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Poll: Tech Bubble?

224 points by stevenj 16y ago

Cause for concern? Are people overreacting? Perhaps a little bit of both? *Would love to hear PG's thoughts on this

rue 16y ago
The entire financial sector and large parts of the economy are a bubble but it doesn't matter unless people panic over it.
- tomkarlo 16y ago
  It does matter, because it means huge amounts of capital is being mis-allocated - that's money that could be better invested elsewhere, assuming those sectors are in fact overvalued.
  - rue 16y ago
    Oh, true. I meant only in the sense of market stability which is above all psychological.
TomOfTTB 16y ago
I personally think we are at the beginning of a bubble but I'd just like to throw one thought out there. A bubble is only a problem if the businesses spend like the bubble will never end. If companies use their money judiciously than they stay in business and their investors eventually get a pay off (think of companies that survived the first bubble and how rich their investors are now) So if you're a startup you should act like any other business and get profitable as quickly as possible. If you're an investor you should only invest in companies that use their money wisely. If you do that the bubble shouldn't have any impact on you.
chalst 16y ago
Bubble means what? Tech IPOs? Commodity prices?
- stevenj 16y ago
  Tech bubble; I edited the headline.
Kilimanjaro 16y ago
When people invest $10M in the next social tag-me-too mobile app, then yes, we are in a bubble that will pop after some get-rich-quick IPOs in the next couple of years.
mkr-hn 16y ago
The difference this time around is that: 1: People started worrying about profitability years ago and are actually trying to make it happen 2: There are quite a few tech giants and hundreds of smaller tech companies with stable income sources Remember that in '99 Microsoft hadn't launched XP, Google was years away from an IPO, and cell phones were still a luxury. I think there are little bubbles here and there, but the pop won't be as devastating.
- stcredzero 16y ago
  What should the contingency planning consist of? Personally, I'm seriously considering quitting my job and moving to a startup hub. Should this affect my plans? Should I wait for the pop, plus 6 months, saving up money from my day job, then move?
  - mkr-hn 16y ago
    I'm not too qualified on the specific sector, but if I were looking for a stable job, I'd look at the company's income sources and investments. I'm sure someone will be along with specific advice shortly.
    - stcredzero 16y ago
      I'm not looking for a stable job. I'm considering when I should get rid of one.
  - knowsnothing613 16y ago
    wait until atleast Sept. QE2 ends in June. So the Fed will stop pumping money into the economy. You'll have a good idea if we'll slump into a double dip recession by September.
    - haploid 16y ago
      We will see. If I were a betting man, I would wager that Helicopter Ben will announce QE3 before June.
abello 16y ago
If bubble means too much money invested in shitty companies, YES. If bubble means all those investors will retract and stocks will go to hell (like 2000), NO.
- sabat 16y ago
  Bubble does not mean too much money invested in a few (potentially) shitty companies. That's a ridiculous mis-use of the word. Ergo: no bubble.
clojurerocks 16y ago
Its absolutely a bubble.
sdizdar 16y ago
We are not in bubble - this is refection of our monetary policy. Look at commodity prices. Look at stock market. I think the real bubble is bond market - which is causing froth all over the market.
- nkassis 16y ago
  as long as money is free, this is not a bubble.
antirez 16y ago
If it's a bubble for sure it's not as big as the latest one. At least now acquisitions are happening either as an alternative way to hire good talents, or about services that may not be profitable but are surely really popular among users, and most of the time there is somewhat a business model that makes sense. That is in general, but I think we saw a few very strange things in the latest couple of months.
mmurph211 16y ago
Perhaps tech is the strongest future financial bet in business.
jsmcgd 16y ago
Not a bubble. Relatively few high valuation investments do not make a bubble. I think there is an inverse correlation between the likelyhood of a bubble versus the amount of people talking about a potential bubble. Perhaps almost by definition.
- tomkarlo 16y ago
  The headline number doesn't have to be big for there to be overvaluation going on en masse. What about the hundreds of early-stage fundings going on right now? I don't think there's been a sudden explosion in the number of good companies being started - just a huge increase in the number of investments that angels and VCs are willing to make. That's a sign of a bubble
joshhepworth 16y ago
It's hard to say what exactly is happening right now, but I don't think there's much of a reason to expect an industry wide "pop" soon. As mkr-hn said, the companies are certainly more responsible now than a decade ago, and despite the seemingly outrageous valuations of companies like Facebook, Twitter, and Zynga, there are equally as many reasonable valuations for smaller, still successful, tech companies.
darbor 16y ago
It's all cylical, always has been, always will be. Where else are you going to put your cash.....the bank so you can 1.5%? Or how about some realestate?
- deleted 16y ago
  [deleted]
mjfern 16y ago
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!
kirpekar 16y ago
To remind everyone: An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"
- mkr-hn 16y ago
  I think most people here use it to mean "too much money in companies of questionable profitability." Dictionaries are nice, but even they warn that they're descriptive, not prescriptive. Even a comprehensive dictionary will miss definitions in narrow contexts like tech investment.
kenjackson 16y ago
Is it common to have an industry bubble (an industry as large as tech) in the middle of coming out of a huge recession?
- tesseract 16y ago
  I don't see a "tech" bubble, just (maybe) a social media one.
  - borism 16y ago
    look again http://www.google.com/finance?chdnp=1&chfdeh=0&chdet=1297976400000&chddm=222930&cmpto=INDEXDJX:.DJI;INDEXSP:.INX;INDEXNASDAQ:.IXIC&cmptdms=0;0;0&q=INDEXDJX:.DJI,INDEXSP:.INX,INDEXNASDAQ:.IXIC&ntsp=0 http://www.google.com/finance?chdnp=1&chfdeh=0&chdet...
- JacobAldridge 16y ago
  Some industries move ahead of the broader economic cycle (housing is often used as an example - when time on market in the US exceeds 9 months on average, a recession will usually follow) and some lag behind that cycle or invert the cycle completely (liquidation lawyers, I'm looking at you). 'Tech' is fairly broad, and also (increasingly) linked to other industries. I'd hate to be selling enterprise software to property developers right now, but love to be a start-up connecting companies facing administration with experts to turn them around. So is it common to have a tech boom (I'll get to bubble later) coming out of a recession, leading the way? Yes. Recessions force businesses and consumers to improve efficiencies. They are also times when large corporates 'trim the fat', which often leads to talented people being out of work. Talented people (starting their own business, or applying their talent to aforementioned efficiency demands) create opportunities and value - necessity is the mother of invention. I'm chasing sources now, but can point to businesses like HP and Cisco, and even those that came out of the 70s recession (MS and Apple) as having benefited from the recessionary mindset. Does that means it's common to have a Bubble? Probably not. People are looking for efficiencies, but they don't necessarily have a lot of money to throw at the solutions - and a lot of money is what creates a bubble. Does the rise of the VC over the past 15 years means that liquidity for investment during a recession now exists and we have a bubble? I think it's more likely that what we're seeing is a growth period, heading into a boom, and while some companies may prove to be over-priced it's not an industry bubble.
dstein 16y ago
Selective bubble market. Zynga and GroupOn making tons of real physical money and being valued at something like 25X earnings isn't a bubble. But absurd valuations based purely on audience size with little revenue (Twitter and Facebook) sure as heck is a bubble.
- sabat 16y ago
  absurd valuations based purely on audience size with little revenue (Twitter and Facebook) sure as heck is a bubble. That's not a bubble; that is just overvaluation of a couple of companies. "Bubble" implies that the whole of a sector is wildly overvalued. "Selective bubble" is an oxymoron.
  - dstein 16y ago
    A bubble can describe anything that trades significantly above its net asset value. Investors are overvaluing (in the billions) tech companies with no revenue or business model. The bubble just isn't industry-wide yet.
adrianwaj 16y ago
I watched a video today of someone saying we are heading toward an unavoidable train wreck. http://www.youtube.com/watch?v=-r1XeE-MQV0 http://www.youtube.com/watch?v=-r1XeE-MQV0 (he loses his cool, be warned)
mtviewdave 16y ago
Silicon Valley has always had boom/bust cycles. What's happening now is part of the same pattern that has been going on in the Valley since the '50s. Yes, we're in a boom. But because the last boom created a stock market bubble, it's temping to assume that boom==bubble. I don't think that's true in this case, as bubbles have a significant psychological component that I don't see in the current boom: http://en.wikipedia.org/wiki/Economic_bubble#Social_psychology_factors http://en.wikipedia.org/wiki/Economic_bubble#Social_psycholo...
borism 16y ago
word of caution: usually by the time something is referred to as a bubble, it is already too late to get in or out :) so let's brace ourselves for an impact!
steveplace 16y ago
Probably not. Here's some questions: 1. Exactly what asset class are we referring to? It's probably not a credit bubble that had issues back in 2008, probably not housing, maybe commodities, maybe equities... but most likely HN discussions revolve around the eye-popping valuations in Groupon, twitter, facebook, zynga, and so on. So it's probably not the bubble, but a bubble. 2. How can you tell the difference between a moderate capital mis-allocation and a straight up bubble? 3. Have you actually compared what was going on now compared to any other bubbles that popped? 4. How much widespread adoption have we had with respect to capital allocations in these "overvalued" names? They aren't public, and there's not widespread participation by the "unwashed masses" in this asset. Compare that back in 1999 when non-revenue companies went IPO and everyone piled in. 5. Speaking of IPOs, how are they doing? How many names go IPO right now and see their stock triple in 90 days? 6. What's the size of the total bucket of money in this "bubble" relative to the total capital market? 7. What kind of deviation from historical valuations are we seeing in VC-land? Is it a total market deviation or limited to a few outliers that everyone loves to hate on? 8. Are bubbles really this obvious? 9. Even if we are in a bubble, are we early stage or late stage? Are we hearing about the million-dollar florist from twitter in Time magazine yet?
- scrollbar 16y ago
  Regarding "not a credit bubble," where do you think the money to push up these asset prices came from? Cheap money and low rates = financial institutions desperate for yield = pour money into high yield "hot" sectors. The people purchasing FB and Groupon shares are only a few steps away from the Federal Reserve money fountain. This leads me to believe the bubble (or whatever we want to call it) is credit driven
  - steveplace 16y ago
    That's possible, but let's take an analogy with the housing market. Market's were overflowing with liquidity due to low rates and easy credit, and then the housing market securitization exploded to the upside, which then fed on itself and created it's own bubble. There was mass participation from all the major banks, and we saw real estate riches books in Barnes and Noble. How does that compare to now? We've yet to see public securitization of these "overvalued" companies, and there's no outrigh participation by banks leading them to IPOs, at least not yet... there's GS raising capital for facebook but that's really it. Yeah we could get all zerohedgey with respect to how the fed is pushing up assets, but the majority of capital is coming via public equities and commodities... and the participation really isn't there at the moment.
