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What The Bubble Got Right
dtolton writes "Paul Graham has written an article entitled What the Bubble Got Right. In recent years the roaring tech bubble has become a byword, yet Paul does an excellent job of articulating what it got right."
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Now I can jump up and down and DEMAND a development server and have plenty of examples to back up my need for one.
I'll now be the first person to raise my hand and ask the following question: "So, how will this make money?"
Whenever I hear New - anything - my instant reaction is BULLSHIT!
Those were great times; I wouldn't trade them for anything
I think the lessons learned are worth the pain.
JD
It's a good article but, yes, it is rather long. The author makes good points. After reading the article I am not sure how to comment on it without regurgitating what the author has already said. However, I do think that there were valuable lessons to be learned from the whole "bubble" phenomena and we did not necessarily learn those lessons.
http://www.busyweather.com/
having gone under with 4 start-ups between 93 and 2001, I think I have scars entitling me to say Mr Graham has hit a couple of nails on the head a couple of years too late. The ideas that were pesuasive to our VC's were NOT persuasive to the folks we thought were our customers. The net result of a venture is the PRODUCT of the value proposition of the business AS STAFFED AND EXECUTED and the depth of the business concept's grasp of the PERCIEVED NEED for the service or product.
Foolish disclosure: I made money on only one of those starups and that entirely by accident. I wish our VC's and senior management had the long term vision, so absent in those days, that is implied in Graham's article.
who put this sig here?
SLASHDOT: news for people who can't concentrate on work or have no life at all and got tired of yelling back at the TV.
The big question here is how you can possibly build customer loyalty if you outsource the business unit which is in charge of customer relationships. This doesn't sound like a wise idea to me.
How much do you talk with Google? Do you call up Amazon much? If you get it right, outsourcing customer relationships is not a big problem.
I used to work for MyHomeKey.com, and customer relations was a BIG part of our business. (I think we outsourced it to a company in Texas.) Generally speaking, we had top notch phone and email support. When people used it, that is. For the most part they could check statuses online and figure out what was going on. If something changed in the date we got a service tech out there, our support would call the customer.
The only reason why things didn't work out is that the businesses we worked with (everyone from Home Service Store to Sears) couldn't handle more than 300 service orders a day! The ONLY company who was always on time and always handled their orders was Rotorooter. (If anyone remembers when Rotorooter had online ordering, that was my technology!) Everyone else kind of threw up their hands and said, "it's just too much". *sigh*
Javascript + Nintendo DSi = DSiCade
There was plenty of high value in the network revolution and still is. It's just that so many con men showed up, that when Greenspan put the screws down trying to make it a zero-sum game, the positive-sum players got eaten alive by the zero-sum players.
Seastead this.
I call bullshit. In 1999, my son was taking an enrichment course in our local school system. The particular unit was on finance -- so Iassigned this then ten-year-old boy to read _The madness of crowds_. He read it and said "Dad, is the current stock market another tulip craze?" Now, granted, he's a really smart kid -- but I suggest that if any ten-year-old can read a book about tulips and the south sea company and recognize that the internet bubble was more of the same, then lots and lots of grownups could, too.
That's the philosophy that led me to buy Sun and Cisco stock, since they were selling all kinds of equipment to .coms. Too bad they sold so much of it on credit and never got paid for a lot of it.
When (if?) things get better, you have to job hop a little. Luckily so many people overdid it during the boom that it's perfectly respectable nowadays if you don't get ridiculous about it (like a friend of mine, in search of his first Beemer, who had 8 jobs in 1 year, some he quit after only 2 weeks!). It sounds like you're at a big company (3% raises). When you can, go to a couple of small companies next. I got invaluable experience and knowledge that way, and because you're relied upon to be able to do a little bit of everything for the company, you get better than big company raises. Then once you've gotten your salary up, you go back to the big companies as a "senior" engineer, for the killer 401K matching! :-)
Attention zealots and haters: 00100 00100
Options were part of my compensation when I first started my current job back in '99. We went IPO in Spring '00. About a dozen of the higher-ups became millionares at the opening bell. At the height, my options weren't worth anywhere near millions, but it was fair chunk o' change for a 1-year-out-of-college grunt. Unfortunately, I wasn't vested, so I couldn't excercise any of my options...
I just reached my 5-year anniversary, and my initial option grant is now fully vested. It is also fully worthless. After being delisted from NASDAQ, even if I could find someone OTC to buy, the share value is but a fraction of my excercise price. Now I do know people who worked for larger companies who have made, and continue to make, a decent return on their option grants. It is a great incentive to both keep the employee productive (his production has an impact on the stock price) and loyal (encourage him to stay with long vesting periods). But there are just as many of us "survivors" who took a lower salary with option grants who got burnt on the deal.
