This week, Forbes posted an article about all the “troubles” Twitter is having, and there have been numerous responses in the blogosphere (this one is the best, if it interests you). The more interesting take on “all of this”, as in, the possibility that us even caring about Twitter’s lack of revenue is a sign of a bubble, came from BusinessWeek. In summation, that article’s author feels that this tech bubble is worse than the tech bubble of the 2000s, because that prior bubble gave us infrastructure in the form of foundational technologies like Amazon, Ebay, Google, etc, whereas this tech bubble has focused on us buying stuff (Facebook monetizes through ads, Groupon, etc.).
First off, Amazon and Ebay just sold us stuff, so there’s hardly an argument that our focus on consuming goods has changed meaningfully from the last bubble to this one. Maybe Google was transformative in the way we did email, and they’ve done other interesting things with information more generally (google scholar, their book scanning project, etc.), but Facebook provided something very valuable in it’s social network, and that concept will live long after Facebook just like Google’s contributions to communication and information will survive them.
Second, the bubble of the 2000s was based on technologies that largely didn’t have business plans, and were just concepts regarding doing something online. Pets.com, for example, went public, spent $1.2 million on a Super Bowl commercial, never made a profit, and collapsed in less than a year. And that trend was actually rather common in the 2000s tech bubble. Today, Bubble-sayers tend to point to high valuations as a sign of a bubble, ignoring the fact that valuations mean very little in practice: it just impacts what share of the company VCs and angels get when they invest, and how successful the company needs to be to not have a down round. But it doesn’t indicate anything about the amount of money actually being invested, and very few of the web giants today have even gone public. Facebook and Zynga, as opposed to the non-revenue generating companies of yore, are extremely profitable, as is Groupon and other current “bubble” companies.
Third, though in a way somewhat related to the last point, the public isn’t at risk in this bubble. Only a handful of companies have gone public in the tech/web market, and the big players are staying private. Private companies are limited in the sorts of investors they can have, and as such no company outside Zynga and Facebook have big investments from companies that are managing the public’s money. In the 2000s, it was a damaging bubble because many unsophisticated, average joe investors had money in those unprofitable, all-hype companies. Now, if the bubble bursts, only VCs lose.
We should stop worrying about his bubble thing so much.
danielmarkmiller.net 