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All the oxygen trapped in a bubble (37signals.com)
253 points by raganwald on May 17, 2012 | hide | past | web | favorite | 120 comments



The pieces of this argument fit together very neatly, but the problem is that they don't correspond to reality. E.g. the cloud about increased VC fundraising. In reality VCs are having a hard time fundraising:

http://nvcaccess.nvca.org/index.php/topics/research-and-tren...

Thus it also isn't true that the cause of higher valuations is that VCs have more money. Valuations are certainly higher, but I think the reason is that founders are increasingly getting the upper hand over investors. Which is why in addition to getting higher valuations, founders are increasingly able to retain board control.


Is this really true? seems like the early and late stage guys are doing pretty well raising funds. - Summit closed 2 funds with a combined 3.2bn in January - NEA is raising 2.5bn - AH raised 1.5bn - General Catalyst is raising around $500m - Accel has raised Big Data and India funds in the last year

Also from that article: "The dollars raised this year may equal or surpass 2011 levels – but the number of funds managing that capital will almost certainly be less. "

It may be true a lot of follow-on Sand Hill Series B and C guys are struggling, but a lot of them haven't generated returns in forever and should have been out of business years ago. Won't they just get replaced?

And don't founders tend to get the upper hand when capital is easiest to come by and optimism is at its highest?


Clearly there isn't just one reason, right? Can't all of these factors, and others, be contributing? I don't claim to know who's right, or how to weight the various factors, but big exits certainly do free up capital to be reinvested in more companies, don't they?

I'm curious in a broader sense what you (or anyone else who is experiencing it first hand) makes of the "bubble question." I'm sure it's unlikely but it would be great to have such people on the record with general predictions about the coming months and years.


No, the capital returned to a VC fund after an exit is not reinvested. It's distributed to the LPs. And while yes, strictly speaking, the LPs now have more money to invest than they had before, they are mostly giant endowments, pension funds, and foundations who only have a small fraction of their assets in VC funds, and whose future investment decisions are decided by asset allocation policies and not by recent returns.

The way big exits cause more money to be invested by VCs is not that capital is freed up thereby, but rather that news of them makes more people want to start or invest in VC funds. But that process is much slower.


Thanks! That makes sense. I just hear so many names of individuals being associated with these windfalls it's easy to imagine them continuing to invest on the basis of their holdings being liquidated.


Even if he's wrong on that point does it invalidate the basic premise that other businesses suffer at the expense of the companies which are overvalued?

(at least thats how I read it)


It could. When there is a lot of talk about startups in the press, that increases the supply of programmers, because it makes more people study CS. But as I pointed out in another comment, big companies could be responsible for more of the increased demand for hackers than startups. If so, "overvalued" startups could be net helping rather than hurting the job market.

I'm not saying this is the case. I don't know. If were going to write about this topic, I'd start by looking at the world and seeing what's actually happening.


Where is the money that's driving increased developer/designer demand coming from?


I don't think investor money is the main driver of increased demand for hackers. The biggest sources of demand are the big companies, like Google and Facebook, and they're paying the hackers' salaries out of revenues.


So conversely, more money is needed to compete with those who are already profitable.


It's the same money as before, but it's just being distributed towards higher salaries for developers/designs because the other infrastructure costs of starting a company have come down so much.

Even with the salaries being 20-40% higher, the initial costs for a startup are still at a historically low level, so more startups are being funded. As more players enter the ecosystem, they start competing for talent, hence driving the wages up even further.


Those data read like they're limited to VC firms big enough to join the NVCA, which requires funds to have at least one full-time employee to qualify for membership (see http://nvca.org/index.php?option=com_content&view=articl...). So angel investment wouldn't be included, and (anecdotally, I know) it feels like angel investment is where a lot of the big recent money has come from.


Not among companies we've funded. Most of the money comes from VCs, even in what used to be called angel rounds. VCs' funds are just so much larger. A single VC fund is hundreds of millions. It would take a lot of angels to invest that much.


With $2MM and $4MM seed rounds from "angels" doesn't it make sense to lump that money in with VC fundraising if you're looking for a benchmark of investment dollars? A lot more of that money used to take the form of LPs.


I'm finally coming around to thinking that it is starting. About three years ago people were screaming bubble because YC companies were getting $4m or $5m valuations and I wrote the following:

"The truth is this: Bubbles don't exist without my aunt's mutual fund getting involved or my next door neighbor getting told to mortgage his house to invest by his financial advisor. Web 1.0 was all about IPOing on the nasdaq and fleecing the public with business models that disregarded profit. This time around things are different. At every stage of the process you see startups with business models. Guestlist, Github, FreshBooks, heck even Groupon, are making nontrivial money relative to the valuations and expected future growth."

And the money is starting to come in from my Aunts pension fund (Facebook buying instagram because they knew they were going to have her money within a couple months). Just barely starting, so we've got probably 2 to 4 years before the pop actually happens. But what are we supposed to do while it is happening? We can warn people for a while, but it won't change anything. Get money while you can, build a warchest like paypal did and get ready for the winter of 2015 to 2018.


Or you can just concentrate on building a sustainable business, and worry about more urgent things that will affect your business, rather than the macro-trends.


But "macro-trends" always affect your business even if you are building a sustainable one. Even if you have no investors, if your clients are suffering, you are suffering. If your clients' clients are suffering, you are suffering. If your clients' clients' clients are suffering, you are suffering.


You're right, but a truly valuable and sustainable business/technology will be one that clients consider worth paying for even when they are suffering.

There aren't necessarily a lot of modern tech companies that would survive this test though.


Agree or not, that's what DHH is saying here. It's harder for sustainable businesses to hire talent, when talent is getting paid more at places with enormous valuations.

This of course falls down if the large valuation and the large pay are justified by things like large revenues, or value to those with large revenues.


Sometimes I just wonder: what "talent" are you guys talking about?

It's almost as if there exist a group of fresh-grads who just completed their CS degree but can magically write a better compression engine or a revolutionary protocol that is better than TCP.


You don't get it. It's more expensive to hire any programmers when the average rate that a programmer gets is inflated by an influx of cash. It's independent of experience. You could substitute talent with "skilled labor" and everything else would stand.


Why does "talent" have to mean "incredible geniuses"?

Lots of companies need programmers who are "pretty good," whatever that means to you.


Or do they? If you look at the big industries of the past, they came with real time constraints. In agriculture, for instance, if the work wasn't completed in time, the food would spoil. While skilled farmhands are more valued, in the absence of them, anyone off the street will be given the job simply because it has to be done one way or another.

What are the consequences to not building on your technology by a certain date? Maybe your competition will beat you to the punch. Maybe the costs that could be saved by implementing the software will continue to be expensed. Beyond that, not a whole lot.