Xenon, where's my money? -Borno
Paul, if anything, profited heavily off of the bubble, rather than lost. Everyone saw that the Emperor had no clothes, but everyone wanted to be one of the people making a kill off of people's retirement plans.
Starting a company that doesn't need to scale up to mint Brink truckloads of money is also one of my dreams. It wouldn't have to be 10 or fewer people, in my case, but I would like to keep the numbers low, so that I can keep the quality of personnel high.
The one corporate archetype that I've found that could realize Paul's (and my) dream is the model that ARM follows. ARM is the intellectual property company that focuses on R&D behind the ARM family of RISC microprocessors. The trick is that they generate all their revenue from licensing fees and royalties from partners (like Intel), who take the R&D that ARM does and incorporates it into their own offerings (like StrongARM). ARM, while >10 employees, is miniscule when compared to it's competitors in the microprocessor space. And insanely profitable. ARM's is a fascinating story, and should be a case study for anyone who wants to see how a tenacious and dedicated team of really smart people can create a successful business in the face of seemingly overwhelming odds.
Licensing of IP is one of the few formulaic ways that I've seen where one can accomplish big money while maintaining a small core team.
---anactofgod---
"Equal opportunity swindling - *that* is the true test of a sustainable democracy."
What the bubble got wrong: venture captialists. These people are not to be trusted. Get a loan, get some money for your folks...whatever; just don't trust a vc. They talk a nice game, but in the end they'll be your worst enemy. Just look at Lycos as an example.
He's generally right about the trend that people grossly overestimate the effect new revolutionary developments will have in two or three years, and greatly underestimate the effect it will have in 10+ years.
I do take issue with his emphasis on 'nerds' and 'style'. Of course the technically inept manager-types are called 'suits' because their fashion is attempting to hide technical incompetence, and nerds dress down to avoid that. But, its one thing to dress down to repel pretenders, it is another thing to avoid dressing up because you can't pull it off yourself.
He's over-romanticizing and overrating the nerd 'culture', which is essentially an over-focus on one tech competency to the exclusion of all else. Even when 'eccentric' single-minded tech or science types do get rich, they get far less than they would if they were more 'well rounded'. Even the tech-wealthy like BGates are arguably more competent at business and law than they are at tech.
The tech types will always need to develop real competence in broader areas of life and business if they want to be taken seriously. The lack of breadth is what marginalized CTOs and their IT departments. Rather than understanding the business well, finding innovative ways to become more competitve, and selling their vision as strategic peers, they focused on their infrastructure, workload, etc, and so became seen as plumbers, and were outsourced at the first opportunity. There are exceptions, but as a class, we've blown it.
Was it because the suits were too dense to see the opportunities presented, or because CTOs didn't make their innovative strategies heard -- who knows? But the result is the same.
Perhaps the best result is that the competent tech folks go off and form their own businesses, and sell stuff back to the suits at 5x the price; but that still requires much more than just the tech competence he extolls.
It'd be better if he was more clear about that.
Communicism is thepolitics of envy.
It amazes me that communists who would love to destroy the working capital markets always measure things in term of income.
Wealth is a curse. The trust fund child is the most likely to end up the meth-head heroin whore.
You can't see this?
Wealth is a curse. Communism is wrong.
If you really believe in equality you would see that sociey provides so much just because we are here. We are all better off with the current system than having a revolution based on envy and power lusting miscontents.
Communism is a curse on the world designed by envious people who want to have everyone else do what they say.
It is slavery by the government. It is a failure.
This article leaves out the biggest effect of all: The Internet Bubble started a wave of manufacturing globalization which will forever change the United States economy. This is neither a bad thing or a good thing -- those who play the change right will make millions in the next 5 to 10 years, those who cling to bubble-era techtopia will crash and burn.
I was a founder/director of a New York webshop which I started and later sold for stupid amounts of cash to a bunch of guys who then still believed the "up up up" mantra of the day.
Our company built all kinds of supply-chain mgt. tools, extranets, inventory systems, etc. -- some of which was good, and some of which was thrown together from pieces of code I'd be embarrassed to post here.
The crazy thing is though -- that sh*t really did change the planet.
Two years ago (post bubble) I started a small (very small) manufacturing business building (we'll say "widgets") in China.
