Even as Silicon Valley sages Marc Andreesen and Peter Thiel pooh-pooh the notion of a tech bubble, there are clear signs that tech is frothier than may be sustainable. Competition for engineering talent is fierce, and startups sprout too quickly. In addition, there's something incongruous about a world where everything is …
FaceBook and Twitter...
.. are not "important" to anybody that uses them, except in the same way that heroin is important to a heroin addict.
..just wow. I bet (if you're old enough) that you were one of the people in the 80's saying "email, no use to anyone, I can always write a letter, who needs this new form of communication anyway"
True, but look at the profit margins in the heroin market.
Yes, but advertising on the packets hasn't really taken off as a serious proposition.
You say that the market isn't anything like as frothy as in 2001, but have you actually seen a chart of Facebook valuations? I mean, 'silly money' doesn't even begin to describe it, especially when you take into account the fact that Facebook as a channel doesn't have anything substantive as a resource. Sure, its value stems from people interacting on the site, mainly on the premise that other people interact on the site (in a way that's strangely reminiscent of how shareholders buy overpriced shares on the basis because clearly everyone else is), but I have yet to hear a convincing plan for what happens when - and it is 'when' - my kids decide that they don't want to have fun on a site that their parents frequent. I do feel like the kid who pointed at the emperor's new clothes, but yes, we've heard 'but this time is dfferent' before. And no, saying it louder didn't make it true then either.
Well... FB's revenue stream is very much up in the air. But it does benefit from a network effect.
i.e. the average person will want to join the biggest general-purpose social network, not the 2nd or 3rd. Assuming they want to join at all, of course.
So, there's a lot of potential to keep FB users around, barring major incompetence. Who knows, there may even be some good money in it sometime. Enough to justify FB's extrapolated valuation? Wouldn't bet on it, but I am not sure betting against it is a sure win either.
No doubt about it
The valuations for some recent poster children - like Groupon and Airbnb - are plain stupid. Even Google's valuation is way out of whack. With a start-up of my own, working in South Park in SF, we are seeing two different approaches.
The first is like the bad-old days. Too much spending, frenetic behavior and lots of young, inexperienced talent being guided by old inexperienced money. Bubbletime is around the corner for a few companies. The second is a much more cautious, measured approach. Lots of bootstrapping, scrimping and clever approaches. There are hundreds of these that are in it for the long haul. Including us. No VCs, no acquisitions. Just build the company one brick at a time.
The unholy alliance between Silicon Valley and Wall Street continues, and in the same insidious insider pocket-lining way. If all those big shooters didn't drive up the prices with their network of greedy bastards, we wouldn't be looking at this problem in the same way.
He would say that wouldn't he [(c) 1963 M Rice-Davies]
Andreesen has his fingers in the Facebook pie. It doesn't report it's results, but unconfirmed leaks leak out. It's all rigged.
It's all engineered so that the likes of the Vampire Squid con suckers out their money.
It's the Missippi all over again.
conflict of interest
Tech windbag glosses over risks associated with tech bubble. Predictable? Credible?
"the problems [the tech bubble's] primary beneficiaries are trying to solve are often big, long-term societal problems."
What an implausibly fatuous self-aggrandising load of rubbish. It suggests that the "clear winners like Facebook, Twitter, and Zynga" are somehow striving to achieve something greater than polishing their shiny baubles for their and their shareholders' enrichment. There's little wrong with the latter but to imply there is some higher purpose is entirely deluded.
"and our bankers urged us to rapidly add headcount as a way to justify our valuation"
I admire your candour but, by listening to them, you got what you clearly deserved.
Questions we can answer
"Tech windbag glosses over risks associated with tech bubble. Predictable? Credible?"
It's Matt Asay: Predictable YES, Evidence ABSENT, Credibilty ZERO.
Twitter is not a "successful" revenue generating business. Anyone can give away dollar bills for 50 cents.
It makes me think that BOFH should be part of a job description for those who actually DO work.
Round these parts I can think of a fair number of employers who might actually kill in order to get competent C, C++ and Java devs. The job market seems to have no shortage of people with fairly questionable skills, but to find people who are actually any good seems to need headhunting.
Either you're living in the wrong part of the world, or perhaps your skills need a little brushing up.
Facebook might be the new AOL
All it takes is for someone to make a truly distributed social network. This network would then be as open as the web, and everybody could join.
AOL faced the same problem. It was a traditional "walled garden". In the 1990s it grew so quickly it couldn't adapt. People got AOL because they wanted Internet access. Then DSL and Cable providers came around and they moved from AOL to plain Internet.
I moved from AOL because I was on dial up and they where charging by the minute, where as the newfangled ISP was charging by the megabyte.