jswinghammer 16y ago
OK well there is obviously a lot of investment in tech right now. The key question is how is it being funded? If it's being funded by savings then fine when you lose your savings but that's all. If it's being funded by debt then that's really bad as banks start taking a hit and they're already basically insolvent. I'm not terribly concerned about it but it's possible some investors will get burnt out again on the sector but they'll come back when new opportunities arise.
russell 16y ago
No it's not a bubble. Sure some companies are trading at absurd valuations: Facebook, Groupon but there is not this froth of worthless companies like there was in the .com boom. Airmailing dog food across the the country, indeed. One difference is that it is much more difficult to do an IPO these days (for better or worse). Another is that entrepreneurial experiments these days cost far less than 10 years ago, YC now, vs VC's then. The bubble this time around was financial with another due in 10-15 years.
panto2 16y ago
bubble. The embedded and device software are always a year or two out of step with the rest of the economy so the rescission does not matter. New 3D-TV's, faster broadband, IPTV, tablets, smart phones , home networks for all and cheap always on computing are changing tech and no-one knows how this is going to work out or settle down. Lot's of people going to make money, more are going to guess wrong and get hurt.
siavosh 16y ago
Even if some of these name brand companies deserve these high valuations, there is enough stupid/speculative/me-too money that will follow and create a bubble.
mkr-hn 16y ago
Another thing to consider: A bad investment needs a lot less cash to do what it did back then with all the cheap space, bandwidth, and CDNs running around. You could fund 20 risky startups for what might have been a first round for a single risky .com in '99.
chailatte 16y ago
So many optimists on this board, talking about 'the pop won't be as devastating this time'. This time: - 30% of mortgages are underwater http://money.cnn.com/2011/02/09/real_estate/underwater_mortgages_rising/index.htm http://money.cnn.com/2011/02/09/real_estate/underwater_mortg... - U6 rate for Jan 2011 is 16.10 percenthttp://www.congress.org/soapbox/alert/25908506 http://www.congress.org/soapbox/alert/25908506 - labor force participation rate at 64.2% http://www.zerohedge.com/article/labor-force-participations-plunges-fresh-26-year-low http://www.zerohedge.com/article/labor-force-participations-... - 43 Million Americans on food stamps http://blogs.wsj.com/economics/2011/02/02/some-43-million-americans-use-food-stamps/ http://blogs.wsj.com/economics/2011/02/02/some-43-million-am... In 2001: - 66% labor force participation http://www.zerohedge.com/sites/default/files/images/user5/imageroot/Labor%20Force%20Participation_1.jpg http://www.zerohedge.com/sites/default/files/images/user5/im... - 8% for U6 unemployment http://www.shadowstats.com/alternate_data/unemployment-charts http://www.shadowstats.com/alternate_data/unemployment-chart... - 17 Million on food stamps http://www.dailyjobsupdate.com/wp-content/uploads/Food-Stamps-Annual.jpg http://www.dailyjobsupdate.com/wp-content/uploads/Food-Stamp... Oh, and income stayed relatively the same, http://www.davemanuel.com/median-household-income.php http://www.davemanuel.com/median-household-income.php while food prices doubled or tripled http://www.mongabay.com/images/commodities/charts/wheat.html http://www.mongabay.com/images/commodities/charts/wheat.html http://www.mongabay.com/images/commodities/charts/chart-sugar_us.html http://www.mongabay.com/images/commodities/charts/chart-suga.... Pretty sure that once this pension/money printing funded tech bubble bursts, it will hurt even more this time.
- silverbax88 16y ago
  I can't see how these two sets of data correlate into a massive bubble popping, just that the reality is that the US is still trying to come out of the results of the last bubble bursting...as an example, since the fall of 2008, unemployment has not recovered, so what, exactly, is about to burst? I would think that hyper inflated values and unsustainable YOY gains in valuation for asset classes (stocks, real estate, internet companies) would be more of an indicator of a bubble.
  - abrenzel 16y ago
pclark 16y ago
Even if there was a bubble, you are talking about early stage investment that probably means there is $250M instead of $100M - previously the bubble was in the late stage where there was $15Bn instead of $1.5Bn. Huge difference.
pclark 16y ago
We're in a bubble of people asking this question, for sure.
bdr 16y ago
I take this to mean "Are software companies overvalued relative to the rest of the economy?" No. I can't prove my side -- like in the stock market, no one can -- but it's hard to put a cap on how well the software sector will do. Every activity in the world is involving more and more software. Code builds on itself, and technology has only very recently crossed some fundamental thresholds, like ubiquitous powerful arbitrary computation and global communication at close to c. Together, these imply that the opportunities for value creation will continue to be enormous, and in the big economic picture money will redistribute from other industries to software. That was true in 1999, but people had a lot less information with which to estimate the size of these kinds of opportunities. Given this uncertainty, the amount of money invested may have been rational, at least at first, even though the bet turned out to be wrong. Now people have enough information to estimate well.
kemiller 16y ago
My rule: if people are worrying that there's a bubble, there's a bubble. It's almost the definition. It's clearly not as bad as the last one in that the overvalued companies actually have some value to begin with, and it's only us techies fretting right now, not everyone and their cab driver. The trick is figuring out what to do with that information.
- necubi 16y ago
  Actually, you've got it almost backwards. If people are worrying that there's a bubble, there probably isn't. Bubbles form when everybody thinks things are worth more than they are. This produces a positive feedback loop whereby investors buy things they think are valuable, raising their price and therefore perceived value, causing other investors to buy. If everybody's worried that there might be a bubble, then investors will be more cautious about buying simply because others are buying. The biggest difference between the tech bubble and what's happening today is that the investors are all sophisticated--these aren't retirees dumping their savings into Pets.com stock.
  - kemiller 16y ago
    No, I don't have it backwards. :) There's always two groups of people. The wild-eyed optimists, and the doubting Thomases. There are still tons of wild-eyed optimists right now, but for me, the emergence of a vocal minority of doubting thomases is a clearer sign of a bubble, or at least the late stages of a boom (is there a technical difference?), because it means those closest to the issue are starting to tilt more pessimistic than the investor community at large.
    - sabat 16y ago
      There are few to no "wild-eyed optimists" right now, save for a handful of investors pumping money into Zynga and Facebook. If you think that compares to 1998, you really ought to go back and re-read history.
      - kemiller 16y ago
tomkarlo 16y ago
There are really two potential "bubble" worth talking about at the moment - the broad equity markets (up almost 100% in the last two years) - and the early-stage Internet market (not Facebook, but Groupon and the early-stage investments.) I'd argue they're maybe related but they're not linked, given the lack of a big tech IPO market. In the 99 bubble it was the vision of a big IPO driving the private tech bubble. These days I'm not sure that's true. There's a third bubble worth noting - real estate. I don't think it's nearly done deflating, and if rates start to rise back to normal levels without incomes starting to pick up (which would require a major drop in unemployment) we're going to see another down leg there as millions of baby boomers try to get liquid on their home equity to fund retirement.
jhulten 16y ago
Malinvestments wreck the economy... http://www.youtube.com/watch?v=d0nERTFo-Sk http://www.youtube.com/watch?v=d0nERTFo-Sk
jdp23 16y ago
No two bubbles are the same and I agree with a lot of the things people are saying about the differences between now and the dot com bubble. But I think there's plenty of evidence of angels and various successful startups mafias pumping up valuations in the Silicon Valley web startup world. The good news is that the damage is likely to be a lot more localized this time.
netmau5 16y ago
Just for arguments sake, let's say we are in a bubble. Isn't that a great thing for entrepreneurs wanting to startup or get additional funding? Does that mean we should put the pedal to the metal now instead of waiting for a potentially bad funding environment post-burst?
motters 16y ago
From where I'm standing I don't see any evidence that a technology bubble is taking place (actually the reverse). Perhaps there will be a bubble emerging in the next few years, but that's always hard to forecast.
budu3 16y ago
Something negative is definitely happening. I don't think it'll look like the classic bubbles that we've seen (as a matter of fact all bubbles are different). But at the very least a predict a backlash.
henryw 16y ago
although i think we are in a bubble, you never know where the top is. we are only 1/2 way up on the nasdaq from the 2000 high disregarding inflation. http://imgur.com/qeiEZ.png http://imgur.com/qeiEZ.png this s&p also has room to go http://imgur.com/k3obu.png http://imgur.com/k3obu.png
anigbrowl 16y ago
Tech is multiplying faster than the rest of the economy can deploy it. With so many options, committing to a particular framework infrastructure means opportunity costs appear to rise unusually sharply. It reminds me a bit of the MSX & Commodore computer period in the 80s, not long before the PC moved down from the business market to the consumer one. Remember that post a month or so back about how there were too many different Android phones, and iPhone was so much nicer - there's a new one every June or July, so you don't have to worry about your shiny new Android phone feeling old hat after only 3 weeks. I don't feel that way, but I could see where he was coming from. Same thing with Facebook; the secret of its popularity is that it's fairly simple and consistent, which was also one of AOL's key selling points. Most people don't want to reconstruct their internet/computer experience on a regular basis, as demonstrated by the histrionics when many popular sites decide it's time to clean up their layout or switch to a new logo. Google's approach to this is to just be in permanent beta which I like very much, but sometimes I get frustrated at the way things seem to evolve (or slow down) on 20 different schedules. I have felt for a year that we are approaching one of the periodic phase transitions that result in a whole new wave of growth, and that the leadup to such periods is characterized by great energy and inventiveness, but also a lack of focus and rising overhead. My gut says what's needed to progress will leverage semantic web technology, but that we're another year away from achieving the required information density which would allow it to be useful. Also, it's going to be quite C/GPU intensive, and take advantage of the fact that many modern processors are underused.
webmat 16y ago
This time is different!
d4nt 16y ago
I doubt it, the P/E ratios of most tech companies is no way near 1999 levels. But there are some isolated examples of irrationality. I don't know anyone who seriously thinks Facebook is worth $70bn (i.e. more than Sony). I suspect the low interest rates are pushing a lot of private capital into higher risk but 'cool' areas.
