
4 Signs We're Not in a Tech Bubble - monty_singh
http://us2.campaign-archive1.com/?u=05dd73e60ccac15ccb49357c8&id=2ea8948f1e
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dkrich
First off, the author misrepresented some facts. Groupon is NOT profitable.
Nor is Pandora or Zynga, and Linkedin trades at roughly 900 times earnings.
And I suppose this is a matter of debate, but I severely disagree with his
depiction of these as stable companies. Pandora is operating in an ultra-
competitive market with razor-thin margins and enormous overhead. I personally
doubt they are going to survive much longer. I'll go out on what some would
consider a limb and put Zynga in the same category, albeit one that will
survive a bit longer.

But to his point about a possible bubble- I think it all depends upon exactly
how you define this thing we call a bubble. If you compare the climate of
today's dot com startups with that of the 90's, certainly we are nowhere
close. Very few internet companies are going public these days, and those that
are aren't enough to create a bubble large enough that a collapse would mean
more than a microscopic percentage of the market at large losing a substantial
amount of money. Most employees are not paid entirely in stock, so you
wouldn't see a whole class of people go from millionaires to penniless in a
matter of days.

However, if you define a bubble simply as a disproportionately large number of
businesses in a particular industry being obscenely overvalued, I think we've
been there for a few years. I don't think it will end abruptly from a string
of bankruptcies or a market crash like the last one. I think it will end when
the market becomes sufficiently saturated with businesses creating such a
small amount of value that other industries become more attractive for
investment. When the money leaves, people will pursue businesses in those
industries.

~~~
einhverfr
I agree. It seems to me that a bubble exists where there are expectations
disproportionate to performance. I don't see why ANY of the points the article
mentions rules out a tech bubble.

Granted I dont think we are in the same sort of tech bubble we were before the
.com crash, but you can only learn so much from studying history. Events
rarely repeat themselves exactly. All you can get are general cautions. One
caution is to be careful about business models and so forth, and I think that
this means being caution about Groupon, Pandora, etc.

Yes, I think we are in a tech bubble, just a different stage and a different
sort than last time.

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moocow01
Probably not a popular opinion around here but Id say we are well on our way
to the precipice.

I hear the line about how the companies are better this time around but I'm
really not so sure about that on a macro scale. I'd be much more encouraged if
more (funded) startups were seriously aligned to try to combat the country's
obvious problem areas - health, education, finance, etc. There are some good
ones out there but the majority of funding is getting piled into a lot of
stuff that is dead on arrival due to a lack of need and this problem just
seems to be getting worse.

On top of it the money and hoopla is exponentially drawing in a lot more folks
naively looking to make a quick buck and when they show up in force it usually
means the game is largely up.

~~~
PaulHoule
well, the trouble with the real problems is the barrier to entry.

liberals like to blame the health insurance companies for the problems with
health care, and yes theu get some blame, but really it's the doctors and the
pharmaceutical companies and all the other service providers. One day I was
talking to my doc about a prescription and what it would cost and she
estimated it would be $80 a month, but then I showed up at the pharmacy and it
was $4.86 and I know that's close to a real price because I'm on a high
deductable plan. Now this is a happy ending, but it shows the doc is in la-la
land when it comes to knowing what whatever she prescribes costs.

education? well at the K-12 level you go head to head with the teacher's
unions and i'll just say if you get in their way they draw blood. now the
tenured profs at the college level have "aprois moi le deluge" as their slogan
and they've got no reason not to live by that.

finance? who knows? i'm starting to think that those guys from Lagos who say
they want to deposit $35 million in your bank account really find completely
wack people who expect to get $35 million in their bank account. if some guy
who made $20 billion thinks the country needs Newt Gingrich there have to be a
lot of rich people who've got no sense at all.