Possibly to Stephen Fry, but it's not profitable so google will eat the name to seal their social and keep on serving ads. Facebook might buy it to stop them. The only "value" is the user list which will be ludicrously high because of it's strategic importance.
It is more bubbly than before
The problem with this bubble is that it is more "frothy" than the previous one.
This is very different from the previous bubble(s). Those were "build it and they will come". There was LOTS of roadkill in those. The survivors however, were sufficiently ahead of the tech wave to survive for many years (and florish in some cases).
We live in the "incremental" bubble. This means that the survivors will be only a few "seconds ahead of the wave" and can fall pray to it after a minimal mistake. Continuing the wave analogy they are no longer droplets flying ahead of it, they are the froth on the top of the breaker. Froth goes the way of all froth. A "sure bet" today can be roadkill in a jiffie.
The end result is actually very bad for the tech sector in general. As the "frothiness" goes on money will start withdrawing from the high tech sector. No-one wants to invest into something which can go tits up or at the very least lose most of its market positioning at the smallest mistake. That means that we will have less and less investment into anything but the incumbent market leaders and the investor money will go elsewhere.
So all in all, we need not less, we need more "build it and they will come" companies contrary to the current overwhelming managerial wisdom.
"Given the importance of services like Facebook and Twitter in our lives..."
I stopped reading at that point, as that makes as much sense as; "Given that the world is flat....".
I tried FB for a while, it just didn't make sense. The closest thing I can think of as a comparison is trying to read a wall on a run-down council estate that has a good decade's worth of graffiti on it. I feel no loss at dropping it. I've looked at Twitter, but unfortunately I still have absobloodylutely no idea what it's for.....
You make less sense still with that attitude; bad mouthing something solely based upon your prejudice thereof. Whether you or anyone else on this site bashing Facebook think it's of any use is irrelevant, it's making a metric fuck-ton of money off the people who do use it which in turn. makes it successful, a lot more successful one suspects, than most people on here assuming it will fail simply because they don't like it.
If you've "have absobloodylutely no idea what it's for....." then perhaps you're not qualified to sound off about it
"making a metric fuck-ton of money "
really? you got a reference you can cite for that?
(this is a genuine question, BTW)
One day Facebook will fall...
... and it will be a spectacular one.
investors start wanting a ROI and then it depends on the real size of the ad revenue. If that's not enough and there isn't money to be made from selling people's possibly private data they have been foolish enough to entrust to FB then it could well get nasty - Russian investors wanting their money back means meat hooks around. bitch.
Valuation isn't difficult.
Valuation of a company for investment purposes isn't difficult. You look at a few figures. How much net profit does it generate every year (and how consistent is that) and what is the long term projection for the growth in capital valuation of the company.
Given that the likely value of any of these businesses in the mid-term (10 years?) is about zero, and most make a loss or at most a very small profit (after accounting tricks), the valuation of even Facebook should be perhaps a few hundred million dollars - and only gamblers should buy. Remember MySpace?
If people want to give their money away then why can't they just give it to a worthwhile charity rather than 'investing' in another dot-com bubble company? Can we bring back hanging for any pension and investment fund managers who throw away their clients cash but putting even one penny into these things.
It's all just another symptom of the insane world that the stock market has become.
"clear winners like... Twitter"
What, seriously? Facebook has managed to bring in a few pennies, and even Groupon has a business model. Twitter hasn't managed to progress beyond "1) Become the principle source of drivel on the internet, 2) ??? 3) Profit!"
Facebook doesn't look like they'll do a MySpace anytime soon, but they're not exactly on a solid footing. Looks like the real winners in the list are Zynga, and I can't even manage grudging respect for them. Financial jealousy though, certainly.
Lets hope for a burst bubble soon. Nothing of value will be lost.
Had to google Zynga to find out what they were.
I don't think they're going to become a verb anytime soon....
Thing about market bubbles... is they NEVER see them coming untill its to late.
If they are talking about bubbles and the industry isnt about to fall around their ears then it probably isnt.
And as for taking a dip.. its a little more serious than a dip!
And thats mainly down the Bubble of all Bubbles called the "U.S Dollar" but hey their going to be printing that into infinity, and just to make sure it works the BOE, BOJ, SNB & ECB (if they can get away with it) will try and do the same but hey the tax-payer pockets are never ending, so what if we're stealing money from ours childrens children, those bankers deserve that money so they can continue to make risks to futher profits - profits which are private, the debt on the other hand is very much a tax-payer issue not theirs!
"Groupon will pop"
Isn't that the intention ?
It's a sign of the incipient Singularity ...
but no, not the "technology" Singularity.