This leads us to a situation where just having anyone on the job is not viable. It is prudent, in many, cases for a business to simply wait until someone who is "top talent" is freed up to do the work. Simply knowing how to program isn't going to be enough.


Put simply, people who can and do build stuff. Notice the emphasis on do. There are lots of smart people out there. Some percentage work at large companies in a relatively stress free job doing lots of things with maybe some building. Some other percentage get by just by being smart.

When talking about talent what all these companies want are the person who is smart, experienced, and can execute. That person who can build something from nothing. That person who actually works.

If you can get 2-3-4-5 of these kinds of people together on the same project amazing things can happen. It's very hard to hire these people because they are usually off building something...for their own startup.


What is this "completed their CS degree" stuff you're talking? That's ancient school.


I agree with the "next door neighbor" allegory. There's only a "bubble" when we can identify a bag holder. That almost inevitably winds up being the plebs, whether it be the general population or via government bailout (still the people). I'm not sure if anyone has yet identified who would be the bagholders in this "bubble", because a bunch of rich guys at Andreesen or Sequoia sure aren't it.

You need a vehicle for the commoner to piss away their money. I don't see that yet. Maybe in a couple years, when your local community KickStarter has you pulling money from your 401K to invest in corporate backed internet startups will they have a way to start to attract Joe the Plumber's wealth.

And with that, a "bubble" comes with it the psychological idea that it's RISK FREE money. That you can borrow money now, sell later and cash out the gains as your investment surely grows. Add to that the real actual feeling that you'd be stupid not to do it (because everywhere you look people are making money off this). That's when we've got a bubble.

When someone can point out a large, wide, gullible, set of people with no access to real fundamental information willing to give up their money through a simple mechanism (stock markets, housing, etc..) then folks, we've got a bubble.


It won't last a year with several parallel bubbles (one on the other side of Atlantic, another on the other side of Pacific) imploding.


strong pointers without back up info


The Euro faces, if not demise, then a near-certain restructuring that will ripple through global financial markets. China is also showing blemishes on its shiny economy, which was entirely foreseeable given their rather suspicious pegging at an 8% growth in GDP year on year. It won't collapse, but it will definitely cool considerably as even the politburo can't continue to justify building cities with no one in them just to pad GDP.


Numerically, it is difficult to credit VC-fueled startups for driving the quick increase in engineering wages. First, they don't pay top salaries. If a bidding war erupts for a particular candidate it is highly unlikely that a VC startup wins. It will be won by everyone's favorite multinational advertising company which will this quarter hire enough engineers to staff approximately 1023signals worth of product dev companies, or their close bretheren AppAmaFaceSoft, which together could a) fill the SuperDome with engineers making more than $120k apiece (and substantially more these days) and b) which cannot reasonably be said to be paying engineers with money they swindled out of gullible investors. No, they pay the money with the hundreds of billions of dollars of sales they make directly attributable to software.

The price of butter is the price of butter. If one hypothetically thinks butter is too expensive, sell butter, don't buy butter. (i.e. offer your services as an engineer rather than trying to hire engineers.) It think it is highly unlikely that anything happening in the capital markets, positive or negative, will make cause engineering (and related trades) to re-transition to the days where you could e.g. find perfectly adequate programmers for $40k. (P.S. Not to slight anybody making that, as I was at $30k like two years ago. Get a wee bit more sophisticated about who you work for and what you work on. You'll do better monetarily and quite possibly have more fun.)

There exist repeatable ways to scalably build product businesses with millions of dollars of actual revenue out of a few man months of work. Unless that economic reality goes away, engineers (&etc) will continue to be cheap at essentially any price.

This is great news for everyone selling talent here. Is it bad news for those buying talent? Meh. If you could pick any time in the history of the world to start a software business, it would probably be now, because the markets are bigger than ever, the distribution channels are fantastic, the SaaS billing model allows us to 10x prices without business customers perceiving any increased difficulty to justify the purchase, the non-human capital costs associated with a software business are asymptotically approaching zero, etc etc.


I know the guys at 37Signals are a smart pack, but I don't understand their hangup with Instagram and Pinterest... and apparently FB (esp. their older posts). FB has proven to be able to make $billions of revenue and substantial profit, and is only growing. Isn't that proof that an ad-based model can work if it's large enough?

Instagram was FB's biggest competitor... huge growth and huge adoption amongst young groups of friends. FB was smart to buy them.

Pinterest... I'm less bullish on. I can see how they can make money with affiliate commissions on products and such. But I just don't see Everyone using this. Pinterest at $1.5billion might be over-valued for where it's at. But then again, I don't have privy to their internal numbers (ie., traction, metrics, retention, etc). But, I can see Pinterest be worth a lot in the future, just right now I'm not sure about the $1.5b.

FB, Instagram and maybe Pinterest are amazing companies with crazy traction. They're all riding on the huge distribution channels of our day (web, mobile, social) and have reached or are close to reaching the 100+million users mark (for FB is the 1+billion user mark). Any service that can garner 100s of millions of users can find a way to monetize. How much in monetization is another story, but I wouldn't bet against them to create some substantial value.


They're probably hung up because it's making them look small-time. What do 37Signals actually do, other than generate a steady stream of blog posts for HN? They make some sort of dropbox knockoff, right?


TODO and project management apps for small business. Unfortunately their success has gone to their heads.


Couldn't upvote this more.

Rails was groundbreaking. Yes. DHH did something great but that's now 7 or 8 (!) years ago. Rails has aged, DHH showed often how opinionated he can be and that he just isn't perfect. And the 37signals products live primarily because of DHH's and Rails' reputation and not because there are outstanding (there tons of better Basecamps out there).

Still DHH is a smart guy but a Kevin Systrom who built a company, who learned how to build a scalable backend while starting this company and then sold this company after just 2 years for 1 billion achieved something special as well and this should be appreciated instead of ranting. This is just infantile and shows once again DHH's temper and lack of self-control.


Yeah, DHH invented Rails and has shepherded the project to be a dominant player in the web framework world. Really, you could credit him with all the copycat frameworks like Django as well and a good percentage of the other frameworks that reproduced significant innovations introduced in Rails. He's no Linus, but he was a huge force for technological innovation back in the mid-to-late 200x years and maybe a few weeks ago.

But what has he done for us haters lately? I say we hang him. Maybe we should pluck his fingernails out first for making HN members up-vote his blog post.


Leaving aside your sarcasm, Django was more a matter of convergent evolution—it was developed concurrently with Rails and just released slightly later—and both frameworks have copied a lot of awesome innovations from each other.


I don't think that's fair. I really worked hard on the sarcasm part.

