Stop comparing this to the 2000 bubble

http://harknesslabs.com/post/65899842923/ffs-stop-comparing-this-to-the-2000-bubble

by DanBlake • 13 years ago

31 42 13 years ago

ChuckMcM• 13 years ago

I agree the call for 'bubble' does get annoying, but I also note that you can be 'over valued.' The appetite for stock (or investments) in non-profitable companies (so called 'ground floor' opportunities) is (and perhaps always will be) insatiable.

But I think the bigger thing going on here is capital chasing something other than a 1% return. Consider you have $100M sitting around. You can take 2% of that ($2M) and 'angle invest' $75K into 24 different 'startups' and with one "winner" exit with a payback of $7.5M (100x return on 75K) and have your overall portfolio growth for that period be 5%.

rgbrenner4• 13 years ago

pretty weak argument. 'This isn't like the 2000 bubble, because we have more internet users now'?

If you really think there's nothing wrong with tech valuations, please show me ONE company in another industry that has no revenue and 16 employees, yet is worth $3-4 billion (Snapchat)

wentkenko2• 13 years ago

I completely agree, there app is a fad.

rgbrenner4• 13 years ago

there app is a fad.

My post really has nothing to do with Snapchat specifically. Snapchat could just as easily be Instagram -- which also had no revenue when it was acquired by Facebook for $1 billion.

seiji5• 13 years ago

It's proto-singularity economics. We have no reference frame for what something is worth when a billion people use it and it only takes two people to run it. Even with no revenue, it's worth something, right?

Imagine when one person can create a platform 90% of humanity relies on. What is that one person worth? What if that product has no revenue because the owner can extract all value on-demand by extorting/blackmailing The Man at will based on collected personal information?

rgbrenner4• 13 years ago

This is the same argument that was used in the dotcom bubble -- profits don't matter because tech is different.

The fact that it's being trotted out again as justification should worry you.

saraid216• 13 years ago

Even with no revenue, it's worth something, right?

No one is saying it's worth nothing.

williamcotton• 13 years ago

To me it is like pop music. Once and awhile a band like The Beatles comes along, enamores the whole world for a few years, and then fades from the popular conciousness.

Treating The Beatles like General Motors is where the problem lies. Twitter, Facebook, Snap Chat and their ilk are more like the supergroups of yesteryear than the industrial giants that our investment infrastructure was designed to support.

eli_gottlieb• 13 years ago

The problem with labelling something "proto-singularity economics" is that the whole point of a "singularity" is to hit a condition in which economic production completely outstrips not merely the demand for goods (overproduction) but even the ability to charge for goods (scarcity as experienced by people). We are still at the stage of a mere capitalist overproduction crisis and its ensuing capital glut.

It may well be true that we could convert our current economic condition into a post-scarcity economy by shifting away from capitalism, but at the moment we're stuck in an overproduction/overaccumulation/debt crisis.

DanBlake5• 13 years ago

Hi,

I think I give a pretty fair argument about this towards the end in comparison to broadcast.com

In short, yes- Back then the bubble was based on the hype that people were coming. The hype now is that the people are here. Again, compare the 500k (thousand, not million) users of broadcast.com (and 5.7b sale) to snapchat and it becomes less frothy.

Like the stock market, valuations are set on what others are willing to pay. You may not use snapchat (I dont either) but you cannot deny the fact of its massive usage. Yes, Its unmonetized- But people are valuing it where it is because another large company is very likely to pay that much to acquire it.

Valuation = how much something is worth to another buyer. Everything in this world has a fluid cost to it, so everything goes through ups and downs. But there is no static valuation, only a constant ride of ups and downs.

anon1385• 13 years ago

The most important figure above is that we still have 70% more users to get online. The ‘internet’ can and will continue to grow exponentially, as more children are born and more kids start getting there first smartphone.

So in response to people pointing out that the industry is obsessed with user numbers and not profit (or even revenue) the author gives us an argument about how there are still a lot of potential new users. The exact same argument was widely used in 1999. And apparently this shows that things are different from 1999…

Is this meant to be satirical?

greenyoda• 13 years ago

And even if you just go by numbers, it's not likely that technology will be available to the entire world population any time soon.

As of 2008, 22.4% of the world population was earning less than $1.25 per day[1]. 870 million people (one in eight) were suffering from chronic undernourishment in 2010-2012.[2] Even if they could afford smart phones or internet service, it's not likely that you could sell them a lot of stuff on the internet, or convince companies that they should pay to advertise to them.

Also, it's the poorest countries that have the highest birth rates. Some developed countries, like Japan or Italy, will soon have declining populations.

Companies like Facebook have already picked up all the low-hanging fruit -- the people in developed countries who can easily afford internet access and smartphones. Getting additional subscribers will only get harder once they have to start looking to lesser-developed countries for new subscribers. The era of exponential growth may have already passed.

[1] https://en.wikipedia.org/wiki/Poverty#Absolute_poverty

[2] http://www.worldhunger.org/articles/Learn/world%20hunger%20f...

Apocryphon• 13 years ago

You'd think that would be a capitalist incentive for corporations to act to better the living standards of the global poor, so they can become potential customers and consumers of their products.

InclinedPlane2• 13 years ago

This strikes me as another variant of the "just 1%" fallacy of the bad old dot-com bubble days. Back then it was common for a startup to enter an industry and use an overly simplistic model to justify the viability of their business. Often it went along the lines of: this market has X (big number) in total annual revenue, if we can capture just 1% (or some even smaller fraction) of that market that's Y dollars (another big number).