- vessenes 16y ago
  You do now; I think Facebook will add more global value than Sony in the next 10 years.
  - ekidd 16y ago
    I agree: Sony's consumer electronics division has produced a steady string of losers lately, and they're having a rough time competing with Apple. I'm not sure what their other divisions are doing, but it's been years since Sony was hip. Facebook, on the other hand, is sucking up a huge fraction of the hours spent online by hundreds of millions of people. If you consider them as an advertising-supported entertainment company, they're doing great. Facebook's revenues are still only a couple of billion dollars per year, but they should be able to monetize more of their traffic over time. Note that I haven't run the underlying numbers on either company. But from 10,000 feet, it's [edit: not] automatically clear that Sony is worth more Facebook.
    - patrickk 16y ago
      "...it's automatically clear that Sony is worth more Facebook." Really. That's quite a claim. I derive almost no value from Facebook, and I mainly have a profile to let people know I actually exist. I know many people in the same boat. I couldn't care less if they folded in the morning. There was a guy here on HN a while back saying that his business saw absolutely no ROI from Facebook ads, because people simply don't click on ads - they are on Facebook to chat with friends, not buy teeth-whitening products or whatever. That guy reckoned a lot of people are trying Facebook ads because every business must be 'social', it's the thing to be seen to be doing. Once enough business get burned, word will spread and Facebook will lost a lot of ad revenue. Just one guy's opinion, but it makes you think. There was another article saying Facebook is like a nightclub that is currently the cool spot to hang out, but it will inevitably lose it's lustre and go the way of MySpace. People will migrate to the Next Cool Thing™. Again, just one more data point to consider. Since you ended with a bold claim, I will too: that within ten years, Facebook will be almost forgotten. Sure, it will still have traffic (so does Bebo and MySpace) but it will no longer be picked up by TechCrunch and mainstream media.
Xpirate 16y ago
Double bubble: toil and trouble. Facetwit does a face plant ... and then it's back to normal.
vessenes 16y ago
There's a sort of valuation = real dollars group-think problem I'm noticing in the conversation here. Consider: what are the economic consequences of a $1 investment in 3x preferred stock for Facebook at a One Trillion Dollar valuation? How about a One Hundred Trillion Dollar Valuation (cue Doctor Evil Music). OMG! HUGE TECH BUBBLE! Answer: the same; the investor will make 3 bucks. Or, if FB goes totally under, she will lose $1. During the dotcom bubble, companies like Zefer had $100 Million SERIES A rounds. <<--- No revenues. This is not happening right now, in any way, shape or form. Are valuations off for early stage companies? Hard to say. Right now, with the YC class returns, they are certainly not off, if you believe a VC firm should earn on average no more than 25% return a year. Of course, that's short term. Long-term, of course, I don't know. But, there are a number of factors that say this is very different than the late 1990s: 4-10x lower cost (time, cash) to deploy technologies, far more tech savvy investors, and a more investor-friendly "this cash is going to let you upgrade from ramen to peanut butter" vibe for early funding rounds. These are significantly different dynamics for the tech world. Finally, if there is currently a 'valuation' bubble, it is most certainly not an 'economic' bubble. The total dollars floating around for these transactions is quite small compared to what happened during the dotcom crash. However much we like doing our startups, almost none of us are materially impacting the US economy. In fact, because the startups are so job-efficient, we are impacting far less per-startup than the last group, ex all of the public IPOs which took grandmother's money.
- sabat 16y ago
  Well said. It is amazing to me that so many people here can't understand the difference between a bubble and isolated investor activity. A small group of potentially bad investments is not the same thing as large-scale irrational exuberance. "Dude, if someone said Facebook is worth $50 billion, then we have to be in a bubble -- Dropbox and Github better get ready for a huge meltdown!"
stesteau 16y ago
Big time bubble
ebaysucks 16y ago
The bubble is rebuilding in Tech as the QE money finds its way into the market through VC funds, while banks are hesitant to lend their freshly printed reserves for house mortgages.
sethg 16y ago
My short answer: yes. My long answer: the economic growth of the 1990s went mainly to the upper classes (median wages hardly grew at all, especially when you take rising health-insurance costs into account). Instead of consuming their profits, the people in the top brackets keep looking for things to invest in. People who want to invest conservatively are pouring money into T-bills (thus, in spite of the massive deficit, Treasury rates are still quite low). People who want to be aggressive once invested in dot-coms, then stampeded to real estate and too-clever-by-half financial instruments, and now are pouring money into social media. Capital will continue to flit from one bubble-opportunity to another until the people at the bottom of the pyramid have more actual money to spend.
btipling 16y ago
Since I started paying attention, it's been like this: 1999: People asked "Are we in a bubble?" 2000: People asked "Are we in a bubble?" 2001-2003 Recession 2004 People asked "Are we in a bubble?" 2005 People asked "Are we in a bubble?" 2006 People asked "Are we in a bubble?" 2007 People asked "Are we in a bubble?" 2008-2009 Recession 2010 People asked "Are we in a bubble?" 2011 People asked "Are we in a bubble?" Are we in a bubble? Are we in a bubble? Are we in a bubble? ... Yes, apparently unless contraction is obvious, we're always in a bubble and everything in life is only ever getting worse and we'll all die horrible miserable deaths and then the zombie apocalypse comes. PANIC! OH NO! Run for the hills! Or just work hard and try to do the best you can and stop worrying about things beyond your control.
- mkramlich 16y ago
  In the spirit of selling pickaxes rather than mining for gold, I actually sell software which helps people practice surviving a zombie apocalypse: http://DeadByZombie.com http://DeadByZombie.com
pg 16y ago
I was here in the Valley for the original Bubble, and the situation now is nothing like that was. Back then people were saying there was a "new economy" driven by the Internet, and that productivity was going to go up like a step function, which justified higher p/e ratios for any company that could claim to be a participant. If you had money to invest you felt like you had to have most of it in the stock market, because money parked in bonds would miss out on all this growth that was coming. Back in the 90s I was sure there was a bubble happening, and was notorious for telling everyone to sell. And yet I remember that even I thought it was dangerous to have money sitting in bonds. I don't think that now, and I don't think anyone else does either. What's happening now is a lot more localized. A few professional investors are paying higher valuations for startups than they were a few years ago. But the number of participants and the amounts of money moving around are both very small compared to the 90s. Plus the companies are better. In the 90s, it was the dumb leading the dumb: smooth-talking MBAs were raising money from hapless LPs and investing it in startups run by other smooth-talking MBAs. Now it's Yuri Milner investing in a company run by Mark Zuckerberg.
- dabent 16y ago
  I agree with you, and as someone who gained an interest in startups before anyone started calling this recent trend a "bubble" I ask myself one question: Will this change what I'm doing with my startup right now? And the answer for me is a simple "no," as it should be for virtually any founder.
  - stefanobernardi 16y ago
    I'm not so sure about that. It's a fact that raising money now is way easier, and you tend to get high valuations, so many founders should probably fundraise as long as the current hype stays up. It may easily be that next year valuations will be way lower for web startups.
    - dabent 16y ago
      Very good point. There are certainly tactical moves that will change due to conditions, such as fund raising. But the general "run for the hills" attitude I see in many of these posts isn't productive. It's almost as if I see people hesitant to start because they fear that things will fall apart in short order. Maybe I'm reading to much into it.
michaelpinto 16y ago
Two Words: Demand Media You have an entire company that is based on gaming google that ready to be publicly traded. And next you have AOL buying the Huffington Post which is designed to cheat actual newspapers out of pageviews — something that Google could change in a minute. I was around for the original dot.com bomb and this smells exactly the same. The winners will be the companies who survive: My bet is on Facebook. But I'm not sure that I'd bet on Groupon or Twitter. By the way what makes Facebook special isn't the technology but the team.
damoncali 16y ago
I'm curious to see how many people who think we're in a bubble were around for The Bubble in '97-99. From where I'm sitting, this is not even close. Consider: There were IPO's like every other day. Often, these companies were less than a year old. People were driving up the wrong company's stock by 10% in a day because they mixed up the ticker symbols. Stock swings, usually positive, of 30-50% in a single day were not uncommon. Companies with no business at all were raising hundreds of millions of dollars in VC. The number of VC firms was exploding. AMZN, SUNW, DELL, and the like would go up 3-5% pretty much every day Day traders with no experience were plowing tens and hundreds of thousands of dollars into the market. There were companies who did nothing but cater to these people. (Not many of either are left). Kids fresh out of college were being paid $125,000 to write plain HTML and getting pissed off if they didn't get huge raises. Webvan - look it up. So, I guess I' not seeing a bubble. Just a few wacky valuations here and there.
- pnathan 16y ago
  Basically at this point there's just hardly any woo-woo going around about the New Economy Being Beautiful With Money Falling From Trees or other neo-utopian wackiness. I think we might be in the early stages of a tech funding boom, but I just don't think people are that bullish right now. I see a lot of uncertainty going around. People are simply scared of the Great Recession and there're way, way, way too many people thinking about the '01-'02 bust. When that fear starts going away I think a bubble has a chance of beginning. /famous last words
- astrofinch 16y ago
  Wow, I was like 9 during that period. Thanks for telling me what happened!
m3mnoch 16y ago
no. there is no bubble. that means there's nothing to pop. the first time around there was no plan for making money and there were hordes and hordes of companies throwing ridiculously expensive spaghetti at the wall to see if it stuck. everyone and their dog was filing for an ipo. this time around? there are relatively few companies with ridiculous valuations... and guess what? they're all making money. and tons of it. for god's sake, even twitter started turning a profit in '09. groupon? $800 million and more in annual revenue is a just fine pe ratio for their valuation. their financials make sense. people are paying for their services. and all those companies not making money yet are bootstrapping on next-to-nothing rather than taking on tons of investment. it's different this time because it's not about the squishy-touchy-feely "we know better." you can't count on people knowing better. no, it's different because there's real revenue and real business models involved. bubbles happen when there's no income to back wild speculation. companies are offering percieved-as-valuable services and are getting paid for it. they're primarily taking investment for expansion, not runway extension. most of the money is from private investors instead of zillions of get-rich-hungry public speculators from an ipo. i mean, it's only natural for information-based companies (instead of say... webvan) to go from 0-60 faster than we've ever seen in an environment where information is enabled to go from 0-60 faster than ever in recorded history. things are fine, folks. back away from the stupid "bubble" panic button. m3mnoch.
