
The tech boom may get bumpy, but it will not end in a repeat of the dotcom crash - edward
http://www.economist.com/news/briefing/21659722-tech-boom-may-get-bumpy-it-will-not-end-repeat-dotcom-crash-fly?fsrc=permar|image1
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momavujisic
Are people still spouting "dotcom crash v2.0" nonsense?

I agree that valuations are abnormally high (although not higher than those
during the dotcom bubble) and that a correction is due soon however, this time
_really_ is different in the sense that the damage will be largely contained
to those with enough money to throw down on startups (VC/PE funds,
institutional investors). For better or worse, tech startups are staying
private longer, holding private IPOs and generally staying away from the
scrutiny of the public market while at the same time insulating the general
public from a crash.

What will largely suck will be the uptick in unemployment not just from failed
and failing startups having to lay off employees cause of lack of funding, but
the associated kill-off of the entire services-for-startups industry. Did I
mention the lack of funding? That'll also suck for newcomers who came at the
wrong time.

~~~
forgetsusername
> _this time really is different in the sense that the damage will be largely
> contained_

I think you are seriously underestimating the financial consequences of
billions of dollars in capital vaporizing or otherwise being sucked out of the
financial system.

The 2007 financial crash wasn't largely contained amongst the buyers and
holders of mortgages in Florida, Las Vegas etc; it was felt clear across the
globe.

I don't imagine any "correction" will be on that scale, but I also wouldn't
describe it as self-contained.

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jmnicolas
I remember in 2007/2008 when the Economist was telling us that it was business
as usual, nothing to worry about ...

~~~
dylanjermiah
A prior wrong doesn't immediately disprove any future points.

~~~
circuiter
I also remember when the Economist boldly predicted that the PS3 would outsell
the Xbox 360 and the Wii, and this was months after the consoles were
released.

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ThomPete
There isn't a tech bubble but a valuation bubble in the private market.

The tech sector in general is undervalued with a few select companies
unfortunately having absurdly high valuation and getting all the press.

While I do not fear a tech sector crash I do worry about how far down those
who get all the attention will drag everyone else.

~~~
auganov
Is the private-public really such a big difference? It seems to me that if the
market crashes the tech industry will get affected the same way whether it's
the public or the private market - harder to get funded, harder to get jobs
etc. The difference is in how the crash propagates to the general economy. Am
I wrong? I honestly don't know.

~~~
ThomPete
The problem with the "unicorns" in the private market is that its getting
funded size wise as if it's a publicly traded company. Ubers 40Billion
valuation isn't based on it's funding not on it's actual performance
(400million revenue, 400million spend).

As long as a private company can getting to the next round of funding it
doesn't matter if it's actually even close to becoming a sustainable business.
So you can basically keep extending a "false" business in that all you need is
convince someone to believe you can become even bigger than you already are,
but without showing it through your actual revenue.

As a publicly traded company this wouldn't ever work. Amazon isn't making a
profit but it keeps growing revenue wise (for now) if that somehow stops then
it will get hit too.

At least thats my take on it.