so you go in the problem areas and you know you'll be eaten alive by the
incumbents and the unions and the government and god knows who else so you
might as well focus on something safe like pictures of cats.

~~~
dkrich
> well, the trouble with the real problems is the barrier to entry.

This has always been the case, and always will be, for every industry. If the
market is easy to enter, you aren't going to make much money for very long. It
is precisely because of this that companies that are attacking the easy
problems or non-problems and are getting multimillion dollar valuations are
making people nervous.

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potatolicious
I remain unconvinced.

The list is just proof that we're not in a tech bubble _of the scale and
severity as the first one_. I'll agree with that, but there's still an
enormous amount of overvaluation going on.

The fact that, if and when the bubble pops, it won't be as bad as last time,
provides only a minor amount of comfort.

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stretchwithme
These claims boil down to 1) Stuff is better, and 2) Only companies with
revenues are going public.

But fewer companies are going public at all in the US because of the huge
regulatory burden of Sarbanes-Oxley.

And more baskets could simply mean more bubbles.

The fact is that the Federal Reserve greatly expanded the money supply and
that must go somewhere. It usually flows into whatever has been rising
naturally and makes it rise faster. Too fast.

So instead of normal growth, with new industries gradually replacing old, we
go from bubble to bubble.

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kls
_The infrastructure is better_

It's funny when this subject is brought up it is always about the nets
infrastructure and never about logistics which have improved enormously from
the income of the .com boom as well as advances in technology in their sector.
Fedex and UPS are now shipping far more for far cheaper than they ever have,
the first bubble helped them improve their infrastructure and that is a huge
piece of the puzzle as to why we are able to handle more innovation now.

That being said, I do think the scrutiny and due diligence some investors are
doing lacks rigor as such some of the companies will fail, the real question
is are the successes enough to offset the bad investments. Once that scale
tips we are running up the bubble, I don't think we are there yet, but it will
bubble at some point, as one of the only bright sectors of the economy it
cannot be ignored for long. People are desperate to get their money in an
inflating bet, at the moment the barrier to entry to do that with Angle and VC
investing is high which creates a form of self regulating market.

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PaulHoule
I think it is all complicated by the fact that the stock market and real money
funds and hedge funds all get returns that suck now so that people with real $
get the idea that they might as well pay a bunch of programmers to party it up
in a a mansion in the Hollywood Hills and I'll be looking for the bathroom
talking to the project manager downstairs looking at the OSHA sign while
upstairs some guy's had too many shots of whatever it is he's shooting is
jumping into the wrong end of the pool.

So long as interest rates are too low and you can't get returns doing anything
responsible, people will do irresponsible things like listen to Glenn Beck and
call up Goldline and get ripped off for some gold coins.

That's just the way it is.

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nl
I think Ben Horowitz said it better:

 _He has a simple response to those who say Silicon Valley is in the midst of
another bubble, including those who have criticised his firm's large
investments as having played a role in inflating the bubble. It's LL Cool J's
song Going Back to Cali: "I'm going back to Cali ... hmm, I don't think so."
"It's totally about the way he said it — 'Hmm, I don't think so' — which is
how I was feeling about the bubble talk," Horowitz said._ [1]

His complete argument[2] makes a lot of sense, but I just liked the quote
above.

[1] [http://www.brisbanetimes.com.au/technology/technology-
news/h...](http://www.brisbanetimes.com.au/technology/technology-news/how-ben-
rapped-his-way-to-silicon-valley-stardom-20120220-1tjev.html)

[2] [http://bhorowitz.com/2011/03/24/bubble-trouble-i-
don%E2%80%9...](http://bhorowitz.com/2011/03/24/bubble-trouble-i-
don%E2%80%99t-think-so/)

~~~
moocow01
Ben Horowitz a man who stands to make money on inflating the bubble is trying
to convince others about the soundness of startup economics through rap
lyrics? Hmm, not exactly convincing - rather the opposite.

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shangrila
The #1 sign we are in a bubble is that people are writing articles saying we
are not in a bubble.

For reference, compare the following two editions of a book regarding the
recent housing bubble. These were written by the chief economist for the
National Association of Realtors at the time, David Lereah.