About the Django part... yeah, I've heard that said, but the fact is that Rails was first and most of the cool parts of Django are things that they ended up doing like Rails.

Having used both, my opinion is that even today Django didn't understand some of the core ways that Rails was superior so didn't copy the right things. So yeah, Django was around and can sort of claim some concurrency with Rails development and I'm sure it even influenced Rails in small ways.

In terms of leading in a new paradigm, though, Rails did it. Django didn't.

Django is the Ringo of the greatness of the Beatles. Sure, Ringo was there swinging his sticks and even wrote a couple of catchy tunes. Sure, he contributed in his own small ways... but seriously he wasn't the leader and he wasn't the secret ingredient to the band's phenomenal success.


Many of the cool parts of Rails are things they ended up doing like Django, too. ActiveAdmin, say. You might not remember how limited Rails was when it first came out, even though it was still obviously The Right Thing.


They invented Ruby on Rails.


Any service that can garner 100s of millions of users can find a way to monetize.

I heard people say this a thousand times in 1999. I doubt it's any more true now than it was then.


In 1999 I think they were talking about millions or tens of millions of users, not hundreds of millions. The order of magnitude makes a difference. So does the existence of Google AdSense and its competitors.


It's a shame that all of that talent is working on things the author doesn't think are worthwhile. I mean, everyone should work on what everyone can agree on is worth their time, right?

Yet, I don't think everybody can really agree on what is worthwhile for a person's time. I can point at people working on things like Linux and Khan Academy and say "Their efforts are worthwhile!" but then Microsoft and that one guy, who bitches about Khan Academy stealing all the VC money or whatever, will wag their fingers and say "They are hurting our business! Their time isn't worthwhile!"

Personally, the efforts DHH has put into basecamp and their products is worthless to me. I don't use the products and see no reason to start. That isn't a diss to the products themselves: I literally have no use for them right now. I freelance and study at college and their suite of products doesn't solve any of my problems.

So, who decides what's worthwhile? There are at least two instances where two groups of people don't all agree the same thing is worthwhile. It's a hard problem and implying "adopt my values so you will work on things I think are worthwhile" isn't going to solve it.

(Also, I agree we are in a bubble. I value economic growth and American strength, not pictures of cats.)


> "It's a shame that all of that talent is working on things the author doesn't think are worthwhile."

That's an unfair statement - I think more importantly the bubble is making people work on things that they themselves do not believe are worthwhile. You have more and more people entering the market working on things because they think it will flip for ${MAX_INT}, not working on products they genuinely believe people want, or will pay for.


> You have more and more people entering the market working on things because they think it will flip for ${MAX_INT}, not working on products they genuinely believe people want, or will pay for.

Do you have any actual examples of this happening?

I'm not saying there aren't people starting companies because they want to get rich, but I don't think it's happening in the droves that people make it seem like it is. I'm as pessimistic about the whole SV culture as they come, to the point of moving away in two weeks, but even I can't say I've met many, if any, people who seemed to be generally disinterested in what they were building, only doing it because they thought they could flip it.


> "Do you have any actual examples of this happening?"

As a guy who hangs out at a number of SF-area meetups and startup events (free booze and food? count me in) I have met many startup employees and founders who freely admit to this.

For the most part people are interested in the work they're doing (big scalability issues, big data problems, etc), but many people are in it for the money (either ludicrous SV salaries or the hope of a massive flip) and don't genuinely believe in what their product does.

I think this is the attitude OP was railing against, and I'm inclined to agree. There are some damn smart cookies in this town, most of whom are incredibly well paid and mobile - to work on something you don't believe in... that seems incredibly wasteful.


That can all be brought back to values though. If you value ${MAX_INT} in your bank account, then working on whatever will get you there is worthwhile to you.

Regarding that very last fragment, if you get that money, then somebody is willing to pay for it; not in the "customer-producer" form of exchange but the "buy you out" form.


That can only be sustained so long, the company buying you has to get money from somewhere.


I appreciate your relativistic stance, but there's a part of me that wonders if, as an example, Instagram provided a billion dollars worth of additional photo sharing value over what already existed on Facebook.

That is, photo sharing does have value to people who want to stay connected and have shared experiences via the internet, but I don't think that Instagram improved that to the tune of a billion dollars.


Counterexample: I was never interested in photo sharing before Instagram. I wasn't a good enough photographer. Now I can make my photos beautiful enough that I want to share them. Is this worth more than a few dollars to me personally? Yes. If I'm at all like a random person, then it's easy to see how Instagram is worth well over a few billion dollars.


Given the context of the article I think the argument can be made that: even _if_ people are willing to pay a couple dollars and in aggregate a billion dollars it doesn't mean that the money is being well spent or that the product actually provides value.

Thought at that point I think we're dipping into issues of free market and a consumer driven bubble.

Either way, your point is well taken.


I personally don't think Instagram is worth a billion dollars.

But the general consensus is that when Zuck saw those numbers and thought of the upcoming IPO, he saw buying Instagram a very good defensive move that would solidify his company's position in the photo sharing marketplace.

Beating the same Nietzche-esqe drum, Zuck valued buying out the competition to be worth a billion.


I don't think he is arguing that he doesn't like the problems that are being solved. He does mention that he sees the same problems being solved over and over again for more and more money, photo sharing being a timely example.

I don't know if he's right; in general I don't have a solid grasp on how to value companies that aren't making any money.


Assertion: if somebody comes along and solves a problem that was previously thought solved, then they are solving a new problem.

Facebook solved the "How do I share photo's online?" problem. Instagram solved the new problem of "How do I take pictures to put onto Facebook?" problem.

And I have no idea how to value companies that aren't making money. Way beyond me.


I understand, and maybe agree with, your assertion. But, you could also say that this is part of the problem. Does even more refinement, and even better solution to the problem of how to share the trivia of your life with the same few people, really improve the "economic base"? I have no idea. But I think it's a valid question.


> So, who decides what's worthwhile?

If only we had a method whereby members of our society on their own and through businesses could express how much they value products and services being offered by others.

Hmm... I think I'll invent such a system as my next project. Like with any cool project, I should give it a name first and maybe churn out some T-Shirts before I get going on the details.

For a name, I think I'll call it "CapITal1sm!". I still need to come up with all the rules of how it should work. I'll set up a blog and let you all know how it goes. ;)


I really like this idea! i just worry about unintended consequences. Is it possible that some of the people in this CapITal1sm thingy will create products and services that provide short-term temporary value at the expense of long-term value?

Just to give a hypothetical example, could someone create a product that, when consumed, confers temporary euphoria but poisons the user with tar and carbon monoxide, eventually creating lung cancer?