awt 16y ago
If it is a bubble, then what ( as a software developer ) should I do? I don't work for any of the overvalued companies, so changing jobs isn't a good option. I don't own any stock in them, so I can't sell it.
mrj 16y ago
I used to count the limos passing by in downtown SF (there were many). It's nothing like that anymore and hasn't been for some time.
migrantgeek 16y ago
Yes, bubble. Apple worth $100 billion more than MS or Google? That's a bubble.
- sabat 16y ago
  Apple's revenue and real growth justifies that valuation, easily.
mdink 16y ago
"Something's going on and it's likely going to have pretty significant (negative) consequences" -- I feel like this is the best answer b/c much of the problem has happened behind closed doors. The real estate boondoggle and the dot-com bust required a tremendous amount of public participation to grow to the scale that each did. I hope investors (both professional and hobbyist) are very careful with each of these soon-to-be public companies. If not... then def "Yes we're in another bubble".
sabat 16y ago
Leave it to pg to keep a cool head: There are some concerns about a new budding tech bubble as some startups have reached titanic valuations — Twitter, for example, was recently reported to be worth around $10 billion — without having a business model nailed down. But those cases are few and far between, and there are fewer investors in those types of companies than there were in the late 90s, Graham said. The amount of money companies are raising today — relatively speaking and adjusted for inflation, naturally — is less than what companies were raising during the last tech bubble, he said.
drpancake 16y ago
I don't think there's a bubble. But I'm getting seriously bored of social analytics, location-based advertising and glorified todo list startups. There's so many more interesting problems to solve!
mkramlich 16y ago
Not a bubble. A small subset of tech companies are over-valued, yes. Most notorious are Facebook, Groupon, possibly Twitter, Zynga, etc. But most are not. And a greater proportion of startups are 100% bootstrapped and then kept as lifestyle cash cows or flipped early in small private exits. Many companies have high caps but probably valued about right and they have real products and revenue streams, like Apple, Amazon, Microsoft, Google, IBM, Oracle, Cisco, etc. I think that a couple factors are contributing. One, returns on safe investments like bank savings accounts are basically zero. Two, there's a lot of great free info on the web now for people to self-educate especially regarding entrepreneurship and angel investment, as well as more tools like AngelList and more social event series like Meetups and code jams and contests that help facilitate bring people together and leading to new enterprises and deals. Third, the top 10% wealth-wise have even more discretionary money now than they did in the 90's, and that combined with an increasing sense that the US salaryman has no guaranteed future anymore, so we we have to increasingly look to making FU/retirement from entrepreneurship and investments rather than doing the 9-to-5-til-yer-60 thing.
pnathan 16y ago
It's not a bubble yet. We still have dead tulips hanging around.
duopixel 16y ago
Scroll to the very button of this screen, hover over the "Green certified website" badge. It's pulsating, what is this? 1997? Click and you'll delighted with the worst pile of steaming bullshit ever, along with some incomprehensible infographics that don't even look good. This is a Y Combinator backed venture. Yes, we're in a bubble.
BluePoints 16y ago
I think the world will see it's first Trillion dollar company within 10 years. I also don't think that company has been created yet.
natural219 16y ago
I'm not sure there's a bubble, but if everyone on HN just pretends there is one and we say the word "bubble" a lot in major publications, then maybe we can despeculate technology investments and invest in them ourselves...
alikamp 16y ago
Every year new and old businesses go bust. Bubble or no bubble. Good economy or bad economy. Take the average joe, pit him against Lebron James in a half court shoot out, first one who makes a basket wins, the smart money would be on Lebron but its not a stretch to think that Joe would sink it first. In the past bubble bust we didnt know Lebron from the Joes, now we know. We know the skillful people in the space, yes Joe will occasionally sink the basket first, but over time Lebron will deliver. This net growth is not a bubble, yes companies will bust but the Lebrons will still be ballin.
cletus 16y ago
It really depends on what you mean by a bubble. The classic example of a bubble is the Tulip-mania of the 17th century [1]. The dot-com bubble was ultimately caused by a system awash with dumb money where even the most ludicrous ideas were getting funded. It was a house of cards that eventually came down. It earns its bubble label because two things happened: 1. Funding dried up to the point that legitimate businesses couldn't get funded or failed; and 2. The ramifications of the bubble extended far beyond dot-com companies. Do we have something like that now? IMHO no. But I think we do have a valuation bubble of sorts. The system is awash with money (particularly Russian money) but what you have to remember is that we're still talking about far less money than in 2000. In 2000 there were no angel rounds (per se) and companies weren't bootstrapped or funded on $250k or less. It was pretty much straight to a $5m+ Series A due to the (then) high costs of servers, software licenses and bandwidth. Now you can build a prototype of something for as little as $10-50K. Infrastructure costs are almost zero (for a prototype). The only major cost left really is developer time and $250k will pay for 2-3 developers for a year (at a mix of salary+equity). That same venture would've required an order of magnitude more money in 2000. So I think what you'll see is that a lot of angels will lose their shirts in the next few years or simply get poor returns. The same applies to the lower end of seed funds. But I don't think funding will dry up to the same extent simply because the market has many more participants, we're talking about far less money (both in total and per investment) and the barrier to entry is so much lower than it used to. Now, this may translate into a problem where angel-funded companies can't get Series A/B funding and thus fail but with many companies reaching profitability with very small amounts of money the only real impact will be (IMHO) consolidation (today we have some significant players--Google, Facebook and Apple for example--swimming in cash and ready to write big checks even for talent acquisition) and the adoption of more lean-and-mean approaches, which can hardly be a bad thing. Where ordinary investors could really lose out is on companies like Facebook. The early investors will (and have) made out like bandits but honestly I can see that bubble bursting at some point in the future. [1]: http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania
chrislomax 16y ago
I for one am sick of seeing, day in, day out, a new start up that has raised 20 million in funding from doing nothing. Also, crazy valuations put on companies that don't turn a profit. Generally in business, a company is worth its annual turnover if a sale was going to happen. How are companies that are turning over 0 worth 15 billion? I think everyone has forgotten about the .com crash 10 years ago and thats where all this crazy investment is coming from. Google offering 6 billion for Groupon, then Groupon turning it down?? I think the only thing that would not describe this as a bubble, is the exeprience of the last bubble and what it has taught us. We have learned now what the "internet" is. We have learned its boundaries (as such) and therefore we can make a reasonable evaluation on what the next "big thing" is and whether it will all come crashing down. I for one, slag Facebook off to death. I think Mark Zuckerburg is a robbing bastard that stole someones idea and ran with it himself. The thing is, it's the ideas that he didn't steal that make him and the site brilliant. Facebook too did not have a business model and even after creating the advertisting it did not do much. Now, when Facebook started doing targeted advertising and to a greater extent, the new location based advertising, that's when it became brilliant in my eyes. These non-profit start ups that eventually find a business model that works are where the real treats are and its the fact that these startups are finding a business model that makes this a new era, rather than a bubble. To coin a phrase, its the face of things to come. "The future internet defined" Now all I need to do is find a stupidly easy idea and make money from it so I can stop being jealous already.
deleted 16y ago
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silverlake 16y ago
I'm a pessimist and spotted every recent bubble. What is a bubble? It's when value becomes detached from "objective" financial models. This may be the case for a few high-flying businesses right now (Twitter?), but not widely. The recent funds from Goldman and JP may push valuations for Facebook & Twitter beyond reason because they are chasing a few shares in private markets. But throwing a million $s at a few stupid startups isn't a bubble. That's the VC industry buying lottery tickets. I don't think there's a bubble. There's just a little excitement in social media and mobile apps.
kunley 16y ago
I will not refer to an economy bubble but to a general trend, so this won't be a direct answer to your question. More & more startups are build around shuffling data between few existing big players in the social media market. The question is: are these "base" players really offering its customers something which would improve the quality of their lives? Other than a warm fuzzy feeling of being "connected"? Personally I doubt it. The example: Flightcaster: a concrete quality given to its users. This is, as PG reminded few times, called: wealth. Congrats here. Some startup X which does something with your Twitter or Facebook data: well it may be cool according to the current fashion, but its real value is very volatile, unmeasurable and virtual. So if you're in the first group, you're safe. If you're in the second group and base your value on a virtual value of other services who in turn are based on some premise or belief, my guess is you're doomed.
frobozz 16y ago
We're (almost) always in a bubble. The important question is "when will this bubble pop and the next one start".
hammock 16y ago
Facebook is not the black box many people think it is. Maybe $60B valuation isn't all that crazy, when you compare it to Google. Facebook has a huge share of internet (7%), about the same as Google. And even though Facebook ads are a colossal failure, most people believe there is revenue there somewhere and we can look to Google for an indication of revenue potential from commanding that many eyeballs. Google had revenue of $29B in 2010 and market cap $201B.
GrandMasterBirt 16y ago
I don't think were in a "bubble" Nobody is investing vast amounts of money into people with absolutely no business plan. Its not the "were gonna need 100 servers" only to realize there are 4 users... total. Services like AWS keep costs down allowing scalability on demand vs up front prep for doomsday. I see groupon as a bubble in itself. But that is one business.
phiggis 16y ago
Bubble for major funded consumer websites only? I think the social websites that have made no money, and haven't thought about monetizing are the ones that have suffered. Think the difference between now and 2000 is you may need to prove you can make some money now, not just get uber traffic. http://www.founderspeak.com http://www.founderspeak.com

