head with the teacher's unions and i'll just say if you get in their way they draw blood. now the tenured profs at the college level have "aprois moi le deluge" as their slogan and they've got no reason not to live by that.
finance? who knows? i'm starting to think that those guys from Lagos who say they want to deposit $35 million in your bank account really find completely wack people who expect to get $35 million in their bank account. if some guy who made $20 billion thinks the country needs Newt Gingrich there have to be a lot of rich people who've got no sense at all.
so you go in the problem areas and you know you'll be eaten alive by the incumbents and the unions and the government and god knows who else so you might as well focus on something safe like pictures of cats.
liberals like to blame the health insurance companies for the problems with health care, and yes theu get some blame, but really it's the doctors and the pharmaceutical companies and all the other service providers. One day I was talking to my doc about a prescription and what it would cost and she estimated it would be $80 a month, but then I showed up at the pharmacy and it was $4.86 and I know that's close to a real price because I'm on a high deductable plan. Now this is a happy ending, but it shows the doc is in la-la land when it comes to knowing what whatever she prescribes costs.
education? well at the K-12 level you go head to head with the teacher's unions and i'll just say if you get in their way they draw blood. now the tenured profs at the college level have "aprois moi le deluge" as their slogan and they've got no reason not to live by that.
finance? who knows? i'm starting to think that those guys from Lagos who say they want to deposit $35 million in your bank account really find completely wack people who expect to get $35 million in their bank account. if some guy who made $20 billion thinks the country needs Newt Gingrich there have to be a lot of rich people who've got no sense at all.
so you go in the problem areas and you know you'll be eaten alive by the incumbents and the unions and the government and god knows who else so you might as well focus on something safe like pictures of cats.
> well, the trouble with the real problems is the barrier to entry.
This has always been the case, and always will be, for every industry. If the market is easy to enter, you aren't going to make much money for very long. It is precisely because of this that companies that are attacking the easy problems or non-problems and are getting multimillion dollar valuations are making people nervous.
This has always been the case, and always will be, for every industry. If the market is easy to enter, you aren't going to make much money for very long. It is precisely because of this that companies that are attacking the easy problems or non-problems and are getting multimillion dollar valuations are making people nervous.
I don't think solving the obvious national problems are the key issues. I think the larger question is simply "is the hype greater than the value?"
That's an important question. And I think we are in some stage where the hype is greater than the value. Sure there may be value in solving hte big problems, but there is also a lot of value in solving little problems that nobody else sees at the moment.
I am just not sure that Zynga actually solves any problems.
That's an important question. And I think we are in some stage where the hype is greater than the value. Sure there may be value in solving hte big problems, but there is also a lot of value in solving little problems that nobody else sees at the moment.
I am just not sure that Zynga actually solves any problems.
I remain unconvinced.
The list is just proof that we're not in a tech bubble of the scale and severity as the first one. I'll agree with that, but there's still an enormous amount of overvaluation going on.
The fact that, if and when the bubble pops, it won't be as bad as last time, provides only a minor amount of comfort.
The list is just proof that we're not in a tech bubble of the scale and severity as the first one. I'll agree with that, but there's still an enormous amount of overvaluation going on.
The fact that, if and when the bubble pops, it won't be as bad as last time, provides only a minor amount of comfort.
These claims boil down to 1) Stuff is better, and 2) Only companies with revenues are going public.
But fewer companies are going public at all in the US because of the huge regulatory burden of Sarbanes-Oxley.
And more baskets could simply mean more bubbles.
The fact is that the Federal Reserve greatly expanded the money supply and that must go somewhere. It usually flows into whatever has been rising naturally and makes it rise faster. Too fast.
So instead of normal growth, with new industries gradually replacing old, we go from bubble to bubble.
But fewer companies are going public at all in the US because of the huge regulatory burden of Sarbanes-Oxley.
And more baskets could simply mean more bubbles.
The fact is that the Federal Reserve greatly expanded the money supply and that must go somewhere. It usually flows into whatever has been rising naturally and makes it rise faster. Too fast.
So instead of normal growth, with new industries gradually replacing old, we go from bubble to bubble.
The infrastructure is better
It's funny when this subject is brought up it is always about the nets infrastructure and never about logistics which have improved enormously from the income of the .com boom as well as advances in technology in their sector. Fedex and UPS are now shipping far more for far cheaper than they ever have, the first bubble helped them improve their infrastructure and that is a huge piece of the puzzle as to why we are able to handle more innovation now.
