6 ms·

One major difference is that large parts of the internet are economically viable, and not just driven by money pumped in by VCs and IPOs. Back in 2000, there wa

by dvirsky 11y ago

One major difference is that large parts of the internet are economically viable, and not just driven by money pumped in by VCs and IPOs. Back in 2000, there was little real consumer money going into the web's money cycle. Google didn't even have Adwords back then! Of course there's still a large chunk of revenue today that is just recycling VC money - e.g. apps advertising in other apps, or AWS which is a huge sink of VC money from other startups. But there is a lot more "end user" money coming in from real people and companies that purchase products and services online. Even if that flow stops, the internet today is less of a ponzi scheme as a whole.

timr 11y ago
You're right that there's more legitimate internet revenue than in 2000. But most of that is going to a few established players that are decidedly post-unicorn in nature. I don't think Google is going anywhere (though Twitter might just get its fatal wound; that would be a particularly symmetrical ending, wouldn't it? Company born of the ashes of dot-com 1.0 dies in the explosion of dot-com 2.0. But, I digress.) From what I know, most of the "unicorns" are neither profitable nor particularly modest with their spending. They are vulnerable to any sort of turn in investor sentiment, even if their revenue streams are real.
- dvirsky 11y ago
  Yeah, of course, there's a real valuation bubble going on. I don't think we'll see twitter going anywhere, too - it's a good product after all. But maybe returning to its real size in terms of worth, number of employees and spending.
- somberi 11y ago
  I find this article thoughtful: http://www.economist.com/news/briefing/21659722-tech-boom-may-get-bumpy-it-will-not-end-repeat-dotcom-crash-fly http://www.economist.com/news/briefing/21659722-tech-boom-ma... The key is that allegedly "overvalued" companies (like Uber say)are still under private investment which has a larger appetite for risk. Whereas in the last boom, most of the speculation were fueled by publicly traded tech stocks. Edit: Grammar.
  - jamesblonde 11y ago
    But privately owned companies are now funded largely by private equity who are massively leveraged. They will be first to the exits. IPOs meant the pain was more spread around among stock holders. Now the pain will be more concentrated among highly indebted leveraged investors. It won't end prettily.
    - danieltillett 11y ago
      Yes we have funded high beta investments with high beta capital. This works great in the boom, but the unwind is a killer.
      - somberi 11y ago
        In the barren wilderness of near 0% interest, wealth shelters under leafless trees, risking lightning strikes.
        selimthegrim 11y ago
        Have you considered writing haikus to accompany Matt Levine's articles? I see a bright future for you.
      - Balgair 11y ago
        I'm a bit new to the whole lingo of The Valley. Could you explain a little more verbosely what you meant by that sentence? What is beta capital and beta investments? What is considered high? What denotes a boom and what is an unwind? How bad is a killer unwind, what does that mean really? Again, sorry, trying to learn the fast lingo here.
        jkimmel 11y ago
        Beta is a coefficient that attempts to measure an investment's likelihood to move 'with the market.' The total market has a Beta == 1 by definition, with beta ratings above 1 indicating higher volatility/sensitivity to market movements, and vice-versa. See Wikipedia for how the calculations are made. https://en.wikipedia.org/wiki/Beta_%28finance%29 https://en.wikipedia.org/wiki/Beta_%28finance%29 In this context, I a 'high beta investment' is likely to move with the market, ie) is dependent on some aspect of market performance. 'Beta capital' I think refers to using sources of capital that are likely to become more or less available depending on the market. I've never heard of capital sources being given beta values though, so I think this may be a finance/VC colloquialism rather than an actual calculated value. Disclaimer: I am not a VC and may be totally wrong. http://www.investopedia.com/terms/b/beta.asp http://www.investopedia.com/terms/b/beta.asp