Poll: Tech Bubble?

224 points by stevenj 16y ago

Cause for concern? Are people overreacting? Perhaps a little bit of both? *Would love to hear PG's thoughts on this

rue 16y ago

The entire financial sector and large parts of the economy are a bubble but it doesn't matter unless people panic over it.

tomkarlo 16y ago
It does matter, because it means huge amounts of capital is being mis-allocated - that's money that could be better invested elsewhere, assuming those sectors are in fact overvalued.
- rue 16y ago
  Oh, true. I meant only in the sense of market stability which is above all psychological.

TomOfTTB 16y ago

I personally think we are at the beginning of a bubble but I'd just like to throw one thought out there. A bubble is only a problem if the businesses spend like the bubble will never end. If companies use their money judiciously than they stay in business and their investors eventually get a pay off (think of companies that survived the first bubble and how rich their investors are now) So if you're a startup you should act like any other business and get profitable as quickly as possible. If you're an investor you should only invest in companies that use their money wisely. If you do that the bubble shouldn't have any impact on you.

chalst 16y ago

Bubble means what? Tech IPOs? Commodity prices?

stevenj 16y ago
Tech bubble; I edited the headline.

Kilimanjaro 16y ago

When people invest $10M in the next social tag-me-too mobile app, then yes, we are in a bubble that will pop after some get-rich-quick IPOs in the next couple of years.

mkr-hn 16y ago

The difference this time around is that: 1: People started worrying about profitability years ago and are actually trying to make it happen 2: There are quite a few tech giants and hundreds of smaller tech companies with stable income sources Remember that in '99 Microsoft hadn't launched XP, Google was years away from an IPO, and cell phones were still a luxury. I think there are little bubbles here and there, but the pop won't be as devastating.

stcredzero 16y ago
What should the contingency planning consist of? Personally, I'm seriously considering quitting my job and moving to a startup hub. Should this affect my plans? Should I wait for the pop, plus 6 months, saving up money from my day job, then move?
- mkr-hn 16y ago
  I'm not too qualified on the specific sector, but if I were looking for a stable job, I'd look at the company's income sources and investments. I'm sure someone will be along with specific advice shortly.
  - stcredzero 16y ago
    I'm not looking for a stable job. I'm considering when I should get rid of one.
- knowsnothing613 16y ago
  wait until atleast Sept. QE2 ends in June. So the Fed will stop pumping money into the economy. You'll have a good idea if we'll slump into a double dip recession by September.
  - haploid 16y ago
    We will see. If I were a betting man, I would wager that Helicopter Ben will announce QE3 before June.

abello 16y ago

If bubble means too much money invested in shitty companies, YES. If bubble means all those investors will retract and stocks will go to hell (like 2000), NO.

sabat 16y ago
Bubble does not mean too much money invested in a few (potentially) shitty companies. That's a ridiculous mis-use of the word. Ergo: no bubble.

clojurerocks 16y ago

Its absolutely a bubble.

sdizdar 16y ago

We are not in bubble - this is refection of our monetary policy. Look at commodity prices. Look at stock market. I think the real bubble is bond market - which is causing froth all over the market.

nkassis 16y ago
as long as money is free, this is not a bubble.

antirez 16y ago

If it's a bubble for sure it's not as big as the latest one. At least now acquisitions are happening either as an alternative way to hire good talents, or about services that may not be profitable but are surely really popular among users, and most of the time there is somewhat a business model that makes sense. That is in general, but I think we saw a few very strange things in the latest couple of months.

mmurph211 16y ago

Perhaps tech is the strongest future financial bet in business.

jsmcgd 16y ago

Not a bubble. Relatively few high valuation investments do not make a bubble. I think there is an inverse correlation between the likelyhood of a bubble versus the amount of people talking about a potential bubble. Perhaps almost by definition.

tomkarlo 16y ago
The headline number doesn't have to be big for there to be overvaluation going on en masse. What about the hundreds of early-stage fundings going on right now? I don't think there's been a sudden explosion in the number of good companies being started - just a huge increase in the number of investments that angels and VCs are willing to make. That's a sign of a bubble

joshhepworth 16y ago

It's hard to say what exactly is happening right now, but I don't think there's much of a reason to expect an industry wide "pop" soon. As mkr-hn said, the companies are certainly more responsible now than a decade ago, and despite the seemingly outrageous valuations of companies like Facebook, Twitter, and Zynga, there are equally as many reasonable valuations for smaller, still successful, tech companies.

darbor 16y ago

It's all cylical, always has been, always will be. Where else are you going to put your cash.....the bank so you can 1.5%? Or how about some realestate?

deleted 16y ago
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mjfern 16y ago

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!

kirpekar 16y ago

To remind everyone: An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"

mkr-hn 16y ago
I think most people here use it to mean "too much money in companies of questionable profitability." Dictionaries are nice, but even they warn that they're descriptive, not prescriptive. Even a comprehensive dictionary will miss definitions in narrow contexts like tech investment.

kenjackson 16y ago

Is it common to have an industry bubble (an industry as large as tech) in the middle of coming out of a huge recession?

tesseract 16y ago
I don't see a "tech" bubble, just (maybe) a social media one.
- borism 16y ago
  look again http://www.google.com/finance?chdnp=1&chfdeh=0&chdet=1297976400000&chddm=222930&cmpto=INDEXDJX:.DJI;INDEXSP:.INX;INDEXNASDAQ:.IXIC&cmptdms=0;0;0&q=INDEXDJX:.DJI,INDEXSP:.INX,INDEXNASDAQ:.IXIC&ntsp=0 http://www.google.com/finance?chdnp=1&chfdeh=0&chdet...
JacobAldridge 16y ago
Some industries move ahead of the broader economic cycle (housing is often used as an example - when time on market in the US exceeds 9 months on average, a recession will usually follow) and some lag behind that cycle or invert the cycle completely (liquidation lawyers, I'm looking at you). 'Tech' is fairly broad, and also (increasingly) linked to other industries. I'd hate to be selling enterprise software to property developers right now, but love to be a start-up connecting companies facing administration with experts to turn them around. So is it common to have a tech boom (I'll get to bubble later) coming out of a recession, leading the way? Yes. Recessions force businesses and consumers to improve efficiencies. They are also times when large corporates 'trim the fat', which often leads to talented people being out of work. Talented people (starting their own business, or applying their talent to aforementioned efficiency demands) create opportunities and value - necessity is the mother of invention. I'm chasing sources now, but can point to businesses like HP and Cisco, and even those that came out of the 70s recession (MS and Apple) as having benefited from the recessionary mindset. Does that means it's common to have a Bubble? Probably not. People are looking for efficiencies, but they don't necessarily have a lot of money to throw at the solutions - and a lot of money is what creates a bubble. Does the rise of the VC over the past 15 years means that liquidity for investment during a recession now exists and we have a bubble? I think it's more likely that what we're seeing is a growth period, heading into a boom, and while some companies may prove to be over-priced it's not an industry bubble.

dstein 16y ago

Selective bubble market. Zynga and GroupOn making tons of real physical money and being valued at something like 25X earnings isn't a bubble. But absurd valuations based purely on audience size with little revenue (Twitter and Facebook) sure as heck is a bubble.

sabat 16y ago
absurd valuations based purely on audience size with little revenue (Twitter and Facebook) sure as heck is a bubble. That's not a bubble; that is just overvaluation of a couple of companies. "Bubble" implies that the whole of a sector is wildly overvalued. "Selective bubble" is an oxymoron.
- dstein 16y ago
  A bubble can describe anything that trades significantly above its net asset value. Investors are overvaluing (in the billions) tech companies with no revenue or business model. The bubble just isn't industry-wide yet.

adrianwaj 16y ago

I watched a video today of someone saying we are heading toward an unavoidable train wreck. http://www.youtube.com/watch?v=-r1XeE-MQV0 http://www.youtube.com/watch?v=-r1XeE-MQV0 (he loses his cool, be warned)

mtviewdave 16y ago

Silicon Valley has always had boom/bust cycles. What's happening now is part of the same pattern that has been going on in the Valley since the '50s. Yes, we're in a boom. But because the last boom created a stock market bubble, it's temping to assume that boom==bubble. I don't think that's true in this case, as bubbles have a significant psychological component that I don't see in the current boom: http://en.wikipedia.org/wiki/Economic_bubble#Social_psychology_factors http://en.wikipedia.org/wiki/Economic_bubble#Social_psycholo...

borism 16y ago

word of caution: usually by the time something is referred to as a bubble, it is already too late to get in or out :) so let's brace ourselves for an impact!

steveplace 16y ago

Probably not. Here's some questions: 1. Exactly what asset class are we referring to? It's probably not a credit bubble that had issues back in 2008, probably not housing, maybe commodities, maybe equities... but most likely HN discussions revolve around the eye-popping valuations in Groupon, twitter, facebook, zynga, and so on. So it's probably not the bubble, but a bubble. 2. How can you tell the difference between a moderate capital mis-allocation and a straight up bubble? 3. Have you actually compared what was going on now compared to any other bubbles that popped? 4. How much widespread adoption have we had with respect to capital allocations in these "overvalued" names? They aren't public, and there's not widespread participation by the "unwashed masses" in this asset. Compare that back in 1999 when non-revenue companies went IPO and everyone piled in. 5. Speaking of IPOs, how are they doing? How many names go IPO right now and see their stock triple in 90 days? 6. What's the size of the total bucket of money in this "bubble" relative to the total capital market? 7. What kind of deviation from historical valuations are we seeing in VC-land? Is it a total market deviation or limited to a few outliers that everyone loves to hate on? 8. Are bubbles really this obvious? 9. Even if we are in a bubble, are we early stage or late stage? Are we hearing about the million-dollar florist from twitter in Time magazine yet?