Original title (2005):

[http://www.amazon.com/Are-Missing-Real-Estate-
Boom/dp/038551...](http://www.amazon.com/Are-Missing-Real-Estate-
Boom/dp/0385514344)

"Updated" title (2006):

[http://www.amazon.com/Real-Estate-Boom-Will-
Bust/dp/03855143...](http://www.amazon.com/Real-Estate-Boom-Will-
Bust/dp/0385514352)

I think we all know what happened next.

When people start spewing denial, it's time to think about heading for the
exits.

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pacaro
The metric falls down if the company is pushing a 3D-printer for making ice
sculptures.

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gfaremil
Maybe we are not in tech bubble but there a lot of crappy companies raising a
lot of capital.

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jlft
The best signal pointing we are not in a tech bubble is the amount of people
talking about we are in a bubble. On a real bubble only a small minority
(often ignored, despised or even ridiculed by the maiority) think there is a
bubble. I don't see this happening now.

~~~
billpatrianakos
I'd argue the opposite.

~~~
sk5t
Agreed -- have people no memory or perspective of the housing bubble? "Get in
now or you'll be priced out of the market forever! Real estate never goes
down!" RE agents courted sellers and ignored buyers.

I often remember the Emerson quote, "The louder he talked of his honor, the
faster we counted our spoons." Sometimes an uptick in everything-is-A-OK
bluster is a pretty good indicator that things are about to crater.

~~~
jlft
I agree. My point is that when big bubbles are forming there is a almost
general consensus that it is a good and secure investment and everybody should
get into it. There is not much evidence to argue against it and the minority
that have the ability/vision to perceive it are considered pessimists by the
majority. Today it seems to be at least 50/50, those who believe in a tech
bubble and those who don't. This is too much people believing it is a bubble
for it to really be. So my guess is it isn't.

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billpatrianakos
One sign we _are_ in a tech bubble: People feel the need to explain why we're
not. I'm not trying to be a smartass. Honestly, it seems like we're just all
trying to convince each other there isn't a bubble. It's so simple to see and
that's probably why no one sees it. We're in so deep that we look at
everything but the obvious. We've got a billion tech companies that take
funding first and decide how to monetize later. Most of them fail. Those that
succeed still don't quite make it to figuring out how to monetize. In essence,
we have a lot of neat toys using super cool tech that get funded but never
quite get how to be a business in that investors seem to be the only source of
their revenue. Eventually someone has to get paid back and if tech companies
aren't making a buck and investors are being paid back eventually there's no
one left to invest and the bottom falls out. It's more complicated than that
but looking at the complexity is what tricks you into thinking the bubble
isn't there.

~~~
jayzee
Do not understand the logic. For example, I could say that the proof that God
exists is the amount of time atheists spend in explaining how God does not
exist etc.

~~~
bunderbunder
It's in the way it's being done. The argument for why we should be cautious is
straightforward. It consists of simply pointing out that people seem to be
spending a lot of money on assets for which the price has been rising rapidly,
and they're doing it based on a soft thesis of simply assuming that a past
trend will continue into the future wrapped in a thin candy shell of hype.

A compelling counter-argument to the assertion that people are overvaluing
tech would be a clear explanation of why the prices being spent on tech
companies now are justified by compelling reasons to believe that those
companies can produce value for shareholders by either delivering a portion of
profits to the owner's pockets or by increasing the fundamental value of the
company. This explanation would of course need to be finished off by a case
for why the amount of value that can be delivered to shareholders is in
proportion to price at which those shares are trading hands.

On the other hand, folks churning out lists of reasons why "this time it's
different" that are peppered with buzzwords like 'transformative', but never
getting around to directly addressing the actual question at hand in any sort
of articulate manner, have been something of a mascot for the past few market
bubbles. Consequently, seeing them coming out of the woodwork yet again does
not inspire confidence. No, it's not proof that we're in a bubble. But it
takes some heroic naivete to see that behavior and not think, "Hmm, now where
have I seen people acting like this before?"

