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I remember hearing similar ridiculous things before the last software bubble burst. Huge valuations, investments in websites that do nothing, the success of gim

I remember hearing similar ridiculous things before the last software bubble burst. Huge valuations, investments in websites that do nothing, the success of gimmicky zany stuff like "sell 1 million single pixel ads!". The author seems to take at face value that the ridiculousness is somehow grounded on something. When valuations for things like an app that does nothing except send 'Yo' compares favorably with a company like SpaceX, I have to wonder whether, really, we're in another bubble and in for another burst.

Animats 12y ago
I keep thinking that, too. But this time, most of the silly stuff is profitable. In the first dot-com boom, companies went public long before they were profitable. (I had a program to track that, Downside's Deathwatch: http://www.downside.com/deathwatch.html http://www.downside.com/deathwatch.html). There are lots of failures, but they fail small, with YCombinator-sized funding. We're not seeing failures the size of Webvan or Excite@Home this time around. The first dot-com collapse was spectacular. Empty streets in San Jose and San Francisco. Huge, empty office complexes. Excite@Home built a huge headquarters facility at the end of Seaport Drive in Redwood City, bigger than Facebook or Oracle. It was vacant for years. About 40% of the twentysomethings in SF left town. The excess furniture ended up at Consolidated Office Outfitters in San Jose, which had a warehouse covering an entire city block full of partitions, desks, and chairs. The computers went to Weird Stuff Warehouse in Sunnyvale, where you can get all the parts for a previous-generation data center cheaply. That doesn't seem to be happening this time. Most of the startups can cover their operating costs. Many are overvalued, though, because their future growth may not be that large.
- manish_gill 12y ago
  Wow that sounds fascinating. I'd like to read more about the first dot-com collapse (I was ~10yo at the time!). Any good resources besides wikipedia to get me started? :)
- xnull2guest 12y ago
  Hmm. The silly and zany stuff was profitable then as well. Sure, not all of it (but nor is all of it today). The profit "on the silly stuff" then came mostly from speculative investment, buyouts and advertisers - not from direct consumer sales. I'm not sure how different that is from today. I'm not on the latest numbers; maybe you're better informed. Is the revenue being generated by today's startups more often and in larger quantities from direct consumer sales? I found what you said about IPOs interesting. Why is it that you think going public (before or after being profitable) is an indicator of a bubble? It seems to me to be a minor detail. From what I can tell (there is no universally accepted definition of a bubble) all that is needed for a bubble is for speculation (trade-value) to outgrow revenue (use-value) at the same time speculation appears to increase the demand for, lack of supply of, or actual underlying value of a business/commodity/whathaveyou. Upon entering a feedback loop of increased speculative investment because of rapidly inflating possible returns (which do pay out up until the bubble bursts) and increased returns because of rapid inflation in the amount of venture capital, the numbers get bigger on their own without a need for change in underlying value. That is until investors withdraw, causing capital and valuations to plummet, and more investors to withdraw, ad nauseum. The important thing here is that the source of investment (venture/speculative) capital need not come from any particular source, be it public option or nay. It's possible in principle to have a bubble based on Venture Capital and private money, but its also true in practice that these VC firms are often traded publicly themselves and promise returns based on their investments. The second paragraph and last sentence are fascinating, but isn't the hypothesis here that the bubble hasn't burst yet?
- tijs 12y ago
  So what you're saying is that we actually seem to have learned from our mistakes?
no_future 12y ago
Many prominent investors and others in tech have come out and said that they don't think it's a bubble. People overlook the main difference between the dotcom bubble and now: In the dotcom bubble many companies went public and average joes were quitting their jobs to become day traders. Now the new success model for companies is "get bought by one of the existing giants" rather than "go public", and the investment in these companies is all from VCs/angels, for whom it doesn't matter if the company crashes and burns, in fact it is their whole business model(invest in a ton of companies and hope a few are massive successes). If you actually look at the numbers right now, it's laughable to think we're in a bubble.

Animats 12y ago

I keep thinking that, too. But this time, most of the silly stuff is profitable. In the first dot-com boom, companies went public long before they were profitable. (I had a program to track that, Downside's Deathwatch: http://www.downside.com/deathwatch.html http://www.downside.com/deathwatch.html). There are lots of failures, but they fail small, with YCombinator-sized funding. We're not seeing failures the size of Webvan or Excite@Home this time around. The first dot-com collapse was spectacular. Empty streets in San Jose and San Francisco. Huge, empty office complexes. Excite@Home built a huge headquarters facility at the end of Seaport Drive in Redwood City, bigger than Facebook or Oracle. It was vacant for years. About 40% of the twentysomethings in SF left town. The excess furniture ended up at Consolidated Office Outfitters in San Jose, which had a warehouse covering an entire city block full of partitions, desks, and chairs. The computers went to Weird Stuff Warehouse in Sunnyvale, where you can get all the parts for a previous-generation data center cheaply. That doesn't seem to be happening this time. Most of the startups can cover their operating costs. Many are overvalued, though, because their future growth may not be that large.

manish_gill 12y ago
Wow that sounds fascinating. I'd like to read more about the first dot-com collapse (I was ~10yo at the time!). Any good resources besides wikipedia to get me started? :)
xnull2guest 12y ago
Hmm. The silly and zany stuff was profitable then as well. Sure, not all of it (but nor is all of it today). The profit "on the silly stuff" then came mostly from speculative investment, buyouts and advertisers - not from direct consumer sales. I'm not sure how different that is from today. I'm not on the latest numbers; maybe you're better informed. Is the revenue being generated by today's startups more often and in larger quantities from direct consumer sales? I found what you said about IPOs interesting. Why is it that you think going public (before or after being profitable) is an indicator of a bubble? It seems to me to be a minor detail. From what I can tell (there is no universally accepted definition of a bubble) all that is needed for a bubble is for speculation (trade-value) to outgrow revenue (use-value) at the same time speculation appears to increase the demand for, lack of supply of, or actual underlying value of a business/commodity/whathaveyou. Upon entering a feedback loop of increased speculative investment because of rapidly inflating possible returns (which do pay out up until the bubble bursts) and increased returns because of rapid inflation in the amount of venture capital, the numbers get bigger on their own without a need for change in underlying value. That is until investors withdraw, causing capital and valuations to plummet, and more investors to withdraw, ad nauseum. The important thing here is that the source of investment (venture/speculative) capital need not come from any particular source, be it public option or nay. It's possible in principle to have a bubble based on Venture Capital and private money, but its also true in practice that these VC firms are often traded publicly themselves and promise returns based on their investments. The second paragraph and last sentence are fascinating, but isn't the hypothesis here that the bubble hasn't burst yet?
tijs 12y ago
So what you're saying is that we actually seem to have learned from our mistakes?

no_future 12y ago

Many prominent investors and others in tech have come out and said that they don't think it's a bubble. People overlook the main difference between the dotcom bubble and now: In the dotcom bubble many companies went public and average joes were quitting their jobs to become day traders. Now the new success model for companies is "get bought by one of the existing giants" rather than "go public", and the investment in these companies is all from VCs/angels, for whom it doesn't matter if the company crashes and burns, in fact it is their whole business model(invest in a ton of companies and hope a few are massive successes). If you actually look at the numbers right now, it's laughable to think we're in a bubble.