That being said, I do think the scrutiny and due diligence some investors are doing lacks rigor as such some of the companies will fail, the real question is are the successes enough to offset the bad investments. Once that scale tips we are running up the bubble, I don't think we are there yet, but it will bubble at some point, as one of the only bright sectors of the economy it cannot be ignored for long. People are desperate to get their money in an inflating bet, at the moment the barrier to entry to do that with Angle and VC investing is high which creates a form of self regulating market.
It's funny when this subject is brought up it is always about the nets infrastructure and never about logistics which have improved enormously from the income of the .com boom as well as advances in technology in their sector. Fedex and UPS are now shipping far more for far cheaper than they ever have, the first bubble helped them improve their infrastructure and that is a huge piece of the puzzle as to why we are able to handle more innovation now.
That being said, I do think the scrutiny and due diligence some investors are doing lacks rigor as such some of the companies will fail, the real question is are the successes enough to offset the bad investments. Once that scale tips we are running up the bubble, I don't think we are there yet, but it will bubble at some point, as one of the only bright sectors of the economy it cannot be ignored for long. People are desperate to get their money in an inflating bet, at the moment the barrier to entry to do that with Angle and VC investing is high which creates a form of self regulating market.
I think it is all complicated by the fact that the stock market and real money funds and hedge funds all get returns that suck now so that people with real $ get the idea that they might as well pay a bunch of programmers to party it up in a a mansion in the Hollywood Hills and I'll be looking for the bathroom talking to the project manager downstairs looking at the OSHA sign while upstairs some guy's had too many shots of whatever it is he's shooting is jumping into the wrong end of the pool.
So long as interest rates are too low and you can't get returns doing anything responsible, people will do irresponsible things like listen to Glenn Beck and call up Goldline and get ripped off for some gold coins.
That's just the way it is.
So long as interest rates are too low and you can't get returns doing anything responsible, people will do irresponsible things like listen to Glenn Beck and call up Goldline and get ripped off for some gold coins.
That's just the way it is.
I think Ben Horowitz said it better:
He has a simple response to those who say Silicon Valley is in the midst of another bubble, including those who have criticised his firm's large investments as having played a role in inflating the bubble. It's LL Cool J's song Going Back to Cali: "I'm going back to Cali ... hmm, I don't think so." "It's totally about the way he said it — 'Hmm, I don't think so' — which is how I was feeling about the bubble talk," Horowitz said.[1]
His complete argument[2] makes a lot of sense, but I just liked the quote above.
[1] http://www.brisbanetimes.com.au/technology/technology-news/h...
[2] http://bhorowitz.com/2011/03/24/bubble-trouble-i-don%E2%80%9...
He has a simple response to those who say Silicon Valley is in the midst of another bubble, including those who have criticised his firm's large investments as having played a role in inflating the bubble. It's LL Cool J's song Going Back to Cali: "I'm going back to Cali ... hmm, I don't think so." "It's totally about the way he said it — 'Hmm, I don't think so' — which is how I was feeling about the bubble talk," Horowitz said.[1]
His complete argument[2] makes a lot of sense, but I just liked the quote above.
[1] http://www.brisbanetimes.com.au/technology/technology-news/h...
[2] http://bhorowitz.com/2011/03/24/bubble-trouble-i-don%E2%80%9...
Ben Horowitz a man who stands to make money on inflating the bubble is trying to convince others about the soundness of startup economics through rap lyrics? Hmm, not exactly convincing - rather the opposite.
The #1 sign we are in a bubble is that people are writing articles saying we are not in a bubble.
For reference, compare the following two editions of a book regarding the recent housing bubble. These were written by the chief economist for the National Association of Realtors at the time, David Lereah.
Original title (2005):
http://www.amazon.com/Are-Missing-Real-Estate-Boom/dp/038551...
"Updated" title (2006):
http://www.amazon.com/Real-Estate-Boom-Will-Bust/dp/03855143...
I think we all know what happened next.
When people start spewing denial, it's time to think about heading for the exits.
For reference, compare the following two editions of a book regarding the recent housing bubble. These were written by the chief economist for the National Association of Realtors at the time, David Lereah.
Original title (2005):
http://www.amazon.com/Are-Missing-Real-Estate-Boom/dp/038551...
"Updated" title (2006):
http://www.amazon.com/Real-Estate-Boom-Will-Bust/dp/03855143...
I think we all know what happened next.
When people start spewing denial, it's time to think about heading for the exits.
The metric falls down if the company is pushing a 3D-printer for making ice sculptures.
Maybe we are not in tech bubble but there a lot of crappy companies raising a lot of capital.
The best signal pointing we are not in a tech bubble is the amount of people talking about we are in a bubble. On a real bubble only a small minority (often ignored, despised or even ridiculed by the maiority) think there is a bubble. I don't see this happening now.
I'd argue the opposite.