This is the one Singularity that's actually going to happen: The Bubble Singularity, where bubbles of all kinds -- financial, technical, cultural -- arrive faster and bigger and more destructive, all the way to Infinity.
I, for one, welcome our Frothily Singular new overlords, all Infinity of them.
The fact that the article touts companies as the main successes that don't actually make anything nor perform any important service pretty much tells you just how bubbly it is. That, plus the fact that only one name associated with this article actually associated with a business that made anything or perform any important service (Thiel with PayPal), just confirms it.
People with (decent) ideas will be winners
The people who will do well out of this "bubble" will be ones who continue to develop services that aren't offered elsewhere, or implemented in a much better way than any competitor.
The case in point here is Facebook, which although people bitch about, has been a huge success. The reason for this is simple - it serves a need that people have in a better way than any other site. Now there will always be people (particularly some Reg readers) who don't like it, but there are of course a large number of people who do, and so that creates a high demand. And so it continues to thrive.
There are startup companies putting new stuff online almost every day. Many of these fail simply because they're not actually offering anything that (a) people want or (b) implementing it in a way that's no better than anyone else.
Value lies in services that people want and use and no matter how much people don't like that, it's always going to remain the case.
When is Facebook's IPO?
Bubble bursts FIPO plus 1
or earlier if they can't sustain the ridiculuous fairy tale numbers currently being spouted.
The survivors will be companies that sell stuff to lots of customers at a profit and don't rely on google funding.
"... Facebook does. I use it all day, every day"
To do what exactly? Even my missus (who seems fascinated by what someone she met once in 2002 has just put on their 'wall') doesn't spend more than an hour a day maximum.
There are natural limits
.. that engineers - who seem to believe they can understand the world from first principles - easily forget.
In a shrinking economy, you only grow taking market share from some other company. I can see Facebook succeeding as another Ad platform - at the expense of any of the more traditional media still left standing. Some of the others, not so much.
There is a tech bubble - probably one of the last for a while, absent a major re-jigging of the entire economy all bubbles are going to be financial from here on in.
Given the importance of services like Facebook and Twitter in our lives
It's a wonder I can survive without using any of these so called social sites. I prefer email, text message or you know talking to people.
There are two times to crap your pants if you are a stock market investor - and anyone who has a modern pension is such a person, so that's probably you. When either of the following comments start popping out of peoples mouths, fire-sale everything in the market they are talking about.
Quote 1 "The old rules don't apply, this time the market will rocket up unsustainably forever and ever.." - This quote usually comes from the mouths of "experts" interviewed on cable news, while the presenters wear smug, self-congratulatory smiles - believing their portfolios represent real wealth. About a month later the same presenters will have panic stricken faces, telling you to sell everything at pennies on the dollar and to never invest in the stock market again.
Quote 2 "We are in a bubble, but that's okay because.." usually followed by a similar line of bullshit to Quote 1. Same thing really, if the market is unsustainable, it's going to crash, same as always.
Knowing exactly when a market will crash is of course impossible. But when these sorts of quotes start popping up with regularity, a very bad one is just around the corner.
The stock market never changes, the rules always apply. If people start saying otherwise, panic.
>The stock market never changes, the rules always apply. If people start saying otherwise, panic.
Most of course know this now but in 30 years a new generation will forget and have to relearn if not sooner.
Who are zynga ? Fuck knows !
A bit of googling indicates They are the people behind those awful browser games and they appear to rely on 'micropayments' .... Another bubble facebookers can poke til it pops.
Exactly the same kind of cretins who used to charge £5 for ringtones and preyed on the gullubilitybof a generation of 13 year olds
short selling fun
Between Netflix and Groupon the last six months/future has been/will be very profitable for the smart short seller. Plus their is always sad sack Greece to bet against.
Twitter !? funny how It's always tagged with FB. The BBC promoted it, everyone in the media pushes it, but, I've yet to met anyone in the real world that uses it. It rhymes with twitt for good reason - PR twitts , media twitts, and may they all realise too late what twitts they are.
Twitter 'rhymes with twitt' ipso facto only twits use Twitter?
By that wonderful flight of rhyming logic, because Facebook rhymes with 'sado nook' it's a secluded haven for the socially crippled.
Their revenue for this year was reported last week lower than forecast at the beginning of the year. They are also loosing users in the USA and UK.
I've never met anyone that uses twitter. Its just for the luvvies (cos its not too complicated to use) and the vain. I mean its useless. It didn't even help the rioters!!
Can we please have a missed point icon...?
