
The Tech Industry Is in Denial, but the Bubble Is About to Burst - joeax
http://techcrunch.com/2015/06/26/the-tech-industry-is-in-denial-but-the-bubble-is-about-to-burst
======
onion2k
I have no idea if there's a bubble or not, but I have noticed that pretty much
all the people saying there is have a vested interest in there being one
(people who make money from other asset classes than private equity), and all
the people saying there isn't are people with a vested interest in there not
being one (accelerators, VCs and founders). And then there's the press and the
pundits who say there is or isn't depending on the phase of the moon or
something.

I think that might indicate no one _really_ knows. If it makes a difference to
your prospects make sure you have a strategy for dealing with it bursting
_and_ a strategy for it not bursting. Don't pick a side.

~~~
wh-uws
If there is one let it pop.

[https://www.quora.com/If-the-tech-bubble-were-to-pop-
today-l...](https://www.quora.com/If-the-tech-bubble-were-to-pop-today-lets-
just-say-that-there-is-one-how-would-it-be-different-similar-than-when-the-
dotcom-bubble-bursted)

The people who care about building great tech companies and products will stay
and the posers just looking for a gold rush will leave. Good riddance.

This conversation isnt even interesting anymore because thanks to the original
bubble and the hassle of going public due to sarbanes oxley among other things
only private money where people can take the hit is at stake.

Can we please talk about something else?

~~~
jedberg
> only private money where people can take the hit is at stake.

That's not true. If the bubble busts a lot of people in the Bay Area will
suffer, tech workers or not. We saw it happen in 2000 and again in 2003. Lots
of small businesses closed, property values plummeted, etc.

~~~
gmarx
Oh no, not plummeting property values in Silicon Valley!?!?! If that happens
it will only be impossible for me to buy a home here instead of super-
impossible

~~~
ende
How many layoffs will Starbucks have to make?

~~~
gmarx
I don't know. I also don't find this a compelling argument in favor of
maintaining absurd valuations

~~~
rosser
It's not about absurd valuations at all, and that you appear to think it is
neatly epitomizes the self-absorbed myopia of the Silly Valley tech scene.

How many non-tech people's lives are going to be adversely — and far more
adversely than the tech people, at that — impacted by a hypothetical tech
bubble popping? (Note the lack of assertion that we're in a bubble; that's not
the point I'm here to discuss, and I have no horse in that race. I just think
the notion of the fallout of a bubble bursting being limited to tech people
and private money is not merely ludicrous, but offensive.)

But they can't code, so why should we care about them, right?

------
swalsh
My own experience tells me there's a bubble. It's been at least 3 years since
i've worked at a profitable company... yet my salary has just under doubled in
that period of time. I now work in a coworking space with a bunch of other
start-ups. The space is exploding! They sell the space almost as fast as they
make the space.

It FEELS like a bubble. The company I work for today has 2 years of runway,
during the day i'm doing everything I can to make that longer. When the check
comes in, i'm putting as much into savings as possible.

If it bursts, and i'm caught in it. I think i'll try selling small things I
make in my basement woodshop :D

------
swang
Have we reached peak, "We are in a bubble" articles? That is... are we at the,
Bubble of Bubble Articles?

I mean we can only sustain so many articles about the talk of tech bubbles
before it all comes crashing down. What happens when readers decide not to
read bubble articles?

~~~
rememberlenny
You sparked my imagination and I looked at google trends between "dot-com",
"dead unicorn", "tech bubble".

[https://www.google.com/trends/explore#q=dot-
com%2C%20tech%20...](https://www.google.com/trends/explore#q=dot-
com%2C%20tech%20bubble%2C%20dead%20unicorn&cmpt=q&tz=Etc%2FGMT%2B4)

------
j_baker
They quote Shiller as saying that we're in a bubble, but then they
conveniently leave out another quote:

> But I'm not sure that the current situation is a classic bubble because I'm
> not certain that most people have extravagant expectations.

Not to mention that Shiller scarcely mentions the tech industry. When he's
asked what asset class is the most overvalued, he points to bonds.

------
jedberg
Let's assume that the premise is correct, that we are in a bubble. Let's
further assume that you work in the tech industry. Maybe you even live in
Silicon Valley.

How do you protect yourself if you know the bubble is coming? If your
livelihood, property value and possible most of your net worth is tied up in
tech (through say stock options)?