Agreed -- have people no memory or perspective of the housing bubble? "Get in now or you'll be priced out of the market forever! Real estate never goes down!" RE agents courted sellers and ignored buyers.
I often remember the Emerson quote, "The louder he talked of his honor, the faster we counted our spoons." Sometimes an uptick in everything-is-A-OK bluster is a pretty good indicator that things are about to crater.
I often remember the Emerson quote, "The louder he talked of his honor, the faster we counted our spoons." Sometimes an uptick in everything-is-A-OK bluster is a pretty good indicator that things are about to crater.
I agree. My point is that when big bubbles are forming there is a almost general consensus that it is a good and secure investment and everybody should get into it. There is not much evidence to argue against it and the minority that have the ability/vision to perceive it are considered pessimists by the majority.
Today it seems to be at least 50/50, those who believe in a tech bubble and those who don't. This is too much people believing it is a bubble for it to really be. So my guess is it isn't.
One sign we are in a tech bubble: People feel the need to explain why we're not. I'm not trying to be a smartass. Honestly, it seems like we're just all trying to convince each other there isn't a bubble. It's so simple to see and that's probably why no one sees it. We're in so deep that we look at everything but the obvious. We've got a billion tech companies that take funding first and decide how to monetize later. Most of them fail. Those that succeed still don't quite make it to figuring out how to monetize. In essence, we have a lot of neat toys using super cool tech that get funded but never quite get how to be a business in that investors seem to be the only source of their revenue. Eventually someone has to get paid back and if tech companies aren't making a buck and investors are being paid back eventually there's no one left to invest and the bottom falls out. It's more complicated than that but looking at the complexity is what tricks you into thinking the bubble isn't there.
Do not understand the logic. For example, I could say that the proof that God exists is the amount of time atheists spend in explaining how God does not exist etc.
It's in the way it's being done. The argument for why we should be cautious is straightforward. It consists of simply pointing out that people seem to be spending a lot of money on assets for which the price has been rising rapidly, and they're doing it based on a soft thesis of simply assuming that a past trend will continue into the future wrapped in a thin candy shell of hype.
A compelling counter-argument to the assertion that people are overvaluing tech would be a clear explanation of why the prices being spent on tech companies now are justified by compelling reasons to believe that those companies can produce value for shareholders by either delivering a portion of profits to the owner's pockets or by increasing the fundamental value of the company. This explanation would of course need to be finished off by a case for why the amount of value that can be delivered to shareholders is in proportion to price at which those shares are trading hands.
On the other hand, folks churning out lists of reasons why "this time it's different" that are peppered with buzzwords like 'transformative', but never getting around to directly addressing the actual question at hand in any sort of articulate manner, have been something of a mascot for the past few market bubbles. Consequently, seeing them coming out of the woodwork yet again does not inspire confidence. No, it's not proof that we're in a bubble. But it takes some heroic naivete to see that behavior and not think, "Hmm, now where have I seen people acting like this before?"
A compelling counter-argument to the assertion that people are overvaluing tech would be a clear explanation of why the prices being spent on tech companies now are justified by compelling reasons to believe that those companies can produce value for shareholders by either delivering a portion of profits to the owner's pockets or by increasing the fundamental value of the company. This explanation would of course need to be finished off by a case for why the amount of value that can be delivered to shareholders is in proportion to price at which those shares are trading hands.
On the other hand, folks churning out lists of reasons why "this time it's different" that are peppered with buzzwords like 'transformative', but never getting around to directly addressing the actual question at hand in any sort of articulate manner, have been something of a mascot for the past few market bubbles. Consequently, seeing them coming out of the woodwork yet again does not inspire confidence. No, it's not proof that we're in a bubble. But it takes some heroic naivete to see that behavior and not think, "Hmm, now where have I seen people acting like this before?"
Articles explaining why we are in a tech bubble pop up constantly. This is the first article that I can recall in the last half year taking the opposite position.
But to his point about a possible bubble- I think it all depends upon exactly how you define this thing we call a bubble. If you compare the climate of today's dot com startups with that of the 90's, certainly we are nowhere close. Very few internet companies are going public these days, and those that are aren't enough to create a bubble large enough that a collapse would mean more than a microscopic percentage of the market at large losing a substantial amount of money. Most employees are not paid entirely in stock, so you wouldn't see a whole class of people go from millionaires to penniless in a matter of days.
However, if you define a bubble simply as a disproportionately large number of businesses in a particular industry being obscenely overvalued, I think we've been there for a few years. I don't think it will end abruptly from a string of bankruptcies or a market crash like the last one. I think it will end when the market becomes sufficiently saturated with businesses creating such a small amount of value that other industries become more attractive for investment. When the money leaves, people will pursue businesses in those industries.