- netcan 11y ago
  What are you considering Unicorn? Small, early stage companies (say <100 employees, <250m valuation) that high profile investors are competing to get in on? If so, most of them are supposed to fail. The money is still small by systemic standards and so are the number of people affected. Volatility here is not dangerous, it's expected. Or, are you talking about the Unicorns expected to go public any day now? The Ubers and AirBnBs? Thee are also kind of retrospectively Unicorns at this stage. If these guys go under, that's a problem. But, these guys aren't rely reliant on investor sentiment.
  - dvirsky 11y ago
    > What are you considering Unicorn? A start-up that's worth over $1B https://en.wikipedia.org/wiki/Unicorn_(finance) https://en.wikipedia.org/wiki/Unicorn_(finance)
puranjay 11y ago
You're right. Startups are overvalued. But they're still making money. The Indian 'unicorns' - Flipkart, Snapdeal, Ola, etc. have real revenues and customers. Do they deserve their $1Bn valuations? Probably not. But do they have enough customers to give them $100M-$1B revenues? Yes. If these startups were public companies, they'd still be valued at at least half of what their last Crunchbase entry says
- dvirsky 11y ago
  The ones who are in much more risk are those "selling shovels in a gold rush" - i.e. companies with a revenue stream based on services and products to other start-up companies.
- Sven7 11y ago
  They have serious competition from Amazon and Uber. These are low/no margin, cash flow businesses, surviving on economies of scale. Can they survive a funding crunch? Who knows...
  - puranjay 11y ago
    This is what I wonder as well. Uber has grown massively here, but it has managed to do so by essentially bribing drives with incentives and riders with steep discounts. Once the discounts go and they have to start charging market rates, I wonder how it will affect their prices. At market rates, I don't think most customers here will choose them. But then again, while a cab company operates at, say, 20% profit margin to break even, Uber can probably operate at 5% margin thanks to its scale.
- jsudhams 11y ago
  I agree that they have real customer and service. But i think they will still go away. It is definitely a convinience that these service provides but see where Meru or Cell cab and so on... Once the volumes drops it is very difficult to continue these business. I think flipkart still does not make any money and customers are now aware that they exploit or cheat when it comes lot of home appliances and cloth. Most of the items you find on flipkart/snapdeal is priced higher just to show how much discount they give.i had purchased many items they have (non branded (which is about 75%) ) that are shown Rs 1000,50% off Rs 500 and in local market it is priced at Rs 500 and sold at Rs 475 with 5% off. But most people will chose 50% off :(. But slowly flipkart will become a price chcecking website than actual price. Don't get started on appliances and service....
amyjess 11y ago
> Google didn't even have Adwords back then! Google didn't, but banner ads were around back then, and they were one of the main ways of making money off the Internet until the market bottomed out. DoubleClick was a pretty major player for years before Google bought them. I remember lots of websites saying they suddenly had problems affording their hosting around 2000 because their banner ads suddenly started paying them pennies when they used to provide at least enough cash to cover the server bills. And that started the trend of websites accepting more and more intrusive ads, because they made more money than banner ads. Pop-ups became popular because pop-ups made money and banner ads didn't.

