Chris Anderson has a thought-provoking story in Wired
arguing the technology sector's revival is a boom, not a bubble -
citing the industry's maturity, the lower cost of bandwidth and and
computing, and lower capital requirements. It's a reasonable argument
but I would suggest no one in Silicon Valley should pat themselves on
the back too heartily for being so pragmatic and/or rational this time
around. While it may not be a bubble, there are plenty of signs a
bubble be closer than many people think. A regular check with
TechCrunch and SiliconBeat, for example, offers a steady stream of news
about cool start-ups with questionable business plans (Does AdSense
count as a business plan?) raising several million dollars. Sure, many
of these start-ups are lean and mean operations that require little
capital to develop a service and distribute it, but if the path to
becoming a viable business is still very much work in progress. As a
result, I would argue many VCs are speculating on these start-up
investments even if these services have thousands of enthusiastic
users. This sounds a lot what I heard during the dot-com boom. If more
VCs jump into Web 2.0 with more enthusiasm and dollars, then the whole
speculation argument begins to gain credibility. I do concede, however,
that one thing that does make the current high-tech revival different
from the dot-com boom is the absence of IPO fever. There just isn't the
enthusiasm for high-tech IPOs – look at the muted reception Traffic.com
received recently and Vonage's oh-so-slow IPO plans. This environment
can only be viewed as an extremely encouraging check on the boom
becoming a bubble. As long as this situation exists, you will keep
unsophisticated investors and taxi drivers from catching a bad case of
Web 2.0 fever. So what does it all mean? I would argue Anderson's
thesis is right for the time being but there are very few barriers
(more VC activity, Nasdaq gaining strength, successful IPOs)
between a boom and a bubble, so let's not get too carried away with the
idea everyone that everyone learned so much during the last dot-com
boom there is no way it could happen again. Nicholas Carr
believes a flaw in Anderson's argument is he focuses on the supply side
but does not address potential demand from stampeding investors who
could easily “render Anderson's arugment moot”. And I totally agreement
with Om Malik that the bubble will really break out if Gigaom.com is bought for $150 million. When's the Giga IPO, Om?
Update: Blogspotting's Heather Green makes a good point about about the proliferation of “me-too companies” with uncertain business models other than Adwords. “That kinds of seems like the definition of a bubble. I don't know, maybe i am just being a curmudgeon”. No, Heather, I think you're being realistical and cautious,” she says.
Boom vs. Bubble
arguing the technology sector's revival is a boom, not a bubble -
citing the industry's maturity, the lower cost of bandwidth and and
computing, and lower capital requirements. It's a reasonable argument
but I would suggest no one in Silicon Valley should pat themselves on
the back too heartily for being so pragmatic and/or rational this time
around. While it may not be a bubble, there are plenty of signs a
bubble be closer than many people think. A regular check with
TechCrunch and SiliconBeat, for example, offers a steady stream of news
about cool start-ups with questionable business plans (Does AdSense
count as a business plan?) raising several million dollars. Sure, many
of these start-ups are lean and mean operations that require little
capital to develop a service and distribute it, but if the path to
becoming a viable business is still very much work in progress. As a
result, I would argue many VCs are speculating on these start-up
investments even if these services have thousands of enthusiastic
users. This sounds a lot what I heard during the dot-com boom. If more
VCs jump into Web 2.0 with more enthusiasm and dollars, then the whole
speculation argument begins to gain credibility. I do concede, however,
that one thing that does make the current high-tech revival different
from the dot-com boom is the absence of IPO fever. There just isn't the
enthusiasm for high-tech IPOs – look at the muted reception Traffic.com
received recently and Vonage's oh-so-slow IPO plans. This environment
can only be viewed as an extremely encouraging check on the boom
becoming a bubble. As long as this situation exists, you will keep
unsophisticated investors and taxi drivers from catching a bad case of
Web 2.0 fever. So what does it all mean? I would argue Anderson's
thesis is right for the time being but there are very few barriers
(more VC activity, Nasdaq gaining strength, successful IPOs)
between a boom and a bubble, so let's not get too carried away with the
idea everyone that everyone learned so much during the last dot-com
boom there is no way it could happen again. Nicholas Carr
believes a flaw in Anderson's argument is he focuses on the supply side
but does not address potential demand from stampeding investors who
could easily “render Anderson's arugment moot”. And I totally agreement
with Om Malik that the bubble will really break out if Gigaom.com is bought for $150 million. When's the Giga IPO, Om?
Update: Blogspotting's Heather Green makes a good point about about the proliferation of “me-too companies” with uncertain business models other than Adwords. “That kinds of seems like the definition of a bubble. I don't know, maybe i am just being a curmudgeon”. No, Heather, I think you're being realistical and cautious,” she says.