~~~
dylanjermiah
Private valuations aren't based on current revenues, they're betting on future
revenues. In the case of Uber, they're predicted to grow 6x from last year (on
target) and 3x in 2016. Another example, when eBay bought PayPal in 2001
future revenues from as far as 2011 (10 years!) were baked into the 1.6bn
price. (Which was a _great_ purchase)

~~~
ThomPete
Oh I agree. Of course it's based on betting on future revenues which will work
for some and not for others but thats not really the point I am trying to
make.

What I am saying is that on the current private market you can keep a company
with a fundamentally unsound business in suspended animation for a long time
and keep enjoying growing valuation as long as you can convince investors that
they will be able to raise the next round. I.e. without it actually having
proven that's it's a sustainable business.

Most of the unicorns happens to be from the valley and as far as I can see
have more or less the same investors behind them indicating at least to me
that it's not purely based on being better at betting on the right companies.

This is a very different feedback-loop than the public market where your
ability to make a profit at market expectations often is is king and where
this ability is measured every quarter.

Maybe I am paranoid but thats what I see. And yes I haven't gotten my head
around a proper way to formulate his intuition yet.

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InclinedPlane
Um. Duh? In the late '90s there just wasn't a lot of real _value_ or total
business online, especially compared to the orgy of investment in dot-coms.
Today the value in internet based companies is enormous compared to, say,
2000. Probably in the trillions. That value is real, and people aren't just
going to stop using the internet or sending revenue to tech companies.

But so what? The tech industry won't contract by the same percentage, but it
can certainly contract by the same total _value_ , and that sort of thing can
trigger a widespread economic downturn, the economy is tricky that way. And
there's more that's overvalued than just startups today.

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ewzimm
They are being pretty conservative here, praising Silicon Valley for quick
growth and predicting an eventual slowdown. It would be more interesting to
speculate on what might happen if growth didn't slow. What if the tech boom
came close to the dream of unlimited growth? What would get in its way, and
how would the industry be unable to respond?

Software isn't constrained like other things, but it can run into cultural
opposition or government regulation. We'll need more raw materials than we
have on the planet soon. But assuming we can reach out past the atmosphere for
resources, we don't know the limits of automation and specialized, productive
programs.

We might run into resource issues before we hit the productivity plateau, but
whether it comes from Silicon Valley or somewhere else, we might be moving
toward a lot more growth than we see today.

~~~
bostik
> _What if the tech boom came close to the dream of unlimited growth?_

No danger of that happening.

In a finite world with finite resources and non-zero energy costs, there is a
guaranteed upper bound for expansion. That is an unavoidable fact.

The best known quote on the subject puts it really well: _" Anyone who
believes exponential growth can go on forever in a finite world is either a
madman or an economist."_ \- Kennet Boulding (1966) [0]

0:
[https://en.wikiquote.org/wiki/Economics](https://en.wikiquote.org/wiki/Economics)
(Search for "growth".)

~~~
UK-AL
That's because economists know how growth is measured, and know you can have
growth and reduce resource use and energy usage at the same time.

Yes they are currently correlated, but not strictly. Growth is measured by
what people spend, if people spend extra money on entertainment, and less on
cars but overall more. You would see less physical resources being used.
There's no strict rule linking the two.

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philbarr
If people spent extra money on entertainment, wouldn't that drive down the
cost of entertainment? Since the costs associated with entertainment are less
and each company can afford to cut prices in order to compete?

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michaelt
Given that the total cost of entertainment equals the amount of money people
spend on entertainment, surely if people spend more on entertainment the total
cost of entertainment must be higher?

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minimax
_“First prize is a Cadillac Eldorado…Second prize is a set of steak knives.
Third prize is you’re fired,” explains Stewart Butterfield, the boss of Slack,
a two-year-old software company with a $2.8 billion valuation, quoting from
David Mamet’s play “Glengarry Glen Ross”._

Except he isn't actually quoting from the play because that quote and the
whole Alec Baldwin character don't exist in the play. They were added when
Mamet converted Glengarry Glen Ross the play into Glengarry Glen Ross the
movie. It's a really interesting story, actually.

[http://www.avclub.com/article/why-iglengarry-glen-rossi-
alec...](http://www.avclub.com/article/why-iglengarry-glen-rossi-alec-baldwin-
scene-is-so-82782)

~~~
applecore
And here's Marc Andreessen, co-founder of the venture capital firm Andreessen
Horowitz, evoking the same harsh truth of Glengarry Glen Ross:

“I’ve been totally determined to be on the other side of that [highly
competitive, market-driven] dynamic by being here, because success in software
follows a power-law distribution. It’s not Coke and Pepsi and a bunch of
others; it’s winner take all. Second prize is a set of steak knives, and third
prize is you’re fired.”

[http://www.newyorker.com/magazine/2015/05/18/tomorrows-
advan...](http://www.newyorker.com/magazine/2015/05/18/tomorrows-advance-man)

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JupiterMoon
Didn't the economist famously predict the eventual triumph of the horse over
the petrol engine in the early 20th century?

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mdda
Yup : and they even mock themselves for having done so :
[http://www.economist.com/node/9465026](http://www.economist.com/node/9465026)

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brogrammer90
Are MBAs really an indicator of a bubble?

