6 ms·

We didn't start the Fire (2.0)

103 points by raghus 19y ago

jmtame 19y ago
This is great for a laugh ;)
maurycy 19y ago
Funny. But is there really a bubble?
- edu 19y ago
  Probably, but this does not mean that there aren't good ideas.
- alaskamiller 19y ago
  Well, considering most of the buildings from the first dot-com real estate boom AND existing officers are still mostly empty, it's not as bad.
- corentin 19y ago
  A bubble happens when people buy something (stock, real estate or even tulip bulbs!) that they know is overvalued, on the ground that some "greater fool" will arrive later in the party and buy it at a still higher price. It's a kind of Ponzi scheme; at some point, there aren't greater fools anymore and the last players lose. What we see now may be some misguided investments, bad companies, etc. Obviously, all the crap will end up being cleared at some point. But it's not necessarily a bubble.
awt 19y ago
It feels like a bubble in many ways -- full employment (of programmers anyway), tons of "me too" sites. Interestingly there's also probably another recession coming on soon, which will probably have a negative impact one way or another. If we're not in a bubble, we may be at the crest of some sort of ripple or wave at least.
- mmp 19y ago
  The reason behind full employment of programmers is actually pretty down to earth. Enrollment into CS programs dropped dramatically when the bubble burst, and has remained low to this day, even though the market recovered in only a couple of years after the crash. It's a matter of inertia, really: it takes a few years for people's perception of the job market to adjust and 4 more years to graduate.
jsmcgd 19y ago
Talk about the 'bubble' has been going on for years now. Does this not indicate that it isn't actually a bubble? Is industry growth really of bubble proportions?
sabat 19y ago
Cute. But I have to remind the makers that "bubble 1.0" was a stock market bubble. We are not in a stock market bubble. The people who are putting money into Facebook are not stock market investors.
- alaskamiller 19y ago
  Better bust out your TI-89 and crunch out some P/Es. I'll give you a couple to start: EBAY, GOOG, AAPL, YHOO, JAVAD.
  - sabat 19y ago
    JAVAD (Sun) I will give you. Are you really trying to say that Apple is over-valued? The stock market bubble (1.0) was based largely on over-valuation of companies that had no profits and no proven business model. All of the companies you list -- perhaps save for Sun, is it profitable? -- are doing quite well, thank you. Whether they deserve their P/E ratios at the moment: that remains to be seen. But this does not compare with the massive number of over-valuated companies circa 2000. The NASDAQ, for example, sits today at about $2600 -- at the peak of the bubble, in mid-2000, it broke above $5000. We are not in a bubble of any kind.
    - alaskamiller 19y ago
      What's ridiculous is that we're arguing over semantics. I'm going to tell you right now, this is an economic bubble as defined by the mere fact that companies are being valued (privately or publicly) too high. Skype. YouTube. Facebook. Venture funding has been giving quite a lot of money to a lot of me-too sites with little differentiation or real value or even business models. Just because it doesn't match the hysterics exhibited back in the 90's doesn't disqualify this. And it seems your only argument has been that. I also found your analysis of dot-com companies back then to be lacking. Personally I don't think it really matters, there are way more important economic issues that needs to be addressed, be it the real estate bubble, credit meltdown, or the war America is engaged in. Also, for what it's worth: http://online.wsj.com/public/article/SB116679843912957776-fF7CtrdMDTE4n1h5Ju5pv0HKhgM_20071227.html http://online.wsj.com/public/article/SB116679843912957776-fF... And PS: I own Apple stock. And yes, it is greatly overvalued. And I love it.
mgummelt 19y ago
Ha, my CS professor is in the middle of this video
- RyanGWU82 19y ago
  And my boss! (My boss is your CS professor...)
sabat 19y ago
I guess what irritates me is how ignorant these Bubble People are. Any economy can take a downturn, but if you can't tell the difference between Facebook (overhyped but useful service) and Pets.com (worthless), and you think that growth = bubble, you're ignorant. I'm sorry about that, but it's true.
- alaskamiller 19y ago
  Pets.com had a legitimate business model: they had a niche market, invested in logistics, and they sold stuff over an e-commerce site. If anything, bootstrapping something similar nowadays and being successful at it would make you look like a genius (a la woot). What they did fail to do was exercise discretion with their spending. The strategy back in the dot com days was to over-spend in order for the marketing to tip them over. That was the strategy for Amazon from DAY 1 and it took them almost 10 years to make a profit. But Amazon survived because of good leadership while Pets.com obviously didn't because of bad leadership. And as for Facebook, gee, a supposed 15 billion dollar valuation? Advertising models that's outright creepy? That's growth? The first bubble was a catastrophe because it involved public money. The second bubble is going to be a headache because it involves private money. But nonetheless when the value of something is way more than the intrinsic value, it's a bubble.
  - sabat 19y ago
    "Pets.com had a legitimate business model" I beg to differ. A legit business model would include a base of customers who wanted to buy the products from the company -- something Pets never had luck with. "What they did fail to do was exercise discretion with their spending." That was one of their failures, but not their biggest. The biggest was not having demand, and being unable to create demand. It was easier for people to go to the grocery store once per month than to order online. Comparing Pets to Amazon isn't really valid, since Amazon meant to a seller of everything, and even when they were solely selling books, there was more value-add than Pets could ever achieve. You can shop for books on Amazon in more interesting ways than you can at a physical bookstore. That wasn't true for Pets.com. "And as for Facebook, gee, a supposed 15 billion dollar valuation? Advertising models that's outright creepy? That's growth?" $15 billion sounds ridiculous, sure, and it probably is. But that doesn't make a tech bubble. That's just over-valuation. Facebook isn't a public company, and if it went under, a handful of investors would lose money. Not the same as the NASDAQ going from $5000 to <$2000.