by dvirsky 11y ago

timr 11y ago

You're right that there's more legitimate internet revenue than in 2000. But most of that is going to a few established players that are decidedly post-unicorn in nature. I don't think Google is going anywhere (though Twitter might just get its fatal wound; that would be a particularly symmetrical ending, wouldn't it? Company born of the ashes of dot-com 1.0 dies in the explosion of dot-com 2.0. But, I digress.) From what I know, most of the "unicorns" are neither profitable nor particularly modest with their spending. They are vulnerable to any sort of turn in investor sentiment, even if their revenue streams are real.

dvirsky 11y ago
Yeah, of course, there's a real valuation bubble going on. I don't think we'll see twitter going anywhere, too - it's a good product after all. But maybe returning to its real size in terms of worth, number of employees and spending.
somberi 11y ago
I find this article thoughtful: http://www.economist.com/news/briefing/21659722-tech-boom-may-get-bumpy-it-will-not-end-repeat-dotcom-crash-fly http://www.economist.com/news/briefing/21659722-tech-boom-ma... The key is that allegedly "overvalued" companies (like Uber say)are still under private investment which has a larger appetite for risk. Whereas in the last boom, most of the speculation were fueled by publicly traded tech stocks. Edit: Grammar.
- jamesblonde 11y ago
  But privately owned companies are now funded largely by private equity who are massively leveraged. They will be first to the exits. IPOs meant the pain was more spread around among stock holders. Now the pain will be more concentrated among highly indebted leveraged investors. It won't end prettily.
  - danieltillett 11y ago
    Yes we have funded high beta investments with high beta capital. This works great in the boom, but the unwind is a killer.
    - somberi 11y ago
      In the barren wilderness of near 0% interest, wealth shelters under leafless trees, risking lightning strikes.
      - selimthegrim 11y ago
        Have you considered writing haikus to accompany Matt Levine's articles? I see a bright future for you.
    - Balgair 11y ago
      I'm a bit new to the whole lingo of The Valley. Could you explain a little more verbosely what you meant by that sentence? What is beta capital and beta investments? What is considered high? What denotes a boom and what is an unwind? How bad is a killer unwind, what does that mean really? Again, sorry, trying to learn the fast lingo here.
      - jkimmel 11y ago
        Beta is a coefficient that attempts to measure an investment's likelihood to move 'with the market.' The total market has a Beta == 1 by definition, with beta ratings above 1 indicating higher volatility/sensitivity to market movements, and vice-versa. See Wikipedia for how the calculations are made. https://en.wikipedia.org/wiki/Beta_%28finance%29 https://en.wikipedia.org/wiki/Beta_%28finance%29 In this context, I a 'high beta investment' is likely to move with the market, ie) is dependent on some aspect of market performance. 'Beta capital' I think refers to using sources of capital that are likely to become more or less available depending on the market. I've never heard of capital sources being given beta values though, so I think this may be a finance/VC colloquialism rather than an actual calculated value. Disclaimer: I am not a VC and may be totally wrong. http://www.investopedia.com/terms/b/beta.asp http://www.investopedia.com/terms/b/beta.asp
netcan 11y ago
What are you considering Unicorn? Small, early stage companies (say <100 employees, <250m valuation) that high profile investors are competing to get in on? If so, most of them are supposed to fail. The money is still small by systemic standards and so are the number of people affected. Volatility here is not dangerous, it's expected. Or, are you talking about the Unicorns expected to go public any day now? The Ubers and AirBnBs? Thee are also kind of retrospectively Unicorns at this stage. If these guys go under, that's a problem. But, these guys aren't rely reliant on investor sentiment.
- dvirsky 11y ago
  > What are you considering Unicorn? A start-up that's worth over $1B https://en.wikipedia.org/wiki/Unicorn_(finance) https://en.wikipedia.org/wiki/Unicorn_(finance)

puranjay 11y ago

You're right. Startups are overvalued. But they're still making money. The Indian 'unicorns' - Flipkart, Snapdeal, Ola, etc. have real revenues and customers. Do they deserve their $1Bn valuations? Probably not. But do they have enough customers to give them $100M-$1B revenues? Yes. If these startups were public companies, they'd still be valued at at least half of what their last Crunchbase entry says

dvirsky 11y ago
The ones who are in much more risk are those "selling shovels in a gold rush" - i.e. companies with a revenue stream based on services and products to other start-up companies.
Sven7 11y ago
They have serious competition from Amazon and Uber. These are low/no margin, cash flow businesses, surviving on economies of scale. Can they survive a funding crunch? Who knows...
- puranjay 11y ago
  This is what I wonder as well. Uber has grown massively here, but it has managed to do so by essentially bribing drives with incentives and riders with steep discounts. Once the discounts go and they have to start charging market rates, I wonder how it will affect their prices. At market rates, I don't think most customers here will choose them. But then again, while a cab company operates at, say, 20% profit margin to break even, Uber can probably operate at 5% margin thanks to its scale.
jsudhams 11y ago
I agree that they have real customer and service. But i think they will still go away. It is definitely a convinience that these service provides but see where Meru or Cell cab and so on... Once the volumes drops it is very difficult to continue these business. I think flipkart still does not make any money and customers are now aware that they exploit or cheat when it comes lot of home appliances and cloth. Most of the items you find on flipkart/snapdeal is priced higher just to show how much discount they give.i had purchased many items they have (non branded (which is about 75%) ) that are shown Rs 1000,50% off Rs 500 and in local market it is priced at Rs 500 and sold at Rs 475 with 5% off. But most people will chose 50% off :(. But slowly flipkart will become a price chcecking website than actual price. Don't get started on appliances and service....

amyjess 11y ago

> Google didn't even have Adwords back then! Google didn't, but banner ads were around back then, and they were one of the main ways of making money off the Internet until the market bottomed out. DoubleClick was a pretty major player for years before Google bought them. I remember lots of websites saying they suddenly had problems affording their hosting around 2000 because their banner ads suddenly started paying them pennies when they used to provide at least enough cash to cover the server bills. And that started the trend of websites accepting more and more intrusive ads, because they made more money than banner ads. Pop-ups became popular because pop-ups made money and banner ads didn't.