As you're completing this poll, consider the following (a post to my blog about a potential bubble, Jan 21):
There has been discussion lately about whether recent valuations of emerging Internet companies reflect a second Internet bubble. A recent investment by Goldman Sachs valued Facebook at $50b. In the secondary markets, Facebook’s valuation has since increased to $70b. The sky high valuations are not exclusive to Facebook. Analysts suggest that Groupon is planning a $17b IPO. Meanwhile, Zynga has an implied valuation of $5.8b, based on trading of its shares on the website SharePost. The list goes on. The question is, do these valuations indicate a second industry-wide Internet bubble, much like the bubble and subsequent crash in 2000? Or is something else going on?
A look at the progression of other infrastructural technologies is useful. Consider the history of electricity. Paul David, an economic historian at Stanford, noted that it took many decades for business and society to reap tangible benefits from electricity. While important technologies were introduced throughout the 1800s (e.g., electric motors, light bulbs, generation stations), David suggests that an observer in 1900 would have found scant evidence that electricity was having an impact on business efficiency. To take advantage of electricity required not only the introduction of new technologies, but also a deepening of our understanding and in turn a transformation of business and social processes. For instance, manufacturing facilities, which were originally designed for steam power, needed to be significantly reconfigured.
Although David’s discussion was focused on the lag in productivity improvements resulting from electricity, it provides some useful insights about the state of the Internet and its commercialization. While the first computers emerged in the 1940s, and the Internet was born in the 1960s, it wasn’t until much later that computing and the Internet were widely adopted by business and consumers. For instance, it wasn’t until the early 1990s that the Internet transitioned from a government/ academic project to a commercially available system, and the Internet wasn’t broadly available to consumers until the mid-1990s.
In a mere five years from the commercial emergence of the Internet, we faced the first Internet bubble and bust in 2000. Looking back at history, it’s no surprise that the first wave of applications generally performed disappointingly, both technically and commercially. Broadband connectivity, the Internet backbone, and critical software and hardware standards were still in the early stages of development. Along with an emerging infrastructure, there was a limited understanding of the potential of the Internet among entrepreneurs, established companies, and broader society.
Now that we’ve had 10 more years to develop core infrastructure and to deepen our understanding of the Internet (and computing) from a technical and commercial standpoint, we are witnessing the emergence of a new crop of high-growth companies. Distinct from many of the Internet companies that arose in the late 1990s, a greater percentage of today’s companies receiving venture funding are both technically and commercially viable. Many deliver real customer value and have a tenable revenue model. In addition, to companies such as Facebook, Groupon, and Zynga, there are a myriad of smaller successful ventures, such as Pandora, Dropbox, and Airbnb.
To conclude, the 2000 bubble arose just a few years after the commercialization of the Internet. There was excitement about the potential of the Internet, but the supporting infrastructure and our knowledge was in its relative infancy. A decade later, we have made significant progress on both fronts. The latest new ventures incorporate technologies and business models that reflect significant infrastructure improvements and our maturing knowledge-base. Are select companies, such as Facebook or Groupon, overvalued? It’s certainly possible. Does this overvaluation reflect an industry-wide bubble? I don’t think so. In fact, I think we are at the early stages of a multi-decade transformation, catalyzed by computing and the Internet, and we will continue to see significant opportunity and new venture growth in this space. We are moving toward ubiquitous computing and connectivity, where technology pervades our business and personal lives. Personally, I look forward to participating in this exciting and dynamic future!
I so hope you're right, but I think this firmly falls into the "This time it's different category". Each bubble has people saying this for various different reasons. I upvoted but disagree because no amount of explanation will make me digest a 50 billion dollar valuation for facebook. I think people just got used to big numbers because of all the bailouts that happened last year.
It's good atleast that people are talking about this though. I wonder how much discussion there was about a possible bubble in 99.
But are the odd billion dollar valuations outliers or representative? How many profitable tech startups are they surrounded by? Is the support for those profits sustainable?
In terms of what makes me feel like we're in a pattern that is similar to '97-'00 it isn't just the very large valuation companies, in fact that isn't much of it at all to me.
It seems to be across the entire spectrum - VC's showing up to initial meetings with term sheets, higher initial valuations, very young companies being sold for high amounts, lots of rather underwhelming products/models, accelerating valuation increases and a public and press fascination with the sector.