Goladus 19y ago
There's a huge difference between the current growth in the tech sector (which involves a lot of ideas that are likely to fail) and the two recent bubbles of my lifetime (dotcom and real estate, which are somewhat conflated in that video as well). The main difference is rampant speculation with people making tons of money on transactions way above reasonable market value. Real estate and dotcom were characterized by a kind of mania. Large, risky investments based primarily on the logic that values are surging and will keep surging fueled the inflated valuations. When it's just Google, Microsoft, etc. making strategic acquisitions there's much less cause for alarm. If there's a tech bubble, it's either surrounded by a thick layer of substance or it's dozens of tiny little insignificant bubbles that will burst before causing anyone any harm. Facebook and a dozen imitators going public with their stock prices subsequently soaring out of control as people rush to get in on the action, that would be cause for alarm. Time Magazine covers are the wrong place to look for bubble clues.
- pchristensen 19y ago
  And don't forget that most of the "ridiculous valuations" come from acquisition or investment by a few companies that make huge piles of real money in the real economy. If Google, eBay, Amazon, or Microsoft want a company, it might be worth $50 million. If two or more of them want it to compete with the others, then it might be worth $1 billion. If none of them want it, it might be worth $1 million or less. Note that the product, founders, revenue, profit, technology was not one of factors I listed. Just the potential acquirers makes a 1000x difference. And it's ok for these companies to spend money like that because it's money they've already earned from their primary business. That's why it isn't a bubble. Call me when a "pointless revenue-free Web 2.0" company goes public - then we might be in a bubble.
  - drusenko 19y ago
    it's very easy to just throw out that acquisitions are of inflated value as well, but as someone who's been in several acquisition discussions with big name tech companies, i can guarantee that these companies don't take the value of a million dollars lightly. these companies are either making strategic acquisitions that are valuable for the tech or hires (valued at low millions), or the user base or customer base, or a multiple of their revenues. but the one thing these companies are not doing?? "ooh, shiny startup! here's ten million dollars!"
sanj 19y ago
MIT doesn't have a CS degree, only 6-3 or 18-C. And doesn't offer honors. Actually, the thing that I absolutely adore is that MIT doesn't do "honorary" degrees. You earn it.
- mhartl 19y ago
  Of course, "earn" is a matter of degree (no pun intended). I mean, MIT has been known to grant "engineering" PhDs for things like this: http://philip.greenspun.com/panda/ http://philip.greenspun.com/panda/
  - neilc 19y ago
    I would definitely call that the exception rather than the rule.
  - pius 19y ago
    Um, no. MIT didn't grant Phil Greenspun a PhD for writing a textbook. He did a little something called grad school.
    - mhartl 19y ago
      Um, yes: http://philip.greenspun.com/panda/thesis/ http://philip.greenspun.com/panda/thesis/
- tlrobinson 19y ago
  That's just silly. Honorary degrees are just that, honorary, to honor someone. You don't hear people talking about how they received "their degree" from some university when in fact it was actually an honorary degree. I don't feel like my degree is somehow cheapened because my university gives honorary degrees to people who didn't "earn it".
  - pius 19y ago
    I wouldn't say it's silly, I'd just say it's a difference in culture. No need to be defensive. :P MIT was started as a reaction to other universities whose graduates couldn't do anything "useful." (That is William Barton's word, not mine.) At that time, supposedly prestigious colleges were accepting and graduating rich and powerful students who could talk the talk, but couldn't make any real contributions when it came to math, economics, physics, or any other hard science or engineering discipline. So, MIT was founded to be a utopia of meritocracy where no one cared where you were from or who your father is, all anyone wanted to know is "can you do the work?" Furthermore, MIT was founded on the principle that if you've graduated from MIT, you are guaranteed to be capable of useful contributions to society. This was considered to be a binary question -- either you're an MIT graduate or you aren't. That's why honor rolls are anathema to the Institute. At the end of the day, this means that honorary degrees, athletic scholarships, and status-based admissions were out from the beginning because they are diametrically opposed to the mission of the Institute. What was (and is) in? Rigorous math, physics, chemistry, biology for every single graduate, no matter if they are mechanical engineers or music majors.
optimal 19y ago
Nah, this is all about redistributing the gains of the previous bubble. "The correct answer is, The Moops."
- davidw 19y ago
  The Moors!
maurycy 19y ago
I think that most people miss the most important point. The market is the play between players, and their expectations. A bubble is the situation when players' expectations are disconnected from fundamentals and no longer have any ground in the reality. And while it took literally few months of good acquisitions to create this Web 2.0 hype, much much faster than any fundamental changes arrived, few bankrupctes should be enough to kill it. Of course, there's still a question what has changed fundamentally since the last bubble? The infrastructure costs nearly nothing, the ad budgets are way higher, as well as number of people using the Internet. However, the services are still rather poor, and nothing paradigm shifting.
dskhatri 19y ago
Since we are talking about "bubbles", here's an interesting read on possibly the first bubble recorded: the Tulip bubble ( http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania ). Substituting hackers for 'tulip traders' and web companies for 'tulips' makes for a humorous read :)