Of course, these are just silly math games to hide the true difficulty of their broken business models. It doesn't matter whether you're talking about 1%, 0.0001% or any fraction, that doesn't make acquiring that business easier. The difficulties of growing a business into multi-million dollar revenue territory are still there even if the total market is huge.

There's no shortcut, and even as the market gets bigger there still won't be a shorcut. There are always trillions of dollars on the table waiting for businesses to pick them up, but it typically takes a lot of hard work to build something with any degree of value.

wrongc0ntinent• 13 years ago

Weak argument, probably the right conclusion. Internet users number may be the most important metric, considering it spans continents now, including countries at different levels of economic development. There's more likelyhood of hedging. edit: I think the metric is important because users can become innovators and providers easier then ever, not just because they have disposable income.

dimitar• 13 years ago

I found'there first smartphone' and 'way to modern' to be too distracting to carry on reading.

Also the argument I did read appears to be weak, the number of potential users doesn't seem to matter if they don't bring you profits.

DanBlake5• 13 years ago

I am sorry that my spelling/grammatical error caused you to discount my writing. That is entirely your choice of course, however I think you will find the internet a rather unpleasant place.

Regarding your second point: Tell that to instagram. Your valuation is /only/ defined by what someone else is willing to pay for it, revenue or not. If you do not agree, I have some houses in Detroit to sell you.

gngeal• 13 years ago

Yawn, is someone calling social networks "the tech sector" again? Yeah, right, because material science and industrial automation technology and others are obviously agriculture or something.

nmcfarl• 13 years ago

When people start writing articles about how "This isn't a bubble" - it probably is.

rb2e• 13 years ago

The only way to underniably confirm its a bubble is if it "pops".

Is snapchat worth 4 billion? Only when some buys it or it goes public. Till then its speculation and we can be here till the "cows come home" debating if we are in a bubble.

I think the best people to ask are PG, Fred at AVC etc. The ones who do this for living who are making these decisions everyday and know the markets. I don't know enough to say for sure and wasn't here for the last bubble.

DanBlake5• 13 years ago

Exactly right. Anyone telling you it is or is not going one way is crazy. Im simply refuting that "its just like 2000" and showing some strength points.

tehabe2• 13 years ago

I guess in 2007 everybody thought that the housing market will never ever collapse and the raise will continue forever. People, it won't.

And neither will this growth.

It has nothing to do with the size of the market or the number of potential users. Hey, if you say it like this, in 2000 were a lot more potential users than today, because of less people on the internet.

DanBlake5• 13 years ago

Thats a pretty blind way to look at this. A shopping site launching in 2000 had a fixed potential audience of X and a MAXIMUM revenue of Y.

A shopping site launching today has more than 10x the audience. If you want to discount that, go ahead.

tehabe2• 13 years ago

Even 10x is a finite number. Growth is not unlimited it never was and never will be. That is the point I was trying to make.

bayesianhorse• 13 years ago

I call this phenomenon "fishing for prophecy".

Post a couple of prophecies, with "evidence" of course! Maybe some contradicting ones under different pseudonyms. Then, when the fecal matter eventually hits the rotary impeller, you can say you foretold this.

Makes you look incredibly smart...

michaelochurch• 13 years ago

Terrible argument, and here's why. The only thing being said here is that the number of people (and devices) on the Internet is larger. That's true. However, until you turn someone into a paying customer, that's a cost, not profit. Premature eyeballs force premature scaling, which is expensive both in the short and long term. (Even proper scaling is costly and risky, insofar as it requires a management team to hire people with talents it cannot directly measure; improper scaling is even more expensive.)

As awful as age discrimination is, the good news (for people currently 25-45, who will be 35-55 in the next boom) is that the trend will probably go the other way when the "social" bubble collapses. Why? Because investors are about to get burned, hard, by a bunch of startups whose founders cared more about being popular than making money. In five years, that will be the age stereotype attached to young founders.

DanBlake5• 13 years ago

I get where you are coming from, but its very incorrect.

There is no additional cost for supporting 1k customers a month vs 100k customers a month. However, your revenue will be 100x more.

Sure, there might be more incremental costs (bandwidth/storage) but it is NOT statically in line with profit.

solomatov• 13 years ago

The current bubble isn't that malignant as 2000 bubble. However, it's still a bubble.

InclinedPlane2• 13 years ago

Of course there's a bubble. Of course it's not the same as the 2000 bubble.

Today online businesses are very different than in 2000, the sheer size of the market and the industry is vastly different. The cost tradeoffs are also very different. And, as always, bubbles are about psychology, and the psychology is different. But the idea that there aren't many vastly overvalued companies out there is difficult to swallow. There are many over hyped corners of the market (like social) and many valuations that only make sense if the companies are run by clairvoyant business ninjas (which, inevitably, few are).

Over the next 5 to 10 years we'll see plenty of highly valued companies crumble and be revealed as mostly hollow shells. And we'll see a few companies that don't seem to make sense succeed even so. All of which is fine. Nobody's forcing anyone to invest in any of these companies. And the good news is that the dot-com industry is big enough and diverse enough that, unlike 2000, it can survive plenty of big failures and still keep going.

VLM• 13 years ago

The population of CA is about 80 times the population of Las Vegas. Therefore if Las Vegas had a real estate bubble in the past, California cannot be having one now, because its bigger. Or something like that.

Two diagnostic indicators for a bubble: Graph PE ratio and its friends, and is there any monetization strategy presented other than greater fool theory?

Stop comparing this to the 2000 bubble

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