A$$book has been directly implicated in several murders, one paedophile case and Goddess how many stalking, shooting and GBH cases. But its still worth money and still operating, and you have to ask yourself why. If I started a little tiny company, doing the same thing, but not selling data to corporations and most likely government, I'd last about 10 seconds before being charged as an accessory if some unpleasant little nerk dumped a USN Major in the boot of an '89 SEL - and happened to have a profile on my version of a$$book (yes, I know, too much watching of NCIS).
When will people understand - *its primary function is NOT, repeat NOT, to allow you to keep in contact with the relatives that moved to Australia because they loathe you*. Its function, sole and solitary, is to take your data and your thoughts and make as much money off them as humanly possible.
That is the soul and centre of any commercial social media site, bar maybe Diaspora, and that is not quite in the same kettle of Goldman #.
Given that this is the case - its worth countless millions to the banks, businesses and the like of this world, because its a licence to print money for them. They must be laughing all the way to their desks - we are GIVING away exactly what they need for free, so I think personally the valuation is about right. From their point of view.
The less said about bankers the better - theres nothing good to be said, but then the only people worse than the bankers are their regulators and the people who control them - aka MP's and the like in the UK - most of whom it appears couldnt even balance their own chequebook, let alone do joined up thinking (a good example is Alastair "dont call me" Darling - the one man walking disaster area that symied the Lehmans Barclays deal and put the world into a 20 year nosedive single handed).
My problem with the article is simple - it, like all other financial articles, derives from a fundamentally flawed structure and concept. It assumes, that value is value, that a given value is what something is worth. There is a good rule of thumb learned from a Lovejoy book of all things. "An item has one value and one value alone, and thats the amount you manage to get for it when you get rid".
For example, lets say a$$book values itself at $35 a share. That price is a transitory value, its nothing more than a mass hallucination, as is everything on the money markets and in commerce in its entirety. I want to buy a car and the sticker is £25,000. I have a beat up 15 year old car thats worth £500 of anyones money - but they'll give me £1500 in exchange, plus probably knock off another £800 to get a sale. So what is the value, it is impossible to say, the same salesman will sell the same car for something entirely different tomorrow. Then you've got the issue that one mans Tatra 77a (google it) is another mans Ferrari, and the values are skewed again.
Lehmans is trading $50 a share in June - by September its $3.49. NOTHING HAS FUNDAMENTALLY CHANGED. The properties on which the mortgages are based have not suddenly ceased to exist, there has been no material change.. yet 20,000 people are looking for a job and the entire banking sector has done a passable impression of the Death Star. All because of another mass hallucination of changing values (ironically in this case it wasnt a mass hallucination of value per se, it was that no one persons hallucination agreed with anyone elses, over and above everyone being too confused to have the relevant hallucination).
Even discussing this is somewhat of a transititory hallucination, specially a$$book. Zuckerberg, amongst his greater or lesser talents is well known to be a person who has Aspergers or one of the autism spectrum disorders (they are not one and the same, and are varied even within those descriptions). A person with that condition is much less likely to do all that work, and have all that success and then just up and sell it, its a situation that would be anathema, which is why valuing Facebook is most likely an exercise in futility, since there is a fair likelyhood that it would be prised from his cold dead hands before it would be sold. I would venture to suggest that if there is ever an IPO from A$$book it wont be Zuckerberg's idea and there is a good chance that there would have to have been a LOT of convincing before he ok'd it. Letting go control is *not* an Aspergergic persons strong suit.
Truth be told there is always a potential 'bubble' - 100% of the time. A bubble is nothing more or less than someone spending a given amount on an item, at which point the base hallucination (the price) is 'set' - then more people want whatever it is, and the hallucinated value increases. The 'burst' happens when enough people, or people with the right amount of clout, express doubts about that value, or when a limiting factor is removed.
Doubters > Hallucinators = burst bubble.
Restricted supply - restriction (or possible removal of same) = burst bubble
A prime example is David Einhorn & Lehmans. Think David and Goliath - but visualised by Tarantino. Nothing *physical* changed from the start of that situation to the end. The only thing that happened was the mass hallucination imploded, a reaction, ironically, of the 'hallucination' of *one* person and the rest is a worldwide apocalypse.
The person who invented the concept of value & the concept of currency should be located in the mists of time, dragged back to the present day, and tried for crimes against humanity... because those two mass hallucinations have cost alot of people dear over the years.
# ravenous vampire squid
Twitter is perfect...
... for any message you may wish to publish that is:
- Important enough to be worth writing
- Not so important that it matters whether anyone in particular reads it
- Not directed at anyone in particular
- Not so important that it requires a response or acknowledgment, and
- 140 character or shorter
Mind you, I've never yet had a message that fit those requirements, but apparently many people do. So many semi-important messages to set adrift in virtual bottles...
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