103 points by raghus 19y ago

jmtame 19y ago

This is great for a laugh ;)

maurycy 19y ago

Funny. But is there really a bubble?

edu 19y ago
Probably, but this does not mean that there aren't good ideas.
alaskamiller 19y ago
Well, considering most of the buildings from the first dot-com real estate boom AND existing officers are still mostly empty, it's not as bad.
corentin 19y ago
A bubble happens when people buy something (stock, real estate or even tulip bulbs!) that they know is overvalued, on the ground that some "greater fool" will arrive later in the party and buy it at a still higher price. It's a kind of Ponzi scheme; at some point, there aren't greater fools anymore and the last players lose. What we see now may be some misguided investments, bad companies, etc. Obviously, all the crap will end up being cleared at some point. But it's not necessarily a bubble.

awt 19y ago

It feels like a bubble in many ways -- full employment (of programmers anyway), tons of "me too" sites. Interestingly there's also probably another recession coming on soon, which will probably have a negative impact one way or another. If we're not in a bubble, we may be at the crest of some sort of ripple or wave at least.

mmp 19y ago
The reason behind full employment of programmers is actually pretty down to earth. Enrollment into CS programs dropped dramatically when the bubble burst, and has remained low to this day, even though the market recovered in only a couple of years after the crash. It's a matter of inertia, really: it takes a few years for people's perception of the job market to adjust and 4 more years to graduate.

jsmcgd 19y ago

Talk about the 'bubble' has been going on for years now. Does this not indicate that it isn't actually a bubble? Is industry growth really of bubble proportions?

sabat 19y ago

Cute. But I have to remind the makers that "bubble 1.0" was a stock market bubble. We are not in a stock market bubble. The people who are putting money into Facebook are not stock market investors.