How do we “value” such a product/ If it generates billions of dollars worth of “value,” is it worthwhile?


> Just to give a hypothetical example, could someone create a product that, when consumed, confers temporary euphoria but poisons the user with tar and carbon monoxide, eventually creating lung cancer?

Good question. We'll need some sort of legal framework whereby it's punishable for the creators of products/services... (I'll call them $ellers (never knew what that "$" key was good for, but it looks like an "S")) to make claims that just aren't true about their products/services. We'll also need to give victims a means to collect some sort of compensation when they're hurt by a $eller... particularly when it's the result of a false claim. Families of victims could also get compensation when the victim croaks. Croak? Funny. I think when a $eller lies I'll call it "Frog".

> How do we “value” such a product/ If it generates billions of dollars worth of “value,” is it worthwhile?

What are dollars? Is that how people vote for their favorite products? I was thinking "voting tickets" or simply "vickets". I'm open to ideas, though, so sure... let's use your dopey "dollars" term.

Anyway, the answer is -- No, because victims will be able to charge $ellers with frog. We can make it a crime punishable with jail time as well. That should discourage it heavily.

But otherwise for $ellers that don't violate these new laws that I'm drafting, we DO associate with billions of "dollars" with value. I think that's a great idea.

Next question?


The issue in my mind is that "all those smart and talented heads" which the article mentions, even if they're aware of the bubble, have no incentive to change directions.

Call me jaded, but I don't think most startups are created with the intention of improving society. So long as there's an Ouroboros effect of VCs funding brilliant engineers without truly revolutionary ideas, those engineers are going to create business models revolving around getting a big enough user base to justify high valuations, and eventual acquisition.

And businesses shouldn't be about exit strategies.


Strategically, it makes sense for a programmer to let his / her skills get bid up and use the surplus to store up some dry powder for the next recession. If you stay focused, bubbles are great times to build up your skills and do something real.

Unless you're planning to play the startup lottery by creating a gamified social network for teenaged felines or something, in which case, good luck, and have fun. You can probably still come out ahead in skills and experience.


This is my strategy. Contract and stash during bubble, then try and start my own thing in the lull.


If you can time it right, it is probably best to start your own thing right before the peak - get funded, and have a nice Series A war chest just as the lean times hit and the water turns red.

Although to truly weather the lean times, this would have to be a real business - ideally with customers cash flow - not a fluffy built-to-flip eyeball monetizing engine.


I'm just a working developer. I'm not looking to start a business of my own any time soon. I'll say one thing: I don't work for companies that cut paychecks out of rapidly dwindling venture capital funds and I don't work for large corporations that hire and fire teams like chattel. If the bubble burst tomorrow, it wouldn't affect my life in any meaningful way. I'd probably get fewer recruiters bugging me, which would be nice for a change.


I've called the kneejerk "bubble" reactions "boring" [1] and I stand by that. That doesn't mean I disagree (or agree for that matter). It just means that banal perjoratives with nothing to back them up are boring.

To call this a bubble, one must first describe what one means by a bubble. A bubble in my mind is a period of rapid growth in valuations followed by a massive devaluation on such a scale that it hinders investment and innovation.

The subprime collapse was a bubble. Many people were left underwater on their mortgages. Building in many places stopped for years. This has a knock-on effect on jobs, related industries and so on. That's a bubble.

The dotcom collapse was also a bubble. But there are several differences this time around:

1. Startup costs now, for most Internet startups, are essentially zero. 10+ years ago you had to spend $5-10M to do anything (once you paid for Sun servers, Oracle licenses and so on);

2. Lax listing requirements, particularly on the NASDAQ, helped perpetuate fraud;

3. There was no experience to draw on (from living memory at least). Now we hopefully know a little better;

4. Sarbanes-Oxley, clusterfuck that it is, has at least kept the number of Internet companies IPOing relatively low. This has some negative consequences too but it means that retail investors and mutual funds have largely been excluded from the startup scene, which honestly is a Good Thing [tm]; and

5. Now, as opposed to then, there are real businesses operating in the tech space who are generating profits on a scale not seen in probably a century or more. Apple, for example, is worth >$500B market cap now and by some estimates that's still cheap given their profits.

10+ years ago investment dried up, capital dried up and legitimate businesses couldn't start or continue to operate, which had a domino effect.

What happens if next month Facebook goes from $100B valuation to $10B? Honestly, not a lot. Late stage investors will lose their shirts. That's fine. VC is a high-risk business. Individuals who participate in the IPO will lose a lot of money. That's not ideal but so be it.

But the important thing to ask is: what will happen to the system as a whole? Startups will still start. When you can build a mobile app and business for $50k the capital markets are basically irrelevant to you. Apple, Google, Microsoft and others will remain. Life will go on.

The low cost of startups is itself a barrier to institutional investment (by pension funds and the like) because the amounts are too small. Again, that's a Good Thing [tm].

What's really happening here is a lot of money is changing hands between VCs and endowment funds and honestly in relative terms it's not that much money.

Speaking to some examples (recent and otherwise):

- Instagram: I think this purchase was overvalued but, if anything, it demonstrates just what a high-risk investment Facebook is if a company can go from nothing to being an existential threat in 2 years. I honestly believe Facebook was taking them out of the market with this buy;

- Pinterest: through affiliate and advertising revenue I see potential for this company to be a huge business with massive ability to drive traffic to commerce sites. Make no mistake, this is a real business. It's not without risk but the potential is huge;

- Youtube: I bring this one up because it went, in 18 months, from being nothing to being bought by Google for >$1.5B (IIRC). Some said now it was overpaying. Honestly, in hindsight I think that price may well have been a massive bargain.

Just because you don't see potential doesn't mean there isn't any. Just because something ends up failing doesn't mean the risk wasn't worth taking.

The reason the kneejerk bubble accusations annoy me is that they come from the sort of people who seem so averse to risk that they neve take any. That is, until the very peak of the bubble (when they finally convince themselves this can go on forever).

Please, I beg of you, if you're going to jump and down and yell "bubble" at least add something to the conversation or back it up with something. A >$1B valuation on a funding round doesn't actually mean anything.

Disclaimer: I work for Google.

EDIT: I forgot to address a couple of points.

Firstly, I too find it depressing what a lot of us are working on [2] [3]. The fact that SpaceX can revolutionize launch costs for less money than was spent on Instagram is sobering and depressing.

Secondly, it is incredibly hard to hire good engineers. I don't see this as evidence of a bubble. I see this as evidence that:

a) (good) engineering is hard;

b) when other costs (bandwidth, servers, software) go to zero, demand for manpower will go up because businesses that once weren't possible or viable will become so; and

c) in a world where anyone can be a founder, it makes no sense to stick to 90s era equity arrangements. To be honest, being an early employee is a lottery ticket and, generally speaking, a shitty deal. Last cofounder = 25-50%. First employee = 1-2%. If good talent is better off working on their own startup you shouldn't be surprised that they do.