I'm not saying that's conclusive proof at all, but many behaviors seem very familiar.
We could be seeing an aftershock from the last one. It seems like a lot of VCs either are or are working with people who cashed out near the high point of the boom.
Precisely: the people insisting that we're in yet another bubble cannot make the distinction between anecdotal and representative companies. Yes, there a handful of companies that may be overvalued. That is not going to take down the economy, no matter what happens. If you think it is: you either weren't around for the real bubble, or you weren't paying attention.
All the analysts were saying similar things in 2000... the field is misunderstood, there are great transformative forces at play, you needed to subscribe to our new theories about how things work to understand everything, etc., etc. These valuations are naive projections of future growth -- most likely these firms will reach constraints on future growth.
'99: a .com needed a team of engineers and a big expensive server to try a new idea
'11: one guy, one weekend, and a day's pay for a cloud service to try a new idea
There are legitimate fundamental differences between then and now. Think about how many people toss up a weekend project for review here on HN that would have been a huge team effort back then. I'm not saying I can see the future (like a lot of people tried to then), but it doesn't seem as hazardous this time around.
Yes, you can "try" an idea in a weekend, but it's only going to be a rough sketch, not a polished experience. You still need a team and months/years of effort to bring it up to the next level so it can get the billion dollar valuation. How many weekend projects have billion dollar valuations?
Edit: In reply to mkr-hn whose comments I cannot reply to for some reason... I believe that this thread was about a bubble and billion dollar valuations not weekend companies worth much less.
You're overestimating the "logic" used by the MBAs who drove the '90s dot-com bubble. The costs were higher, but cash flowed easily from VCs back then, as well.
Actually, that's not exactly true. Remember the term 'irrational exuberance'? Alan Greenspan wasn't talking about how everything was peachy keen, and that was well before the implosion.
There seems to be an assumption here that most of the business ideas during the bubble were bad ideas. That's not true at all. In fact many of the earlier bubble ideas have since been recycled. They were simply before their time is all.
Now there certainly were a lot of bad ideas that got funding, but that was after the gold rush was already established. They were a symptom of the enthusiasm and optimism, and the lack of other high return investments.
I actually think this is a bubble, and it's much worse than the last one. Valuations are insane. There's very little investment competition from other verticals. Making it as shiny, if not shinier than it's ever been to a potential investor... which can only lead to...
most of the business ideas during the bubble were bad ideas
Maybe not most, but a significant number of business ideas during the dot-com boom were ill-conceived. Profit and sustainability were things that would simply happen as if by magic; the idea was to get a company out there, spend a lot of VC money marketing and building, and the rest would fall into place (as immortalized on South Park by "Collect Underpants ... ... Profit!").
Certainly there are companies today that resemble that M.O. a bit -- Twitter is useful and interesting, but their business model is still a work in progress after years. Most companies today are more sensical, are smaller in size and need less cash.
it's much worse than the last one. Valuations are insane
You obviously don't remember the dot-com boom. It's not worse; today is nothing compared to the ridiculousness of that era. A scant few companies have valuations that are questionable or appear ridiculous. They may be. But most companies -- the vast majority -- are not operating on crazy valuations. Back then, every company that began with an "i" or an "e" was worth millions, automatically. Today, we have, what, about five that are overvalued? That's a "bubble"? No, that's just exaggeration -- and a wild misunderstanding of what "bubble" means.
I think many people here are comparing the late stages of the dot-com bubble with what I would call the early stages of the current bubble. I remember it gradually getting hyped at first, then it hit a tipping point when pets.com happened (I miss the sock puppet). I also remember a lot of really great ideas being explored before it tipped.
So, I do remember the dot-com boom (in fact I was at a startup in Seattle during it), but I guess I remember the beginning of it being more humble.
I think we're just getting warmed up now and to me all the signs are there. This is when the hype companies are starting to show up. The recent high valuations are going to fuel the fire, and it's starting to get nuts. I don't think the lower operating costs are a factor. Most of the high profile dot-coms blew their wad on marketing.
It's just an opinion though, and it wouldn't be the first time I was wrong. Guess we'll see how it goes.