scrollbar 16y ago
Regarding "not a credit bubble," where do you think the money to push up these asset prices came from? Cheap money and low rates = financial institutions desperate for yield = pour money into high yield "hot" sectors. The people purchasing FB and Groupon shares are only a few steps away from the Federal Reserve money fountain. This leads me to believe the bubble (or whatever we want to call it) is credit driven
- steveplace 16y ago
  That's possible, but let's take an analogy with the housing market. Market's were overflowing with liquidity due to low rates and easy credit, and then the housing market securitization exploded to the upside, which then fed on itself and created it's own bubble. There was mass participation from all the major banks, and we saw real estate riches books in Barnes and Noble. How does that compare to now? We've yet to see public securitization of these "overvalued" companies, and there's no outrigh participation by banks leading them to IPOs, at least not yet... there's GS raising capital for facebook but that's really it. Yeah we could get all zerohedgey with respect to how the fed is pushing up assets, but the majority of capital is coming via public equities and commodities... and the participation really isn't there at the moment.

jswinghammer 16y ago

OK well there is obviously a lot of investment in tech right now. The key question is how is it being funded? If it's being funded by savings then fine when you lose your savings but that's all. If it's being funded by debt then that's really bad as banks start taking a hit and they're already basically insolvent. I'm not terribly concerned about it but it's possible some investors will get burnt out again on the sector but they'll come back when new opportunities arise.

russell 16y ago

No it's not a bubble. Sure some companies are trading at absurd valuations: Facebook, Groupon but there is not this froth of worthless companies like there was in the .com boom. Airmailing dog food across the the country, indeed. One difference is that it is much more difficult to do an IPO these days (for better or worse). Another is that entrepreneurial experiments these days cost far less than 10 years ago, YC now, vs VC's then. The bubble this time around was financial with another due in 10-15 years.

panto2 16y ago

bubble. The embedded and device software are always a year or two out of step with the rest of the economy so the rescission does not matter. New 3D-TV's, faster broadband, IPTV, tablets, smart phones , home networks for all and cheap always on computing are changing tech and no-one knows how this is going to work out or settle down. Lot's of people going to make money, more are going to guess wrong and get hurt.

siavosh 16y ago

Even if some of these name brand companies deserve these high valuations, there is enough stupid/speculative/me-too money that will follow and create a bubble.

mkr-hn 16y ago

Another thing to consider: A bad investment needs a lot less cash to do what it did back then with all the cheap space, bandwidth, and CDNs running around. You could fund 20 risky startups for what might have been a first round for a single risky .com in '99.

chailatte 16y ago

So many optimists on this board, talking about 'the pop won't be as devastating this time'. This time: - 30% of mortgages are underwater http://money.cnn.com/2011/02/09/real_estate/underwater_mortgages_rising/index.htm http://money.cnn.com/2011/02/09/real_estate/underwater_mortg... - U6 rate for Jan 2011 is 16.10 percenthttp://www.congress.org/soapbox/alert/25908506 http://www.congress.org/soapbox/alert/25908506 - labor force participation rate at 64.2% http://www.zerohedge.com/article/labor-force-participations-plunges-fresh-26-year-low http://www.zerohedge.com/article/labor-force-participations-... - 43 Million Americans on food stamps http://blogs.wsj.com/economics/2011/02/02/some-43-million-americans-use-food-stamps/ http://blogs.wsj.com/economics/2011/02/02/some-43-million-am... In 2001: - 66% labor force participation http://www.zerohedge.com/sites/default/files/images/user5/imageroot/Labor%20Force%20Participation_1.jpg http://www.zerohedge.com/sites/default/files/images/user5/im... - 8% for U6 unemployment http://www.shadowstats.com/alternate_data/unemployment-charts http://www.shadowstats.com/alternate_data/unemployment-chart... - 17 Million on food stamps http://www.dailyjobsupdate.com/wp-content/uploads/Food-Stamps-Annual.jpg http://www.dailyjobsupdate.com/wp-content/uploads/Food-Stamp... Oh, and income stayed relatively the same, http://www.davemanuel.com/median-household-income.php http://www.davemanuel.com/median-household-income.php while food prices doubled or tripled http://www.mongabay.com/images/commodities/charts/wheat.html http://www.mongabay.com/images/commodities/charts/wheat.html http://www.mongabay.com/images/commodities/charts/chart-sugar_us.html http://www.mongabay.com/images/commodities/charts/chart-suga.... Pretty sure that once this pension/money printing funded tech bubble bursts, it will hurt even more this time.

silverbax88 16y ago
I can't see how these two sets of data correlate into a massive bubble popping, just that the reality is that the US is still trying to come out of the results of the last bubble bursting...as an example, since the fall of 2008, unemployment has not recovered, so what, exactly, is about to burst? I would think that hyper inflated values and unsustainable YOY gains in valuation for asset classes (stocks, real estate, internet companies) would be more of an indicator of a bubble.
- abrenzel 16y ago

pclark 16y ago

Even if there was a bubble, you are talking about early stage investment that probably means there is $250M instead of $100M - previously the bubble was in the late stage where there was $15Bn instead of $1.5Bn. Huge difference.

pclark 16y ago

We're in a bubble of people asking this question, for sure.

bdr 16y ago

I take this to mean "Are software companies overvalued relative to the rest of the economy?" No. I can't prove my side -- like in the stock market, no one can -- but it's hard to put a cap on how well the software sector will do. Every activity in the world is involving more and more software. Code builds on itself, and technology has only very recently crossed some fundamental thresholds, like ubiquitous powerful arbitrary computation and global communication at close to c. Together, these imply that the opportunities for value creation will continue to be enormous, and in the big economic picture money will redistribute from other industries to software. That was true in 1999, but people had a lot less information with which to estimate the size of these kinds of opportunities. Given this uncertainty, the amount of money invested may have been rational, at least at first, even though the bet turned out to be wrong. Now people have enough information to estimate well.

kemiller 16y ago

My rule: if people are worrying that there's a bubble, there's a bubble. It's almost the definition. It's clearly not as bad as the last one in that the overvalued companies actually have some value to begin with, and it's only us techies fretting right now, not everyone and their cab driver. The trick is figuring out what to do with that information.

necubi 16y ago
Actually, you've got it almost backwards. If people are worrying that there's a bubble, there probably isn't. Bubbles form when everybody thinks things are worth more than they are. This produces a positive feedback loop whereby investors buy things they think are valuable, raising their price and therefore perceived value, causing other investors to buy. If everybody's worried that there might be a bubble, then investors will be more cautious about buying simply because others are buying. The biggest difference between the tech bubble and what's happening today is that the investors are all sophisticated--these aren't retirees dumping their savings into Pets.com stock.
- kemiller 16y ago
  No, I don't have it backwards. :) There's always two groups of people. The wild-eyed optimists, and the doubting Thomases. There are still tons of wild-eyed optimists right now, but for me, the emergence of a vocal minority of doubting thomases is a clearer sign of a bubble, or at least the late stages of a boom (is there a technical difference?), because it means those closest to the issue are starting to tilt more pessimistic than the investor community at large.
  - sabat 16y ago
    There are few to no "wild-eyed optimists" right now, save for a handful of investors pumping money into Zynga and Facebook. If you think that compares to 1998, you really ought to go back and re-read history.
    - kemiller 16y ago

tomkarlo 16y ago

There are really two potential "bubble" worth talking about at the moment - the broad equity markets (up almost 100% in the last two years) - and the early-stage Internet market (not Facebook, but Groupon and the early-stage investments.) I'd argue they're maybe related but they're not linked, given the lack of a big tech IPO market. In the 99 bubble it was the vision of a big IPO driving the private tech bubble. These days I'm not sure that's true. There's a third bubble worth noting - real estate. I don't think it's nearly done deflating, and if rates start to rise back to normal levels without incomes starting to pick up (which would require a major drop in unemployment) we're going to see another down leg there as millions of baby boomers try to get liquid on their home equity to fund retirement.

jhulten 16y ago

Malinvestments wreck the economy... http://www.youtube.com/watch?v=d0nERTFo-Sk http://www.youtube.com/watch?v=d0nERTFo-Sk

jdp23 16y ago

No two bubbles are the same and I agree with a lot of the things people are saying about the differences between now and the dot com bubble. But I think there's plenty of evidence of angels and various successful startups mafias pumping up valuations in the Silicon Valley web startup world. The good news is that the damage is likely to be a lot more localized this time.

netmau5 16y ago

Just for arguments sake, let's say we are in a bubble. Isn't that a great thing for entrepreneurs wanting to startup or get additional funding? Does that mean we should put the pedal to the metal now instead of waiting for a potentially bad funding environment post-burst?

motters 16y ago

From where I'm standing I don't see any evidence that a technology bubble is taking place (actually the reverse). Perhaps there will be a bubble emerging in the next few years, but that's always hard to forecast.

budu3 16y ago

Something negative is definitely happening. I don't think it'll look like the classic bubbles that we've seen (as a matter of fact all bubbles are different). But at the very least a predict a backlash.

henryw 16y ago

although i think we are in a bubble, you never know where the top is. we are only 1/2 way up on the nasdaq from the 2000 high disregarding inflation. http://imgur.com/qeiEZ.png http://imgur.com/qeiEZ.png this s&p also has room to go http://imgur.com/k3obu.png http://imgur.com/k3obu.png

anigbrowl 16y ago

Tech is multiplying faster than the rest of the economy can deploy it. With so many options, committing to a particular framework infrastructure means opportunity costs appear to rise unusually sharply. It reminds me a bit of the MSX & Commodore computer period in the 80s, not long before the PC moved down from the business market to the consumer one. Remember that post a month or so back about how there were too many different Android phones, and iPhone was so much nicer - there's a new one every June or July, so you don't have to worry about your shiny new Android phone feeling old hat after only 3 weeks. I don't feel that way, but I could see where he was coming from. Same thing with Facebook; the secret of its popularity is that it's fairly simple and consistent, which was also one of AOL's key selling points. Most people don't want to reconstruct their internet/computer experience on a regular basis, as demonstrated by the histrionics when many popular sites decide it's time to clean up their layout or switch to a new logo. Google's approach to this is to just be in permanent beta which I like very much, but sometimes I get frustrated at the way things seem to evolve (or slow down) on 20 different schedules. I have felt for a year that we are approaching one of the periodic phase transitions that result in a whole new wave of growth, and that the leadup to such periods is characterized by great energy and inventiveness, but also a lack of focus and rising overhead. My gut says what's needed to progress will leverage semantic web technology, but that we're another year away from achieving the required information density which would allow it to be useful. Also, it's going to be quite C/GPU intensive, and take advantage of the fact that many modern processors are underused.