alaskamiller 19y ago
Better bust out your TI-89 and crunch out some P/Es. I'll give you a couple to start: EBAY, GOOG, AAPL, YHOO, JAVAD.
- sabat 19y ago
  JAVAD (Sun) I will give you. Are you really trying to say that Apple is over-valued? The stock market bubble (1.0) was based largely on over-valuation of companies that had no profits and no proven business model. All of the companies you list -- perhaps save for Sun, is it profitable? -- are doing quite well, thank you. Whether they deserve their P/E ratios at the moment: that remains to be seen. But this does not compare with the massive number of over-valuated companies circa 2000. The NASDAQ, for example, sits today at about $2600 -- at the peak of the bubble, in mid-2000, it broke above $5000. We are not in a bubble of any kind.
  - alaskamiller 19y ago
    What's ridiculous is that we're arguing over semantics. I'm going to tell you right now, this is an economic bubble as defined by the mere fact that companies are being valued (privately or publicly) too high. Skype. YouTube. Facebook. Venture funding has been giving quite a lot of money to a lot of me-too sites with little differentiation or real value or even business models. Just because it doesn't match the hysterics exhibited back in the 90's doesn't disqualify this. And it seems your only argument has been that. I also found your analysis of dot-com companies back then to be lacking. Personally I don't think it really matters, there are way more important economic issues that needs to be addressed, be it the real estate bubble, credit meltdown, or the war America is engaged in. Also, for what it's worth: http://online.wsj.com/public/article/SB116679843912957776-fF7CtrdMDTE4n1h5Ju5pv0HKhgM_20071227.html http://online.wsj.com/public/article/SB116679843912957776-fF... And PS: I own Apple stock. And yes, it is greatly overvalued. And I love it.

mgummelt 19y ago

Ha, my CS professor is in the middle of this video

RyanGWU82 19y ago
And my boss! (My boss is your CS professor...)

sabat 19y ago

I guess what irritates me is how ignorant these Bubble People are. Any economy can take a downturn, but if you can't tell the difference between Facebook (overhyped but useful service) and Pets.com (worthless), and you think that growth = bubble, you're ignorant. I'm sorry about that, but it's true.

alaskamiller 19y ago
Pets.com had a legitimate business model: they had a niche market, invested in logistics, and they sold stuff over an e-commerce site. If anything, bootstrapping something similar nowadays and being successful at it would make you look like a genius (a la woot). What they did fail to do was exercise discretion with their spending. The strategy back in the dot com days was to over-spend in order for the marketing to tip them over. That was the strategy for Amazon from DAY 1 and it took them almost 10 years to make a profit. But Amazon survived because of good leadership while Pets.com obviously didn't because of bad leadership. And as for Facebook, gee, a supposed 15 billion dollar valuation? Advertising models that's outright creepy? That's growth? The first bubble was a catastrophe because it involved public money. The second bubble is going to be a headache because it involves private money. But nonetheless when the value of something is way more than the intrinsic value, it's a bubble.
- sabat 19y ago
  "Pets.com had a legitimate business model" I beg to differ. A legit business model would include a base of customers who wanted to buy the products from the company -- something Pets never had luck with. "What they did fail to do was exercise discretion with their spending." That was one of their failures, but not their biggest. The biggest was not having demand, and being unable to create demand. It was easier for people to go to the grocery store once per month than to order online. Comparing Pets to Amazon isn't really valid, since Amazon meant to a seller of everything, and even when they were solely selling books, there was more value-add than Pets could ever achieve. You can shop for books on Amazon in more interesting ways than you can at a physical bookstore. That wasn't true for Pets.com. "And as for Facebook, gee, a supposed 15 billion dollar valuation? Advertising models that's outright creepy? That's growth?" $15 billion sounds ridiculous, sure, and it probably is. But that doesn't make a tech bubble. That's just over-valuation. Facebook isn't a public company, and if it went under, a handful of investors would lose money. Not the same as the NASDAQ going from $5000 to <$2000.

Goladus 19y ago

There's a huge difference between the current growth in the tech sector (which involves a lot of ideas that are likely to fail) and the two recent bubbles of my lifetime (dotcom and real estate, which are somewhat conflated in that video as well). The main difference is rampant speculation with people making tons of money on transactions way above reasonable market value. Real estate and dotcom were characterized by a kind of mania. Large, risky investments based primarily on the logic that values are surging and will keep surging fueled the inflated valuations. When it's just Google, Microsoft, etc. making strategic acquisitions there's much less cause for alarm. If there's a tech bubble, it's either surrounded by a thick layer of substance or it's dozens of tiny little insignificant bubbles that will burst before causing anyone any harm. Facebook and a dozen imitators going public with their stock prices subsequently soaring out of control as people rush to get in on the action, that would be cause for alarm. Time Magazine covers are the wrong place to look for bubble clues.