[1]: http://news.ycombinator.com/item?id=3985393

[2]: http://news.ycombinator.com/item?id=3876897

[3]: http://www.youtube.com/watch?v=vKmQW_Nkfk8


Just because we are not in a tech-bubble doesn't mean there is no bubble. All these crazy valuations may be secondary effects from a larger, hitherto unseen bubble.

-Credit/Money: We are currently printing money to finance our lifestyle here in the US. China currently holds around 3 trillion US dollars and the dollar is only worth something as long as they don't try to cash out.

-Education: Something bad is happening and it is fueled by cheap, govt backed credit. Everyone is rushing to invest in their children's future because of the it-can-only-help-them mindset, similar to the it-can-only-go-up mindset of the housing bubble (also fueled by cheap, govt-backed credit).

-healthcare: this is a weird case and probably only local to the US. Heres the situation: We value our health, but we don't pay out of our own pockets for much, our employers do. So naturally we keep slipping down the slope of wanting more and more done for us. A huge friction coefficient is being added to our economy due to the nature of making businesses provide healthcare, meanwhile insurance companies interests are aligned with the insured because they both want as much done as possible (provided neither of them pay for it).


> We value our health

cardio-vascular disease, number one killer in america, is largely preventable through diet and lifestyle. being overweight (actually even high-"normal") is also significantly correlated with cancer incidence. i don't have the type 2 diabetes figures offhand, but they aren't pretty.

healthcare in america is very expensive. fat, inactive americans are a part of the reason why it is expensive (diabetics cost on average $6.6k more a year than non-diabetics..)

I agree that employer-sponsored healthcare is dumb, a relic from the difficulty in recruiting people after the war.


We're in a bubble that's inside of another bubble that is floating with a few other bubbles.


> he subprime collapse was a bubble.

No, that was a bubble bursting. The act of excessive lending was the bubble.

Bubbles are only boring until they pop. But they are interesting to identify because we know they do pop eventually. I think the general argument is that people are trying to head warning to those who are less fortunate about seeing the bubble begin to pop. If we all (and we don't) agree there is a bubble than who in their right mind puts a value on such a bubble'd finance valuation. Well, that's easy, the ones who seek to gain the most benefit from it. The ones who are manipulated (i.e. pensions, 401k, etc.) are the ones who get screwed and unfortunately that ends up being the less fortunate.


I think the general argument is that people are trying to head warning to those who are less fortunate about seeing the bubble begin to pop.

I think people are trying to be the next "big short" without knowing enough about finance to actually predict anything. Most of the conversations are boring because the arguments that are brought up show a clear lack of understanding and are based on huge incorrect assumptions about the entire world of finance.

In general institutional investors are seeing a trend of other institutional investors worried about bubbles. To me, the contrarian that I am, this says that there is probably no bubble and that the risk of said bubble is way overblown. The assumption that institutional investors are not intelligent and did not watch the same news you did about the 2001 bubble and housing bubble is a very dangerous assumption to make.

My suggestion would be to think a little before jumping to conclusions on this. I do not know whether there is a bubble or not, but assuming one is forming, it hasn’t hit external markets yet and is largely captured in the SV echo chamber. Facebook will be the first big company to IPO from this. Whether they are a dud or not will have very limited impact on public markets since they make up such a small amount of money compared to the rest of world of finance.

If a single investor isn’t investing $500m in a single deal, it is relatively a nonissue. You may want to be worried if you see multibillion dollar investments by single entities. The top 3 asset managers manage over $5 trillion dollars. That means that 50 Facebooks could fit in just that number. That means that Instagram is a rounding error.

The world in SV seems big to you, but has yet to even remotely impact the outside world.

The big secular trend you should be looking at is the fact that everything will be automated. Everything. That will cause job loss for most, but for the hackers here, you can bet there will be a multitude of areas to save big companies and individuals both time and money. There may be a bubble in social, but there is probably not any bubble outside of that.


> The assumption that institutional investors are not intelligent and did not watch the same news you did about the 2001 bubble and housing bubble is a very dangerous assumption to make.

How so? The only dangerous assumption I see is the constant "but it'll be better this time" that the general public irrationally believes. Are the institutional investors not aware of the impending education (lending) bubble as well? Of course they are, because they stand to make money off someone else's loss. It's the Greater Fool Theory at play.[1] Financiers make their money off predictability, and bubbles are much easier to predict (and manipulate) than straight-line growth, with much higher profit potential.

[1] - http://en.wikipedia.org/wiki/Greater_fool_theory


Most large institutional investors use fundamental analysis which is not impacted by the Greater Fool Theory. (see your own wiki article).

Also, I'm not seeing a lot of, "but it'll be better/different this time". If I were, I would be considerably more worried.


"Firstly, I too find it depressing what a lot of us are working on [2] [3]. The fact that SpaceX can revolutionize launch costs for less money than was spent on Instagram is sobering and depressing."

This is what resonates with me most. Whether or not we are in a bubble, there certainly is more air than substance.


Good post, thank you. Now:

> Pinterest: [...]

- how do you see them dealing with copyrights of content? I don't think they will make much of profit if are willing to share $ with photography owners. The majority of value in Pinterest's user experience is that its fresh and content is created (pinned) by other users, NOT by corporations. The moment you will see every other picture a picture of an Ikea Kettle (or desk, or anything else thats been uploaded as "promoted pin") that resembles in color, shape, etc to what you were looking for, entire experience will loose its cool and Pinterest will start to stink!

> Youtube: [...]

- this was a huge gamble from many perspectives and owners had amazing amount of luck. Due to copyright issues, some board members were pressed very hard to vote with for a buy, but were strongly against (sorry I cannot back this up, but I read it somewhere couple years ago). Further, Viacom shoot itself in the foot by uploading their own material, but during discovery it clearly came up that owners knew about copyright infringement (duh!) and were willing to "slow down" with taking content down to gain more attraction. Clearly, in # of users AND eventual exit, they benefit in huge way off of Viacom content. Again, they were extremely lucky and in the light of recent Kim DotCom case, even more lucky Mashable is not interviewing them in a jail cell. But AFAIK some court cases Goog vs Viacom are still pending. As of whether it will turn out to be a huge success, I think we still need to wait. People are social today like never before. Instagram you mentioned was bought because FB was afraid of its growing userbase. As we both know, YouTube is only a little bit social -- not as social as comparing Instagram to Flickr, for example. If the userbase of the next thing (video) of sites like viddly will keep growing, and at some point owners will tell Google "fuck off, we ain't selling!", I say YouTube will be screwed. Also, if you look even further in the future, it obviously won't be as cool as today, or 3 years ago. Its like with Caddilac - they are building amazing cars for 110 years now, but if you ask your son: do you want Caddilac or Honda, guess what he will say.