~~~
fosk
The keyword is always the same, regardless if it's in technology or in any
other industry: diversify your investments.

~~~
jedberg
That's great for rich people, but what if I can only afford one house and have
just one job with stock options that aren't sellable yet?

I'm genuinely curious, how are people diversifying?

~~~
fosk
In this case you have two options.

1) Hope that the bubble will burst far ahead in the future to give you enough
time to diversify.

2) Double-down with the resources you have, but this involves risk. You have
different options here, depending on your resources and the risk that you can
afford. You could sell your current property, buy two more for less money,
renovate them, sell them after 2/3 months making a profit. Invest the profit,
repeat, etc.

When making investments you need to count on the resources that you have now,
and find ways to move your wealth around and create profit in the process.

------
fosk
I don't understand why does it inherently matter.

Companies and founders know what it the state of their business, and every
founder knows if they raised money at a higher or unfair valuation. Investors
are just riding the horse, and they know what they are doing. Companies come
and go, and the free-market determines their valuation. If they gotta fail,
let 'em fail. If they gotta succeed, let them succeed. If the valuations are
pumped up but eventually somebody is willing to acquire these companies, let
them do it. It's a risk/reward game.

It's not like founders and investors are passively suffering the up and downs
of the market. They are the market! Everybody knows what they are doing. Last
but not least, high volatility in a market generates opportunities, regardless
if it's a boom, or a bubble burst.

------
DannyBee
I guess it's that time of the weekly press cycle again.

------
tosseraccount
Aswath Damodaran doesn't think so:
[http://aswathdamodaran.blogspot.com/2015/03/illiquidity-
and-...](http://aswathdamodaran.blogspot.com/2015/03/illiquidity-and-bubbles-
in-private.html)

 _Unlike the 1990s, the market capitalization of technology companies in 2014
is backed up by operating numbers that are commensurate with value._

 _Unlike the 1990s, when tech companies climbed from single digits in 1990 to
almost 30% of the overall market capitalization by the end of 1999, tech
stocks collectively have stayed at about 20% of the overall market._

~~~
adventured
The excesses today are more like 2005-2007, right before the great recession,
than they are akin to 1999-2000.

There are significant isolated pockets of extreme overvaluation in tech. It's
nothing like the broad, mainstream 1999 bubble however.

For example, recently Facebook's PE ratio was around 85. That's comparable to
how extreme Microsoft and Cisco were valued during the height of the dotcom
bubble.

Netflix has a ~150 PE being generous on their net income _potential_. That's a
$40 billion market cap, that should be a lot closer to $15 billion based on
their actual sales growth (which is not that impressive) and net income growth
potential.

Twitter is extraordinarily overvalued. Likely by 200%.

LinkedIn has never demonstrated the capacity to generate good net income.
Until they started losing money again, they were carrying an N hundred PE
ratio. Their growth has slowed considerably, and will continue to. They're
worth maybe 1/3 where they're trading at today, when the music stops.

The enterprise SaS sector is hyper overvalued. Workday, Splunk, Palo Alto
Networks, Salesforce, FireEye, etc. are all sporting dotcom bubble style
valuations. Yes they have sales, and not one of them comes even remotely close
to justifying their valuations based on either growth or sales (profits are
out, because none of them have any).

What's going to happen when this party ends - as all parties must - is
valuations will get chopped drastically, at least in half for the average
high-valuation tech company.

------
hueving
Don't waste your time. This article is pretty typical fire-and-brimstone
garbage that shows up during hot markets based on essentially no stats other
than some stuff about unicorns, which is very few companies.

------
shawndrost
Wake me up when Sam Altman finds a taker for his wager:
[http://blog.samaltman.com/bubble-talk](http://blog.samaltman.com/bubble-talk)