pchristensen 19y ago
And don't forget that most of the "ridiculous valuations" come from acquisition or investment by a few companies that make huge piles of real money in the real economy. If Google, eBay, Amazon, or Microsoft want a company, it might be worth $50 million. If two or more of them want it to compete with the others, then it might be worth $1 billion. If none of them want it, it might be worth $1 million or less. Note that the product, founders, revenue, profit, technology was not one of factors I listed. Just the potential acquirers makes a 1000x difference. And it's ok for these companies to spend money like that because it's money they've already earned from their primary business. That's why it isn't a bubble. Call me when a "pointless revenue-free Web 2.0" company goes public - then we might be in a bubble.
- drusenko 19y ago
  it's very easy to just throw out that acquisitions are of inflated value as well, but as someone who's been in several acquisition discussions with big name tech companies, i can guarantee that these companies don't take the value of a million dollars lightly. these companies are either making strategic acquisitions that are valuable for the tech or hires (valued at low millions), or the user base or customer base, or a multiple of their revenues. but the one thing these companies are not doing?? "ooh, shiny startup! here's ten million dollars!"

sanj 19y ago

MIT doesn't have a CS degree, only 6-3 or 18-C. And doesn't offer honors. Actually, the thing that I absolutely adore is that MIT doesn't do "honorary" degrees. You earn it.

mhartl 19y ago
Of course, "earn" is a matter of degree (no pun intended). I mean, MIT has been known to grant "engineering" PhDs for things like this: http://philip.greenspun.com/panda/ http://philip.greenspun.com/panda/
- neilc 19y ago
  I would definitely call that the exception rather than the rule.
- pius 19y ago
  Um, no. MIT didn't grant Phil Greenspun a PhD for writing a textbook. He did a little something called grad school.
  - mhartl 19y ago
    Um, yes: http://philip.greenspun.com/panda/thesis/ http://philip.greenspun.com/panda/thesis/
tlrobinson 19y ago
That's just silly. Honorary degrees are just that, honorary, to honor someone. You don't hear people talking about how they received "their degree" from some university when in fact it was actually an honorary degree. I don't feel like my degree is somehow cheapened because my university gives honorary degrees to people who didn't "earn it".
- pius 19y ago
  I wouldn't say it's silly, I'd just say it's a difference in culture. No need to be defensive. :P MIT was started as a reaction to other universities whose graduates couldn't do anything "useful." (That is William Barton's word, not mine.) At that time, supposedly prestigious colleges were accepting and graduating rich and powerful students who could talk the talk, but couldn't make any real contributions when it came to math, economics, physics, or any other hard science or engineering discipline. So, MIT was founded to be a utopia of meritocracy where no one cared where you were from or who your father is, all anyone wanted to know is "can you do the work?" Furthermore, MIT was founded on the principle that if you've graduated from MIT, you are guaranteed to be capable of useful contributions to society. This was considered to be a binary question -- either you're an MIT graduate or you aren't. That's why honor rolls are anathema to the Institute. At the end of the day, this means that honorary degrees, athletic scholarships, and status-based admissions were out from the beginning because they are diametrically opposed to the mission of the Institute. What was (and is) in? Rigorous math, physics, chemistry, biology for every single graduate, no matter if they are mechanical engineers or music majors.

optimal 19y ago

Nah, this is all about redistributing the gains of the previous bubble. "The correct answer is, The Moops."

davidw 19y ago
The Moors!

maurycy 19y ago

I think that most people miss the most important point. The market is the play between players, and their expectations. A bubble is the situation when players' expectations are disconnected from fundamentals and no longer have any ground in the reality. And while it took literally few months of good acquisitions to create this Web 2.0 hype, much much faster than any fundamental changes arrived, few bankrupctes should be enough to kill it. Of course, there's still a question what has changed fundamentally since the last bubble? The infrastructure costs nearly nothing, the ad budgets are way higher, as well as number of people using the Internet. However, the services are still rather poor, and nothing paradigm shifting.

dskhatri 19y ago

Since we are talking about "bubbles", here's an interesting read on possibly the first bubble recorded: the Tulip bubble ( http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania ). Substituting hackers for 'tulip traders' and web companies for 'tulips' makes for a humorous read :)