> Pinterest: [...]

Pinterest is not without risk but the potential is huge and it has many obvious monetization options. Risks include:

- clones and insufficient network effect;

- spammers/marketers creating noise;

- someone does recommendation better than they do.

I suspect Pinterest will either need to or should adopt a revenue sharing model with "pinners", copyright holders, etc with revenue coming from affiliate or affiliate-like sources (ie from driving traffic to a site in the case where the same item is sold from multiple sources).

I see the wedding market being particularly huge for this. Wedding planning essentially comes down to selecting a huge number of different things (clothing, where to have the ceremony/reception, food, decorations, etc etc etc) and this could be a really great platform for hosting that sort of thing and tying it in with recommendations.

Twitter as a counterexample I view as ultimately doomed. IMHO within 5 years it will be bought by one of the big players. They haven't come up with a good way to monetize it yet because there isn't one.

> Youtube: [...]

> ... owners had amazing amount of luck ...

Every man and his dog, prior to Youtube, had been trying to do VoD (video on demand) for years. 1-2 new startups appeared every month. I certainly agree there was a timing element in play but Youtube was also the most accessible and easiest to use. Everyone else was terrified of the bandwidth costs. Youtube had the courage to burn through an incredible amount of money to become "the" place for online video-sharing. That could easily have become a disaster instead.

As far as rightsholder issues go, I think Youtube is the poster-child for "it's easier to beg for forgiveness than ask for permission".

As much as people (myself included) have criticized Facebook's privacy blunders I do agree with Zuck on one point: you need to drag people kicking and screaming into the future. What people jump up and down about today they won't blink an eyelid at 5 years from now. Innovation is brinkmanship.


> Twitter as a counterexample I view as ultimately doomed. IMHO within 5 years it will be bought by one of the big players. They haven't come up with a good way to monetize it yet because there isn't one.

didnt you just say this: Just because you don't see potential doesn't mean there isn't any in your previous post?

> As far as rightsholder issues go, I think Youtube is the poster-child for "it's easier to beg for forgiveness than ask for permission". I agree with you, but lets wait until all lawsuits settle or be resolved, and then see if they were forgiven. I am obviously not talking about the initial owners.

> you need to drag people kicking and screaming into the future. What people jump up and down about today they won't blink an eyelid at 5 years from now

It would be obvious Zack would say something like that, considering the service he is building. I am not sure if I like this approach anyways. While most people work on innovation the right way, there is lots of jaw dropping stuff coming up as well. On the privacy stuff, one day you may wake up with Police Drone in your backyard determining if that blue spot on your Google Maps picture was a swimming pool you haven't paid taxes for, or just a covered blocks of wood.


One common factor with the dotcom and then the housing bubble was the democratization of access to previously restricted forms of economic behavior. They both liberalized of credit and investing. Day trading and online brokers that emerged with the dotcom bubble helped fuel the investment that drove it. Subprime lending and the mad financial engineering that supported it made a home mortgage available to almost anyone. Both innovations facilitated a lot of shadiness.

The other morning I caught a segment on CNBC talking about some financial company that wanted to make startups more accessible to ordinary investors. That's already a reality to some extent, at the grassroots level, with kickstarter. These seem like the sort of innovations that would again liberate a lot investment and speculation.

They're sort of unrelated to the Groupon and Facebook IPOs -- those IPOs don't have anything to do with them. And yet at the same time they are trends that draw momentum from the buzz surrounding Groupon and Facebook.

I keep looking for the next bubble, more as a casual student of human nature than any sort of financial whiz. McIPOs for the masses seems like it could deliver on that promise.

But I agree that we aren't necessarily there yet.


Here's my question:

Say it turns out that in a year or two Facebook settles onto a good solid advertising system that makes sense to advertisers. Revenues to a sustainable $5b and keeps up a nice sweet margin of 25%-30%. Expected growth is 10% for the next few years as advertisers figure out how to use it (in my opinion this was the driver of Google's growth post IPO). That's a genuine whale. As a startup story it's massive economic success in a short period of time. Even this (hypothetical) post IPO year or two seem (to me) like a success story.

But.. investors (at the present stage) are betting (according to the price) on much better results than that. 5X-10X better at least to call the investment good.

I'm not saying this will happen (I dunno). I'm asking what if*. Basically the company which didn't exist a few years ago is now a huge (& good) company. Easily worth $20bn, maybe more. But investors are losing money. How bad is that? Does the company fall apart. Is the danger bad enough for managers risk everything over & over to avoid it?

^ I'm going on media reports of Mrkt Cap/Rev/Profit of $100bn/$3.7b/$1b


To call this a bubble, one must first describe what one means by a bubble...Please, I beg of you, if you're going to jump and down and yell "bubble" at least add something to the conversation or back it up with something.

Is there something broken about the hiring market? 37signals might be closer to that than Google.


The only recruiting mail I get aggressively is from startups and Google. That's it. I hear all the time that there is a significant talent shortage, but part of me wonders whether that's a combination of people that don't want to work at Google for whatever reason and developers with families that don't want to bet on a startup.

My colleagues in big iron, however, are much choosier about who they hire.


To understand Google recruitment, you need to understand the incentives. They want lots of people to apply, fewer to interview, and very few hires. Effectively, they are very choosy but each step of the filtering process is incentivized for high volume on the input and low volume on the pass rate. So, you get a lot of people 'recruited' that don't get job offers.

Many startups also lament 'we only end up hiring 1 out of N people we interview..' Which makes the recruiters even more desperate to get candidates willing to go through the interview process.

Now, my personal experience (and that of my friends) is that the interview:offer rate is pretty even, which suggests that some unwanted people go on LOTS of interviews...


To understand Google recruitment, you need to understand the incentives. They want lots of people to apply, fewer to interview, and very few hires. Effectively, they are very choosy but each step of the filtering process is incentivized for high volume on the input and low volume on the pass rate.

Then the Google hiring process is probably biased to false negatives. So applying at Google is somewhat like a scratch-off lottery, unless you have something going for you that makes you stand out.

This makes me think that networking by "doing stuff with people" is a much more effective strategy, especially if you think there's something about your CV which could be a red flagged in a system biased to false negatives.


Probably a combination of people who don't want to work for Google, developers with families that don't want to bet, and developers who don't want to/can't live in SF (or Austin, or NYC, or...)


