The new tech bubble: Irrational exuberance has returned to the internet world.
May 12th 2011 |
from the print edition, Economist
Some time after the dotcom boom turned into a spectacular bust in 2000,
bumper stickers began appearing in Silicon Valley imploring: “Please God,
just one more bubble.” That wish has now been granted. Compared with the
rest of America, Silicon Valley feels like a boomtown. Corporate chefs are in
demand again, office rents are soaring and the pay being offered to talented
folk in fashionable fields like data science is reaching Hollywood levels.
And no wonder, given the prices now being put on web companies.
Read the full article in the Economist
Far be it for me to take issue with the Economist as the article was mostly accurate in terms of facts delivered. I live here and went through the first so-called "bubble". Without rehashing the gory details of the first bubble, let me just point out that all the derisive, mockers of online pet store, grocery delivery, and auto sales need only look at Amazon.com, Safeway.com and Cars.com. I buy pet supplies, hair products, lawn furniture and massages online now. The Economist's focus in on shareholder and investor's ROI. They miss the far broader view.
That there was an economic collapse in 2000-2001 in the tech sector is not disputed but how much of it was caused, egged on and goaded by Wall Street greed and the Fed policies that, by the way, enabled this last crash as well. Were those tech companies too soon to IPO? Yes. Were they overvalued by Goldman Sachs. Definitely. Are the dot.com companies to blame. Not even for 40% of what happened.
Did Silicon Valley suffer for it, yes? But, Wall Street didn't in that giant IPO ponzi scheme unless you were one of the last ones in or didn't sell soon enough. Over 400,000 jobs were lost here and less than half have been recouped. In addition, 3000+ companies went under (source linksv.com). What was lost? Talent, jobs, productivity, new products and markets but not the will to keep on growing businesses out of nothing but an idea.
What's different this time? Linkedin, Groupon, Facebook are all profitable. Linkedin's share price at $45 was in line with its profits and growth rate. Is Wall Street's cultivation of it's institutional investors and the day traders antics to run the stock price up 100%, based on pure greed? Yes. Is that Linkedin's fault? No. Will Linkedin's share price be back down to the original offering level? Yes, because that's where it logically belongs.
Is there a bubble? On Wall Street, in Private Equity companies, and with the new Angel investors, yes, but not in Silicon Valley. Company leaders are taking their time to bring companies public or do an M&A. Linkedin was founded in 2003 or end of 2002. It just went public after 8+ years not 8 months.
Here people are working hard to make a living and a profit building new products and services using and creating new technologies. What does this have to do with the rest of the economy and the world? Silicon Valley has replicated itself worldwide. There is job creation here based on bio-tech, nano-tech, clean-tech, software, Internet, alternative energy technologies, and consumer electronics. This is not going away but rather it is growing and expanding.
Yes, it's nice to have it shovel ready but tomorrow bandwidth rules economic structures not more car lanes.
The true story is that job creation, and business opportunities can be replicated world-wide and it is happening. The Economist just doesn't have the full perspective nor does it understand the ramifications beyond the point of view of the investment community.
Word of advice? Don't buy the stock, rather, look for the job and business opportunities. Build a Groupon leveraged business like all those little E-Bay businesses. Uncover ways to make money for yourself not Wall Street and welcome this new boom for all it's worth.
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