~~~
gkoberger
I'm not convinced the terms of the bet do or do not prove there's a bubble,
however he did find a taker: [http://money.cnn.com/2015/03/30/technology/sam-
altman-tech-s...](http://money.cnn.com/2015/03/30/technology/sam-altman-tech-
startup-bubble-bet/)

~~~
Verdex
There's a relevant HN thread:

[https://news.ycombinator.com/item?id=9271679](https://news.ycombinator.com/item?id=9271679)

------
thaumaturgy
01/07/2007: Bubble, Bubble, Bubble: [http://techcrunch.com/2007/01/07/bubble-
bubble-bubble/](http://techcrunch.com/2007/01/07/bubble-bubble-bubble/)

12/06/2010: Can It Be A Huge Bubble If Only A Few People Are Blowing It?:
[http://techcrunch.com/2010/12/06/bubble-2/](http://techcrunch.com/2010/12/06/bubble-2/)

03/01/2011: Angel-Turned-VC Mike Maples: Yes, There’s a Bubble:
[http://techcrunch.com/2011/03/01/angel-turned-vc-mike-
maples...](http://techcrunch.com/2011/03/01/angel-turned-vc-mike-maples-yes-
theres-a-bubble/)

04/24/2011: We're In The Middle Of A Terrible Blubble!:
[http://techcrunch.com/2011/04/24/were-in-the-middle-of-a-
ter...](http://techcrunch.com/2011/04/24/were-in-the-middle-of-a-terrible-
blubble/)

06/22/2011: On Bubbles … And Why it Will All be Fine:
[http://techcrunch.com/2011/06/22/on-bubbles-and-why-it-
will-...](http://techcrunch.com/2011/06/22/on-bubbles-and-why-it-will-all-be-
fine/)

07/15/2011: The Endless Bubble Debate: Kedrosky Vs. Wadhwa:
[http://techcrunch.com/2011/07/15/bubble-debate-kedrosky-
wadh...](http://techcrunch.com/2011/07/15/bubble-debate-kedrosky-wadhwa/)

08/09/2011: Good News! The Bubble that Never Inflated Has Popped:
[http://techcrunch.com/2011/08/09/good-news-the-bubble-
that-n...](http://techcrunch.com/2011/08/09/good-news-the-bubble-that-never-
inflated-has-popped/)

12/10/2011: Double Hubble Bubble Trouble:
[http://techcrunch.com/2011/12/10/double-bubble-toil-
trouble/](http://techcrunch.com/2011/12/10/double-bubble-toil-trouble/)

06/08/2012: It’s Not A Bursting Bubble. It’s a Correction And It Will Take
Awhile.: [http://techcrunch.com/2012/06/08/its-not-a-bursting-
bubble-i...](http://techcrunch.com/2012/06/08/its-not-a-bursting-bubble-its-a-
correction-and-it-will-take-awhile/)

04/22/2014: David Einhorn Just Cried Bubble And Let Slip The Shorts Of War:
[http://techcrunch.com/2014/04/22/david-einhorn-just-cried-
bu...](http://techcrunch.com/2014/04/22/david-einhorn-just-cried-bubble-and-
let-slip-the-shorts-of-war/)

06/27/2014: VCs Don’t Think We’re In A Tech Bubble — Yet:
[http://techcrunch.com/2014/06/27/vcs-dont-think-were-in-a-
te...](http://techcrunch.com/2014/06/27/vcs-dont-think-were-in-a-tech-bubble-
yet/)

09/05/2014: It’s Time For VCs To Run To Their Bubble Bunkers:
[http://techcrunch.com/2014/09/05/its-time-for-vcs-to-run-
to-...](http://techcrunch.com/2014/09/05/its-time-for-vcs-to-run-to-their-
bubble-bunkers/)

09/22/2014: When The Funding Bubble Bursts It Doesn’t Have To Mean Disaster:
[http://techcrunch.com/2014/09/22/when-the-funding-bubble-
bur...](http://techcrunch.com/2014/09/22/when-the-funding-bubble-bursts-it-
doesnt-have-to-mean-disaster/)

11/09/2014: The MBAs Are Fleeing, Should SF Be Worried?:
[http://techcrunch.com/2014/11/09/the-mbas-are-fleeing-
should...](http://techcrunch.com/2014/11/09/the-mbas-are-fleeing-should-sf-be-
worried/)

01/26/2015: The seed bubble has popped: [http://techcrunch.com/2015/01/16/the-
seed-bubble-has-popped/](http://techcrunch.com/2015/01/16/the-seed-bubble-has-
popped/)

03/21/2015: No Need For Alarm Over Private Company Valuations:
[http://techcrunch.com/2015/03/21/no-need-for-alarm-over-
priv...](http://techcrunch.com/2015/03/21/no-need-for-alarm-over-private-
company-valuations/)

03/24/2015: Tech Bubble? Maybe, Maybe Not:
[http://techcrunch.com/2015/03/24/tech-bubble-maybe-maybe-
not...](http://techcrunch.com/2015/03/24/tech-bubble-maybe-maybe-not/)

04/07/2015: The Potential Upside To A Technology Bubble:
[http://techcrunch.com/2015/04/07/the-potential-upside-to-
a-t...](http://techcrunch.com/2015/04/07/the-potential-upside-to-a-technology-
bubble/)

05/07/2015: Building A Moat In A Bubble: Navigating Today’s Financing
Environment: [http://techcrunch.com/2015/05/07/build-a-
moat/](http://techcrunch.com/2015/05/07/build-a-moat/)

05/24/2015: Who Will Be Hurt Most When The Tech Bubble Bursts? Not VCs:
[http://techcrunch.com/2015/05/24/who-will-be-hurt-most-
when-...](http://techcrunch.com/2015/05/24/who-will-be-hurt-most-when-the-
tech-bubble-burst-not-vcs/)

\--

That's an incomplete list. I got bored after a while. I wonder what the term
is for a bubble that takes 8+ years to "pop"?

