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Yahoo was a special case. It was not just our price to earnings ratio that was bogus. Half our earnings were too...What made our earnings bogus was that Yahoo w

Yahoo was a special case. It was not just our price to earnings ratio that was bogus. Half our earnings were too...What made our earnings bogus was that Yahoo was, in effect, the center of a Ponzi scheme. Investors looked at Yahoo's earnings and said to themselves, here is proof that Internet companies can make money. So they invested in new startups that promised to be the next Yahoo. This section seems eerily prescient in foreseeing the current bubble - replace Yahoo with FB or Google, and it could have been written in 2013. Values are supported by confidence in larger companies which subsist on the advertising bought by smaller companies, which are funded in the hope of acquisition by larger companies. When that confidence evaporates, things will collapse, even the companies which provide true value, if they sell advertising and depend on the entire ecosystem continuing to grow. This bubble gets some things right too - there are of course many many profitable and valuable communications and social networking companies (as there were in the first boom, probably even more now), and Twitter, FB and Google are not going to disappear any time soon, but if your income is based on advertising or VC funding, this sort of bubble can be really damaging, and when a crash comes, many worthy projects will be thrown out with the unworthy. Perhaps bubbles repeat themselves too - the first time as tragedy, the second as farce.

dredmorbius 13y ago
The largest sources of advertising are the FIRE industries: finance, insurance, and real estate. After that: retail, travel, jobs & ed, home & garden, consumer electronics, vehicles, business, and gifts. The problem I see here is that both FIRE and the consumer Web are largely catabolic industries -- they're liberating some stuck capital, but I don't see them as actually creating a whole lot in the way of new productive capacity. Which means you've got two bubbles feeding on one another. The good news is that it's not the incestuous Internet bubble of the late 1990s. The bad news is that it's a much larger piece of the economy. Perhaps the only parts which have been growing appreciably. http://www.wordstream.com/blog/ws/2012/01/23/google-revenues http://www.wordstream.com/blog/ws/2012/01/23/google-revenues

dredmorbius 13y ago

The largest sources of advertising are the FIRE industries: finance, insurance, and real estate. After that: retail, travel, jobs & ed, home & garden, consumer electronics, vehicles, business, and gifts. The problem I see here is that both FIRE and the consumer Web are largely catabolic industries -- they're liberating some stuck capital, but I don't see them as actually creating a whole lot in the way of new productive capacity. Which means you've got two bubbles feeding on one another. The good news is that it's not the incestuous Internet bubble of the late 1990s. The bad news is that it's a much larger piece of the economy. Perhaps the only parts which have been growing appreciably. http://www.wordstream.com/blog/ws/2012/01/23/google-revenues http://www.wordstream.com/blog/ws/2012/01/23/google-revenues