Up here in Seattle the glut of open tech/programmer positions are at Amazon. I don't know if it's growth or their "bar raiser" policy slowing down their hiring.


I imagine AWS is one big firefight, and it probably outpaced their retail business long ago. That's from outside observation, mind, and it's a guess (but an educated one).

They might be hiring at a normal rate but unable to keep up with operational demand -- which is a real pickle of a spot to be in -- or you're right, they're too choosy. I sincerely doubt there's a shortage of folks to work on Amazon and AWS.


Thank you for keeping a good perspective on the bubble commentary. I've been impressed with your (always top) comments on threads such as these lately, and it is always good to consider the perspective that you are sharing.

That's all, no discussion, just a thanks from at least me and I'm sure a bunch of other folks that feel the same way. It's to the point now where I see a story like this and mentally wager that you're here, at the top, before I click.


You work at Google and don't see the bubble? Interesting.


Really, all these bubbles are just an economic manifestation of the hyper-information processing problem that our society has yet to learn to deal with.

Just like it took quite a while for my Dad to learn to stop passing around "Bill Gates pays you for every email forwarded" email, members of our society have to learn to ignore all the internet marketing and media-generated hype.

Just like snopes.com was a valuable piece of infrastructure in weeding out the urban legends and reducing our forwarded crap email -- other societal/internet support is going to need to come into place to help investors weed through all the media and marketing hype.

The sad part is that change like this always produces victims who didn't catch on quickly enough. Given the magnitude of the changes brought on by this stage of the "Information Age", there's a lot of learning to be done and it's going to take another generation to develop the infrastructure and mind share needed so that typical members of society aren't so easily fooled by the falseness of the latest investment bubbles.

The genie is out of the bottle now, though. We need to get to learning, informing, and building solutions to the bubble problems. My biggest fear is that governments will [continue to] use this time of change as a power-grabbing excuse to drastically curtail our liberties and destroy many of the advantages of the Free Market.


talent can't get "trapped" by a bubble: if a bubble is really a bubble then it will burst and the talent will become free. in fact if you feel there is a bubble then you should encourage it because over the long term the market will be flooded by talent which will be cheaper.

but something that everyone here has to think about: even if you don't think there is a bubble, the nature of tech is that it is cyclical in nature. this means that sooner or later there will be winners, and those looking for a job. although i dare say that those down cycles are in fact THE best times to start a new business or venture.

i would also say that at this point in time that most of the costs of most startups are talent. years ago this wasn't the case, and one of the things that screwed me over in the original dot.com bust was the fact that my real estate costs tripled in the same space at the high point of the bubble. i also wasted a ton of money on hardware and have bitter memories of owning expensive servers that were destined for eBay.

i should add that deeply respect 37signals, and i've found myself following their model -- but it's not the only model.


The chance that granny is going to lose her pension fund is much more related to the actions of the banking and financial industries. Granny is already losing her savings with near-zero interest rates.


Is this really true? As in, are savings accounts in the US essentially useless now?

I don't know about the rest of the world, but in NZ standard saving accounts are ~2%, and more investment focused (fixed term and variants) are 4-6%.


I assume that the parent poster meant that granny is having the real value of her cash savings eroded through inflation because of the zero percent interest rate @ the US fed


It's better than stuffing the money in a mattress, but not much more. Typical savings account interest rates are < 1%.


Worst thing for me is that I actually feel completely out of place actually building my company up last 6 months so I can take on an idea I have, completely self-funded.


It is possible to build a sustainable internet business which does not rely on the prospects of an IPO.

Unfortunately it seems that few people treat the industry in that way.


While David's argument is interesting, how would his claims be falsified?

The economy is a noisy mess of contemporaneous booms and busts. What we typically call a "bubble" is a boom that lasts long enough that the bust is socially noteworthy.

What if the information age is simply arriving faster and faster? Parents and grandparents are now buying tablets and laptops, uploading photos, liking wall posts, etc.

There could be a huge shift toward the digital economy even if no bubble is occurring.

How many wall posts result in a greeting card not sent, paper not manufactured, trees not felled, shipped, and processed? What other efficiencies are occurring to divert so much capital to information tech?

Most of the technologies that are getting the most money are things that save people serious time/money/effort. This is equivalent to big dollars.

So not only should capital be diverted from other industries, but certain existing ones become more valuable -- photo finishing has more value when you are sending in 30 favorite pics chosen from 1000 digital photos you took, rather than sending in a roll of film and hoping that a few out of the 24 on the roll turned out as expected.

Travel has more value when you can use yelp to find great restaurants, AirBnB to find the perfect lodging at a great price, and Facebook to reconnect with old friends who it turns out live there.

Technology brings value to so many areas, both expected and unexpected. This is why capital is flowing. And it will continue to flow.

Yes there are meta factors such as monetary policy that impact the cost of credit and to some extent influence the risk-appetites of investors, but I think that's likely to be a small fraction of what we're seeing. The reason it's less obvious to us is b/c we've lived in this world of tech for at least 5-10 years before the rest of society started to arrive.


http://blogs.reuters.com/felix-salmon/2012/05/07/how-venture...

The bubble is not in IPOs, it's in VC. Venture capitalists having been losing money for a decade. Their General Partners are starting to cotton on, and will start pulling funding.

Yes, there's good VCs which do make a bit, and a few lucky ones, but many VCs are taking money from "bucket fillers" - institutions who are told "put X% in VC". These "bucket fillers" have to invest the money, and the top VCs already have enough cash, so it goes to less savvy VCs who invest it in the startups who couldn't get funded by the good VCs.


Some of it is definitely in stocks / IPOs.

RAX had a 100 pe ratio recently. That's as high as Cisco was during the dotcom bubble.

CRM has no PE ratio at all, despite their monstrous market cap.

Amazon has a zillion PE ratio because they're not making much money any longer.

There's a very long list at this point of tech stocks with crazy valuations. When people do their anti-bubble refutes, they only list stocks like HP or EBAY or MSFT or INTC or AAPL, and they ignore the big pile of other tech stocks with massive valuations.

ZNGA and GRPN were both bubble stocks, priced to extremes, and worth nowhere near what they IPO'd at. Pandora, HomeAway, and on the list goes. I bet I can name 40 from the last three years.


I don't have anything really substantial to add to this topic, but I find it interesting I have some serious envy for the "talent" that is so in demand.

I went the easy route, chose the web development path in my education, rather than a more math heavy, software engineering direction. I've been slapping myself for years now, but this just rubs salt in my wounds.

Granted, I interview very poorly, am not the most articulate person (stutter and stammer a lot, etc) and I certainly can't at this point in my life up and move to San Francisco, so it is probably not important anyway.