webmat 16y ago

This time is different!

d4nt 16y ago

I doubt it, the P/E ratios of most tech companies is no way near 1999 levels. But there are some isolated examples of irrationality. I don't know anyone who seriously thinks Facebook is worth $70bn (i.e. more than Sony). I suspect the low interest rates are pushing a lot of private capital into higher risk but 'cool' areas.

vessenes 16y ago
You do now; I think Facebook will add more global value than Sony in the next 10 years.
- ekidd 16y ago
  I agree: Sony's consumer electronics division has produced a steady string of losers lately, and they're having a rough time competing with Apple. I'm not sure what their other divisions are doing, but it's been years since Sony was hip. Facebook, on the other hand, is sucking up a huge fraction of the hours spent online by hundreds of millions of people. If you consider them as an advertising-supported entertainment company, they're doing great. Facebook's revenues are still only a couple of billion dollars per year, but they should be able to monetize more of their traffic over time. Note that I haven't run the underlying numbers on either company. But from 10,000 feet, it's [edit: not] automatically clear that Sony is worth more Facebook.
  - patrickk 16y ago
    "...it's automatically clear that Sony is worth more Facebook." Really. That's quite a claim. I derive almost no value from Facebook, and I mainly have a profile to let people know I actually exist. I know many people in the same boat. I couldn't care less if they folded in the morning. There was a guy here on HN a while back saying that his business saw absolutely no ROI from Facebook ads, because people simply don't click on ads - they are on Facebook to chat with friends, not buy teeth-whitening products or whatever. That guy reckoned a lot of people are trying Facebook ads because every business must be 'social', it's the thing to be seen to be doing. Once enough business get burned, word will spread and Facebook will lost a lot of ad revenue. Just one guy's opinion, but it makes you think. There was another article saying Facebook is like a nightclub that is currently the cool spot to hang out, but it will inevitably lose it's lustre and go the way of MySpace. People will migrate to the Next Cool Thing™. Again, just one more data point to consider. Since you ended with a bold claim, I will too: that within ten years, Facebook will be almost forgotten. Sure, it will still have traffic (so does Bebo and MySpace) but it will no longer be picked up by TechCrunch and mainstream media.

Xpirate 16y ago

Double bubble: toil and trouble. Facetwit does a face plant ... and then it's back to normal.

vessenes 16y ago

There's a sort of valuation = real dollars group-think problem I'm noticing in the conversation here. Consider: what are the economic consequences of a $1 investment in 3x preferred stock for Facebook at a One Trillion Dollar valuation? How about a One Hundred Trillion Dollar Valuation (cue Doctor Evil Music). OMG! HUGE TECH BUBBLE! Answer: the same; the investor will make 3 bucks. Or, if FB goes totally under, she will lose $1. During the dotcom bubble, companies like Zefer had $100 Million SERIES A rounds. <<--- No revenues. This is not happening right now, in any way, shape or form. Are valuations off for early stage companies? Hard to say. Right now, with the YC class returns, they are certainly not off, if you believe a VC firm should earn on average no more than 25% return a year. Of course, that's short term. Long-term, of course, I don't know. But, there are a number of factors that say this is very different than the late 1990s: 4-10x lower cost (time, cash) to deploy technologies, far more tech savvy investors, and a more investor-friendly "this cash is going to let you upgrade from ramen to peanut butter" vibe for early funding rounds. These are significantly different dynamics for the tech world. Finally, if there is currently a 'valuation' bubble, it is most certainly not an 'economic' bubble. The total dollars floating around for these transactions is quite small compared to what happened during the dotcom crash. However much we like doing our startups, almost none of us are materially impacting the US economy. In fact, because the startups are so job-efficient, we are impacting far less per-startup than the last group, ex all of the public IPOs which took grandmother's money.

sabat 16y ago
Well said. It is amazing to me that so many people here can't understand the difference between a bubble and isolated investor activity. A small group of potentially bad investments is not the same thing as large-scale irrational exuberance. "Dude, if someone said Facebook is worth $50 billion, then we have to be in a bubble -- Dropbox and Github better get ready for a huge meltdown!"

stesteau 16y ago

Big time bubble

ebaysucks 16y ago

The bubble is rebuilding in Tech as the QE money finds its way into the market through VC funds, while banks are hesitant to lend their freshly printed reserves for house mortgages.

sethg 16y ago

My short answer: yes. My long answer: the economic growth of the 1990s went mainly to the upper classes (median wages hardly grew at all, especially when you take rising health-insurance costs into account). Instead of consuming their profits, the people in the top brackets keep looking for things to invest in. People who want to invest conservatively are pouring money into T-bills (thus, in spite of the massive deficit, Treasury rates are still quite low). People who want to be aggressive once invested in dot-coms, then stampeded to real estate and too-clever-by-half financial instruments, and now are pouring money into social media. Capital will continue to flit from one bubble-opportunity to another until the people at the bottom of the pyramid have more actual money to spend.

btipling 16y ago

Since I started paying attention, it's been like this: 1999: People asked "Are we in a bubble?" 2000: People asked "Are we in a bubble?" 2001-2003 Recession 2004 People asked "Are we in a bubble?" 2005 People asked "Are we in a bubble?" 2006 People asked "Are we in a bubble?" 2007 People asked "Are we in a bubble?" 2008-2009 Recession 2010 People asked "Are we in a bubble?" 2011 People asked "Are we in a bubble?" Are we in a bubble? Are we in a bubble? Are we in a bubble? ... Yes, apparently unless contraction is obvious, we're always in a bubble and everything in life is only ever getting worse and we'll all die horrible miserable deaths and then the zombie apocalypse comes. PANIC! OH NO! Run for the hills! Or just work hard and try to do the best you can and stop worrying about things beyond your control.

mkramlich 16y ago
In the spirit of selling pickaxes rather than mining for gold, I actually sell software which helps people practice surviving a zombie apocalypse: http://DeadByZombie.com http://DeadByZombie.com

pg 16y ago

I was here in the Valley for the original Bubble, and the situation now is nothing like that was. Back then people were saying there was a "new economy" driven by the Internet, and that productivity was going to go up like a step function, which justified higher p/e ratios for any company that could claim to be a participant. If you had money to invest you felt like you had to have most of it in the stock market, because money parked in bonds would miss out on all this growth that was coming. Back in the 90s I was sure there was a bubble happening, and was notorious for telling everyone to sell. And yet I remember that even I thought it was dangerous to have money sitting in bonds. I don't think that now, and I don't think anyone else does either. What's happening now is a lot more localized. A few professional investors are paying higher valuations for startups than they were a few years ago. But the number of participants and the amounts of money moving around are both very small compared to the 90s. Plus the companies are better. In the 90s, it was the dumb leading the dumb: smooth-talking MBAs were raising money from hapless LPs and investing it in startups run by other smooth-talking MBAs. Now it's Yuri Milner investing in a company run by Mark Zuckerberg.

dabent 16y ago
I agree with you, and as someone who gained an interest in startups before anyone started calling this recent trend a "bubble" I ask myself one question: Will this change what I'm doing with my startup right now? And the answer for me is a simple "no," as it should be for virtually any founder.
- stefanobernardi 16y ago
  I'm not so sure about that. It's a fact that raising money now is way easier, and you tend to get high valuations, so many founders should probably fundraise as long as the current hype stays up. It may easily be that next year valuations will be way lower for web startups.
  - dabent 16y ago
    Very good point. There are certainly tactical moves that will change due to conditions, such as fund raising. But the general "run for the hills" attitude I see in many of these posts isn't productive. It's almost as if I see people hesitant to start because they fear that things will fall apart in short order. Maybe I'm reading to much into it.

michaelpinto 16y ago

Two Words: Demand Media You have an entire company that is based on gaming google that ready to be publicly traded. And next you have AOL buying the Huffington Post which is designed to cheat actual newspapers out of pageviews — something that Google could change in a minute. I was around for the original dot.com bomb and this smells exactly the same. The winners will be the companies who survive: My bet is on Facebook. But I'm not sure that I'd bet on Groupon or Twitter. By the way what makes Facebook special isn't the technology but the team.

damoncali 16y ago

I'm curious to see how many people who think we're in a bubble were around for The Bubble in '97-99. From where I'm sitting, this is not even close. Consider: There were IPO's like every other day. Often, these companies were less than a year old. People were driving up the wrong company's stock by 10% in a day because they mixed up the ticker symbols. Stock swings, usually positive, of 30-50% in a single day were not uncommon. Companies with no business at all were raising hundreds of millions of dollars in VC. The number of VC firms was exploding. AMZN, SUNW, DELL, and the like would go up 3-5% pretty much every day Day traders with no experience were plowing tens and hundreds of thousands of dollars into the market. There were companies who did nothing but cater to these people. (Not many of either are left). Kids fresh out of college were being paid $125,000 to write plain HTML and getting pissed off if they didn't get huge raises. Webvan - look it up. So, I guess I' not seeing a bubble. Just a few wacky valuations here and there.

pnathan 16y ago
Basically at this point there's just hardly any woo-woo going around about the New Economy Being Beautiful With Money Falling From Trees or other neo-utopian wackiness. I think we might be in the early stages of a tech funding boom, but I just don't think people are that bullish right now. I see a lot of uncertainty going around. People are simply scared of the Great Recession and there're way, way, way too many people thinking about the '01-'02 bust. When that fear starts going away I think a bubble has a chance of beginning. /famous last words
astrofinch 16y ago
Wow, I was like 9 during that period. Thanks for telling me what happened!