~~~
joeax
During the housing bubble years, there were bubble articles as early as 2004,
although it didn't truly pop until 2008. I remember I would sometimes frequent
housing bubble blogs in 2005-2006, and there you would find a lot of vitriolic
pushback especially from those in the real estate industry. Also, early on the
blogs themselves would constantly complain how the 'MSM' was ignoring the
bubble. It wasn't until 2007 that the word 'bubble' caught on everywhere.

Based on the chronology of those articles you mention the bubble talk has
ramped up considerably in 2015, making me wonder if we are close to a pop.

~~~
thaumaturgy
The chronology of the articles I listed is probably more closely related to
Google's bias towards more recent search results coupled with TechCrunch's
expansion ever since its sale to AOL in 2010. I'm disinclined to put the time
into a more rigorous analysis, but I doubt there's much that can be implied
just from a change in the number of articles I found over time.

I think there are enough fundamental differences between the housing bubble
and a potential tech bubble -- if there is one, which I have no opinion on --
that it's not very helpful to compare the two. Housing prices were driven by
cheap credit becoming available to a middle class that wanted to improve its
financial position by buying homes as investment properties. That's pretty
unlike what's happening here, if in fact anything really is happening at all.

~~~
joeax
I can tell you from my own observation that these "tech bubble" articles are
becoming more and more frequent. TechCrunch, Bloomberg, BI, others.
Correlation, perhaps, but something to consider.

To your second point - on the surface these two "bubbles" would appear
different, but dig deeper and they are fundamentally more similar. With the
housing bubble it was fueled on the backend by foreign and institutional
investors buying up MBS (mortgage backed securities) like mad, causing the
frontend (banks and lenders) to issue credit to anyone with a pulse (and some
without as I've heard dead people got approved also). Similarly with the tech
bubble, hedge fund investors and others are jumping into the foray joining VCs
and making deals at sky high valuations. To me, the willingness of investors
to take smaller stakes in companies for more cash amounts to "cheap credit".

Bottom line, if there is a bubble, what will happen is funding will dry up,
and any startups trying to raise capital will be out of luck. Even the so
called unicorns will be under pressure to turn a profit once they realize they
have nowhere to turn for more capital. The end result will be mass layoffs and
a glut of out of work tech workers. Believe me this is the last thing I want,
being a software engineer myself. But I already went through it once in
2001-2002, so I figure better be somewhat prepared than deny a bubble even
exists.

------
pan69
I'm by no means an expert on this, however, I do think there are "unicorns"
but I don't think these unicorns constitute the tech sector. I don't think
there is a bubble as we had during the dot-com, a lot (if not most) of the
tech companies today are very mature businesses. If there was something about
to "pop", my guess would be, it would be the unicorns.

------
joeax
I think a better question to ask from all these 'bubble' articles is not
whether there is a bubble, but whether the bubble will pop suddenly and
dramatically, or slowly let out air?

------
techman9
"Meanwhile, Noble Prize-winning economist Robert Shiller". He must be a really
great guy, winning a noble prize and all...

------
benihana
"the tech industry is in denial about being in a bubble. Here's an article
with prominent people from the tech industry saying we're in a bubble."

This is pure clickbait shit.

------
bitJericho
Oh yay another techcrunch bs article. When is HN going to ban tc?