No Tech Bubble specifically - ALL ASSETS OVERVALUED because the FED is adding trillions of $$ to the capital markets, most of which is being used to drive up commodity prices (intended to increase bank lending while also helping Wall Street Banksters get richer). IT'S CALLED INFLATION (almost hyper) and you can thank the US Goberment for increasing all of your input prices and food costs.
I have to think you are correct. Even if there are valuations that are unwarranted, it is not equivalent to the Dot-Com bubble, where almost all companies were getting flooded with cash and high stock valuations on ZERO revenue.
I don't want to ignore the possibility of a secondary recession, but I can't see much merit in talk of a 'bubble bursting'. This isn't much of a bubble.
A dangerous bubble is when your neighbors, parents, sisters and coworkers start talking about leaving their jobs and making it big in 'whatever' the big thing is...real estate, dot coms....gold...this might seem like the case in SV, but it isn't common anywhere else in the country, yet.
As with anything in a good market, something of value will prevail while something that adds little value will be popped. If your product is useful your fine. If not be weary.
There has been discussion lately about whether recent valuations of emerging Internet companies reflect a second Internet bubble. A recent investment by Goldman Sachs valued Facebook at $50b. In the secondary markets, Facebook’s valuation has since increased to $70b. The sky high valuations are not exclusive to Facebook. Analysts suggest that Groupon is planning a $17b IPO. Meanwhile, Zynga has an implied valuation of $5.8b, based on trading of its shares on the website SharePost. The list goes on. The question is, do these valuations indicate a second industry-wide Internet bubble, much like the bubble and subsequent crash in 2000? Or is something else going on?
A look at the progression of other infrastructural technologies is useful. Consider the history of electricity. Paul David, an economic historian at Stanford, noted that it took many decades for business and society to reap tangible benefits from electricity. While important technologies were introduced throughout the 1800s (e.g., electric motors, light bulbs, generation stations), David suggests that an observer in 1900 would have found scant evidence that electricity was having an impact on business efficiency. To take advantage of electricity required not only the introduction of new technologies, but also a deepening of our understanding and in turn a transformation of business and social processes. For instance, manufacturing facilities, which were originally designed for steam power, needed to be significantly reconfigured.
Although David’s discussion was focused on the lag in productivity improvements resulting from electricity, it provides some useful insights about the state of the Internet and its commercialization. While the first computers emerged in the 1940s, and the Internet was born in the 1960s, it wasn’t until much later that computing and the Internet were widely adopted by business and consumers. For instance, it wasn’t until the early 1990s that the Internet transitioned from a government/ academic project to a commercially available system, and the Internet wasn’t broadly available to consumers until the mid-1990s.
In a mere five years from the commercial emergence of the Internet, we faced the first Internet bubble and bust in 2000. Looking back at history, it’s no surprise that the first wave of applications generally performed disappointingly, both technically and commercially. Broadband connectivity, the Internet backbone, and critical software and hardware standards were still in the early stages of development. Along with an emerging infrastructure, there was a limited understanding of the potential of the Internet among entrepreneurs, established companies, and broader society.
Now that we’ve had 10 more years to develop core infrastructure and to deepen our understanding of the Internet (and computing) from a technical and commercial standpoint, we are witnessing the emergence of a new crop of high-growth companies. Distinct from many of the Internet companies that arose in the late 1990s, a greater percentage of today’s companies receiving venture funding are both technically and commercially viable. Many deliver real customer value and have a tenable revenue model. In addition, to companies such as Facebook, Groupon, and Zynga, there are a myriad of smaller successful ventures, such as Pandora, Dropbox, and Airbnb.
To conclude, the 2000 bubble arose just a few years after the commercialization of the Internet. There was excitement about the potential of the Internet, but the supporting infrastructure and our knowledge was in its relative infancy. A decade later, we have made significant progress on both fronts. The latest new ventures incorporate technologies and business models that reflect significant infrastructure improvements and our maturing knowledge-base. Are select companies, such as Facebook or Groupon, overvalued? It’s certainly possible. Does this overvaluation reflect an industry-wide bubble? I don’t think so. In fact, I think we are at the early stages of a multi-decade transformation, catalyzed by computing and the Internet, and we will continue to see significant opportunity and new venture growth in this space. We are moving toward ubiquitous computing and connectivity, where technology pervades our business and personal lives. Personally, I look forward to participating in this exciting and dynamic future!