m3mnoch 16y ago

no. there is no bubble. that means there's nothing to pop. the first time around there was no plan for making money and there were hordes and hordes of companies throwing ridiculously expensive spaghetti at the wall to see if it stuck. everyone and their dog was filing for an ipo. this time around? there are relatively few companies with ridiculous valuations... and guess what? they're all making money. and tons of it. for god's sake, even twitter started turning a profit in '09. groupon? $800 million and more in annual revenue is a just fine pe ratio for their valuation. their financials make sense. people are paying for their services. and all those companies not making money yet are bootstrapping on next-to-nothing rather than taking on tons of investment. it's different this time because it's not about the squishy-touchy-feely "we know better." you can't count on people knowing better. no, it's different because there's real revenue and real business models involved. bubbles happen when there's no income to back wild speculation. companies are offering percieved-as-valuable services and are getting paid for it. they're primarily taking investment for expansion, not runway extension. most of the money is from private investors instead of zillions of get-rich-hungry public speculators from an ipo. i mean, it's only natural for information-based companies (instead of say... webvan) to go from 0-60 faster than we've ever seen in an environment where information is enabled to go from 0-60 faster than ever in recorded history. things are fine, folks. back away from the stupid "bubble" panic button. m3mnoch.

awt 16y ago

If it is a bubble, then what ( as a software developer ) should I do? I don't work for any of the overvalued companies, so changing jobs isn't a good option. I don't own any stock in them, so I can't sell it.

mrj 16y ago

I used to count the limos passing by in downtown SF (there were many). It's nothing like that anymore and hasn't been for some time.

migrantgeek 16y ago

Yes, bubble. Apple worth $100 billion more than MS or Google? That's a bubble.

sabat 16y ago
Apple's revenue and real growth justifies that valuation, easily.

mdink 16y ago

"Something's going on and it's likely going to have pretty significant (negative) consequences" -- I feel like this is the best answer b/c much of the problem has happened behind closed doors. The real estate boondoggle and the dot-com bust required a tremendous amount of public participation to grow to the scale that each did. I hope investors (both professional and hobbyist) are very careful with each of these soon-to-be public companies. If not... then def "Yes we're in another bubble".

sabat 16y ago

Leave it to pg to keep a cool head: There are some concerns about a new budding tech bubble as some startups have reached titanic valuations — Twitter, for example, was recently reported to be worth around $10 billion — without having a business model nailed down. But those cases are few and far between, and there are fewer investors in those types of companies than there were in the late 90s, Graham said. The amount of money companies are raising today — relatively speaking and adjusted for inflation, naturally — is less than what companies were raising during the last tech bubble, he said.

drpancake 16y ago

I don't think there's a bubble. But I'm getting seriously bored of social analytics, location-based advertising and glorified todo list startups. There's so many more interesting problems to solve!

mkramlich 16y ago

Not a bubble. A small subset of tech companies are over-valued, yes. Most notorious are Facebook, Groupon, possibly Twitter, Zynga, etc. But most are not. And a greater proportion of startups are 100% bootstrapped and then kept as lifestyle cash cows or flipped early in small private exits. Many companies have high caps but probably valued about right and they have real products and revenue streams, like Apple, Amazon, Microsoft, Google, IBM, Oracle, Cisco, etc. I think that a couple factors are contributing. One, returns on safe investments like bank savings accounts are basically zero. Two, there's a lot of great free info on the web now for people to self-educate especially regarding entrepreneurship and angel investment, as well as more tools like AngelList and more social event series like Meetups and code jams and contests that help facilitate bring people together and leading to new enterprises and deals. Third, the top 10% wealth-wise have even more discretionary money now than they did in the 90's, and that combined with an increasing sense that the US salaryman has no guaranteed future anymore, so we we have to increasingly look to making FU/retirement from entrepreneurship and investments rather than doing the 9-to-5-til-yer-60 thing.

pnathan 16y ago

It's not a bubble yet. We still have dead tulips hanging around.

duopixel 16y ago

Scroll to the very button of this screen, hover over the "Green certified website" badge. It's pulsating, what is this? 1997? Click and you'll delighted with the worst pile of steaming bullshit ever, along with some incomprehensible infographics that don't even look good. This is a Y Combinator backed venture. Yes, we're in a bubble.

BluePoints 16y ago

I think the world will see it's first Trillion dollar company within 10 years. I also don't think that company has been created yet.

natural219 16y ago

I'm not sure there's a bubble, but if everyone on HN just pretends there is one and we say the word "bubble" a lot in major publications, then maybe we can despeculate technology investments and invest in them ourselves...

alikamp 16y ago

Every year new and old businesses go bust. Bubble or no bubble. Good economy or bad economy. Take the average joe, pit him against Lebron James in a half court shoot out, first one who makes a basket wins, the smart money would be on Lebron but its not a stretch to think that Joe would sink it first. In the past bubble bust we didnt know Lebron from the Joes, now we know. We know the skillful people in the space, yes Joe will occasionally sink the basket first, but over time Lebron will deliver. This net growth is not a bubble, yes companies will bust but the Lebrons will still be ballin.

cletus 16y ago

It really depends on what you mean by a bubble. The classic example of a bubble is the Tulip-mania of the 17th century [1]. The dot-com bubble was ultimately caused by a system awash with dumb money where even the most ludicrous ideas were getting funded. It was a house of cards that eventually came down. It earns its bubble label because two things happened: 1. Funding dried up to the point that legitimate businesses couldn't get funded or failed; and 2. The ramifications of the bubble extended far beyond dot-com companies. Do we have something like that now? IMHO no. But I think we do have a valuation bubble of sorts. The system is awash with money (particularly Russian money) but what you have to remember is that we're still talking about far less money than in 2000. In 2000 there were no angel rounds (per se) and companies weren't bootstrapped or funded on $250k or less. It was pretty much straight to a $5m+ Series A due to the (then) high costs of servers, software licenses and bandwidth. Now you can build a prototype of something for as little as $10-50K. Infrastructure costs are almost zero (for a prototype). The only major cost left really is developer time and $250k will pay for 2-3 developers for a year (at a mix of salary+equity). That same venture would've required an order of magnitude more money in 2000. So I think what you'll see is that a lot of angels will lose their shirts in the next few years or simply get poor returns. The same applies to the lower end of seed funds. But I don't think funding will dry up to the same extent simply because the market has many more participants, we're talking about far less money (both in total and per investment) and the barrier to entry is so much lower than it used to. Now, this may translate into a problem where angel-funded companies can't get Series A/B funding and thus fail but with many companies reaching profitability with very small amounts of money the only real impact will be (IMHO) consolidation (today we have some significant players--Google, Facebook and Apple for example--swimming in cash and ready to write big checks even for talent acquisition) and the adoption of more lean-and-mean approaches, which can hardly be a bad thing. Where ordinary investors could really lose out is on companies like Facebook. The early investors will (and have) made out like bandits but honestly I can see that bubble bursting at some point in the future. [1]: http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania

chrislomax 16y ago

I for one am sick of seeing, day in, day out, a new start up that has raised 20 million in funding from doing nothing. Also, crazy valuations put on companies that don't turn a profit. Generally in business, a company is worth its annual turnover if a sale was going to happen. How are companies that are turning over 0 worth 15 billion? I think everyone has forgotten about the .com crash 10 years ago and thats where all this crazy investment is coming from. Google offering 6 billion for Groupon, then Groupon turning it down?? I think the only thing that would not describe this as a bubble, is the exeprience of the last bubble and what it has taught us. We have learned now what the "internet" is. We have learned its boundaries (as such) and therefore we can make a reasonable evaluation on what the next "big thing" is and whether it will all come crashing down. I for one, slag Facebook off to death. I think Mark Zuckerburg is a robbing bastard that stole someones idea and ran with it himself. The thing is, it's the ideas that he didn't steal that make him and the site brilliant. Facebook too did not have a business model and even after creating the advertisting it did not do much. Now, when Facebook started doing targeted advertising and to a greater extent, the new location based advertising, that's when it became brilliant in my eyes. These non-profit start ups that eventually find a business model that works are where the real treats are and its the fact that these startups are finding a business model that makes this a new era, rather than a bubble. To coin a phrase, its the face of things to come. "The future internet defined" Now all I need to do is find a stupidly easy idea and make money from it so I can stop being jealous already.

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silverlake 16y ago

I'm a pessimist and spotted every recent bubble. What is a bubble? It's when value becomes detached from "objective" financial models. This may be the case for a few high-flying businesses right now (Twitter?), but not widely. The recent funds from Goldman and JP may push valuations for Facebook & Twitter beyond reason because they are chasing a few shares in private markets. But throwing a million $s at a few stupid startups isn't a bubble. That's the VC industry buying lottery tickets. I don't think there's a bubble. There's just a little excitement in social media and mobile apps.

kunley 16y ago

I will not refer to an economy bubble but to a general trend, so this won't be a direct answer to your question. More & more startups are build around shuffling data between few existing big players in the social media market. The question is: are these "base" players really offering its customers something which would improve the quality of their lives? Other than a warm fuzzy feeling of being "connected"? Personally I doubt it. The example: Flightcaster: a concrete quality given to its users. This is, as PG reminded few times, called: wealth. Congrats here. Some startup X which does something with your Twitter or Facebook data: well it may be cool according to the current fashion, but its real value is very volatile, unmeasurable and virtual. So if you're in the first group, you're safe. If you're in the second group and base your value on a virtual value of other services who in turn are based on some premise or belief, my guess is you're doomed.

frobozz 16y ago

We're (almost) always in a bubble. The important question is "when will this bubble pop and the next one start".

hammock 16y ago

Facebook is not the black box many people think it is. Maybe $60B valuation isn't all that crazy, when you compare it to Google. Facebook has a huge share of internet (7%), about the same as Google. And even though Facebook ads are a colossal failure, most people believe there is revenue there somewhere and we can look to Google for an indication of revenue potential from commanding that many eyeballs. Google had revenue of $29B in 2010 and market cap $201B.

GrandMasterBirt 16y ago

I don't think were in a "bubble" Nobody is investing vast amounts of money into people with absolutely no business plan. Its not the "were gonna need 100 servers" only to realize there are 4 users... total. Services like AWS keep costs down allowing scalability on demand vs up front prep for doomsday. I see groupon as a bubble in itself. But that is one business.

phiggis 16y ago

Bubble for major funded consumer websites only? I think the social websites that have made no money, and haven't thought about monetizing are the ones that have suffered. Think the difference between now and 2000 is you may need to prove you can make some money now, not just get uber traffic. http://www.founderspeak.com http://www.founderspeak.com