You are not asking for enough because you don't believe you are worth it. Seriously. Adjust your mindset.


There is still a high demand for talented web developers... You don't need a PhD in computer science to work for a startup. There's a lot of money to be made working on teams building MVP's.


I was expecting some illustration like this: http://ga.water.usgs.gov/edu/earthhowmuch.html Just with oxygen instead of water.


>There just aren’t enough programmers, designers, operations people, and other warm bodies to man all the hot air balloons. So you have a predictable effect: Rapidly increasing demand for an only steadily increasing supply. Thus, inflation.

As one of those warm bodies manning a balloon, I don't mind seeing this happen. I enjoyed having a little market power during the last bubble, and I'll enjoy it this time around as well. Sure, when the bubble pops it will suck, but mostly for people trying to get into the field and not people with experience.


> Rapidly increasing demand for an only steadily increasing supply. Thus, inflation.

I think it might be possible to rapidly increase the supply. I'm working on Bloc (http://bloc.io) and have been privileged enough to hang out at dev bootcamp (http://devbootcamp.com), and if I've learned anything, it's that people want to fill this supply.

The challenge is taking the lessons we've learned and scaling them up to meet something like an economic demand.

I don't think it's impossible.


This article left a bad taste in my mouth. Companies that have millions of active users are hardly bridges to nowhere that are devoid of economic or public value.


This sounds like DHH is predicting an imminent drop in his income. Call it a bubble. Call it inflation. Call it whatever you like. But he's probably right.


Well, the key feature of a financial bubble is that no one is behaving irrationally at a micro level. Even if you know its a bubble, it may be worth trying to get in now and get out closer to the top.

Same thing with building social local mobile stain removal advice apps -- if someone's buying, then someone will be supplying it.

If it is really, no shit, a bubble, then there is a lot of money to be made by determining how to pop it.


Inflation isn't an increase in demand that leads to higher cost. Inflation is a general increase in supply. A rise in prices is not the same as inflation. Inflation will eventually cause a rise in prices but it is not the only reason for an increase in prices.


> All those smart and talented heads, and all those benjamins, didn’t progress the economic base in a way we’re going to care about tomorrow.

He's talking of Facebook, Instagram, Pinterest, etc. and doesn't have the courage to name then. Is this envy? That DHH's products haven't got this far? Or just naive? Because he should know the typical deal terms of a Pinterest and that valuations and raising are blown up for the sake of getting PR and the real milestone payments are much smaller? And that FB IPO can still fail in the long run?

Whatever.

As much I appreciate DHH and his past work his posts have always the same bitter taste: 37signals is the benchmark and the rest is wrong.

EDIT: Hey downvoters, downvoting != disagreeing, just reply if you disagree


The benchmark is profits. "Instapintora" might work out well for its founders, but DHH argues that grabbing a ton of users and hoping for the best isn't a good general strategy for building a business. I'd amend that slightly by saying that companies with a huge number of users are valuable, either as eventual cash cows or as strategic acquisitions, but at best following that route is a risky strategy. Sure, you might win the startup lottery, but you probably won't. Actually charging customers with the goal of becoming profitable in the shorter term is a likelier route to success. Even if you don't end up with a cash cow, you still have a good chance at a cash goat—which is still worth milking.


> ... grabbing a ton of users and hoping for the best isn't a good general strategy for building a business.

Everyone has their own way and why do people judge about others? Some grab a ton of users and hoping for the best and others write online tutorials for aged technologies. Let people just do what they like and appreciate if they are successful (grabbing a ton of users is as hard as it is to write good online tutorials).


You're criticizing my paraphrase of DHH, not my actual point. That point was "companies with a huge number of users are valuable, either as eventual cash cows or as strategic acquisitions, but at best following that route is a risky strategy." So you can see that I'm not judging at all: I have no problem with the high valuations of Instagram, Pinterest, etc. Growth companies with millions of users are hugely valuable even if they aren't currently making any money. (This is a point on which DHH and I respectfully disagree.)

If you want to follow a high-variance strategy, there's nothing wrong with that. What is wrong is expecting that your new startup has a reasonable chance of being the next Instapintora. If you want to build a sustainable business, lower-variance strategies (which typically aim to become profitable quickly) are a better bet. I dealt with these issues explicitly in a talk I gave at LA RubyConf in 2011, which you can find here: http://youtu.be/j0jT98ZXh5M

P.S. My tutorial for an "aged" technology is only step 1 in a four-step plan for world domination; steps 2-4 are much higher-variance. Stayed tuned.


He did say "Instapintora". That's not exactly subtle.


He is considered a demi-god to a whole generation of programmers and drives a custom pagani zonda, I doubt he is that envious.


If it's a bubble then Facebook's IPO could be the turning point.


Or not. If Facebook remains profitable, then it could basically be this bubble's Google.


To me the most convincing part is the bridge to nowhere.

So, just build bridges to somewhere.

Build what people want, and preferably, will pay for.

Even if you build it in a bubble, its still a bridge, somewhere.


What would the difference be between a market correction and a bubble bursting? Is it just a buzz word or a quantifiable difference in size?


What I want to know is, what kind of business service do I need to build on the upswing and downswing to hedge the risk - anybody ?


as long as companies have good product's and can consistently generate revenue...the industry should be fine


If it makes everybody feel better, the temporary bubble has already popped. It's over, it's just that very few people know it yet.

The Facebook IPO is timed to get out the door before the stock market falls any further. It signals the end of this micro era, just as Apple's stock at $644 was the big monster stock of this time frame (referring to the small bubble periods that the Fed generates with their monetization programs and rate manipulation).

The previous two Fed liquidity bubbles, 1997/99 and 2005/07, both had all the same trimmings.

Chin up, it's over, now comes the winter. Hope you've got your funding.


What about "creative destruction?" Part of the process is resources being diverted to shit that goes nowhere. Eventually the people who made that shit go out of business and then go to work on something else (and hopefully for them, this time, it doesn't suck).

I suspect the author's point is that lately there is much more destruction and less creativity, but he doesn't state it explicitly or even do a very good job of implying it. In fact, this almost reads like a critique of basic capitalism. Certainly the ratio of expensive but worthless shit to good and useful stuff seems headed up. I agree that it is. However the boom-bust cycle is a feature of capitalism, not something you set about to correct. The author doesn't propose any solution here, which is convenient. If he had, he would have come to the sudden realization: Aha! There isn't one.

Is Instagram worth $1B? Definitely not. But neither is Facebook worth $100B, or whatever made-up number they're valued at these days. Evaluating the value of ideas is not an easy task. Capitalism arrives at a solution eventually, but no one ever said it was efficient about it.

(Okay, lots of people say that, but they're deluded assholes.)




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