I was instantly struck by the fact that sourcing a manufacturer, monitoring production, sourcing raw materials, shipping, tracking inventory, selling and fulfilling are *ALL* internet enabled now -- by similar tools to the ones we had been building for the past 6 years. Not to mention the fact that if you know how to build/use those tools, you can beat the pants off businesses that are 10 times your size.
Now I have a slowly growing manufacturing business (struggling more than growing most weeks) which could not have existed pre bubble.
On a larger scale, this is a huge trend. The fact that the little guy can find a manufacturer overseas, produce widgets (literally anything you can think of), and go head to head with billion dollar manufacturing businesses is a fantastic degree of empowerment. And its completely a result of our "failed" internet bubble.
Anyway -- my two cents -- the time for building the tools is over. The time for using them is here.
Peace.
Depends on what you mean by "center," I suppose. I suppose Graham would argue the center of the Boom.
Graham's argument would be that the core of the Bubble is "The Internet is going to fucking change everything." Which has a definite amount of validity to it.
I imagine you would argue that the core of the bubble was "The Internet means profit is for losers." Which is of course silly.
"Never attribute to malice that which can be adequately explained by stupidity." -- Hanlon's Razor
First off, he says he is coming from the vantage point of Yahoo.com. When Yahoo IPO'd, I knew "the market" had gotten ridiculous (the fact that Yahoo, was IPO'ing, never mind what it IPO'd at and went to). I had been buying stocks up to them using the fundamental analysis technique pioneered by Benjamin Graham. This is the technique the best stock pickers of the second half of the 20th century - Warren Buffett and Peter Lynch - use. Among all things it concentrates on profit and profit growth. Yahoo had made no profit, in fact it was losing money, so I knew it was ridiculous. In fact, I remember most clearly August 10th, 1995 when Netscape IPO'd and went to over 100. That's when the stock market bubble started in most estimations. I actually bought Netscape that day, and even made money on it. But I always felt the market was unstable after that, and I was right.
All this person sees is the small piece of ice on the top of a giant iceberg. He's still speaking in bubble-speak. The only thing connected to reality is #10, productivity. And everything he says within that is nonsense.
One thing neglected in all of his delusions that IPO's and Venture Capital in the mid-1990's created the massive Internet that we have today is the decades of government paid R&D, in the billions of dollars, through DARPA, that actually created the Internet. The Internet was a socialist, or, to be technical about it, a fascistly modelled (business/government cooperation) economic program. Decades of taxpayer dollars poured into R&D which creates something which *starting* in the mid-1990s can be used to start increasing productivity.
Economists have been debating whether or not productivity increased due to the Internet thus far and it very may well not have - it may take decades for that to hit. Despite all of the technical innovations in the early 20th century (cars, assembly lines), it wasn't until the end of World War II that any of this productivity was significantly felt, and that was after massive government involvement in the economy, starting with the New Deal, through the WWII almost total takeover of the economy by the government including rationing, on to Eisenhower and his "military" buildup. It wasn't all to strictly military purposes, the highway system was originally sold as a military expense (Original name the National Defense Highway System) along with the government funded R&D that created transistors, computers and so forth.
Also not mentioned is the severe world economic crisis that became apparent starting in the mid-1960's, started affecting things obviously in the early 1970's and which is still with us today. The average US inflation-adjusted hourly wage is below what it was 30 years ago. That does not sound like the economic utopia he is talking about - the US (and industrialized world) has been digging a whole for 30 years, with brief respites in the mid 1980s and late 1990s, where capital went hog wild during the short lived good period.
This person doesn't even seem to understand equity fundamental analysis within the current dominant economic viewpoint, never mind alternative economic viewpoints which see the economic system as even more fragile, which I subscribe to. Even dominant psyche stalwarts like Alan Greenspan or chief economists on Wall Street like Stephen Roach often speak gloomy things which you can read about in the Wall Street Journal, but not in the local newspaper for idiots with a big sports section on the back cover and local murder news on the front.
Some further de-jargonification.
"Bubble" usually refers to a time when the prices or valuations of things are ridiculously, absurdly high way out of proportion to their true value. It's become a pyramid scheme: people are often buying stuff solely to resell it at a higher price, and not to actuallly *use* the stuff. Saying that a market is on a bubble also usually implies that the bubble's about to pop, bringing down everyone with it.
For example, saying that there's a housing market bubble implies that very soon buyers will realize that the crazy-high prices for houses just aren't doable, and all those people who bought houses for such prices on the promise that the prices will only continue to increase -- well, they're about to learn a lesson the hard way.
There was, of course, a giant internet company stock bubble in the '90s.
I believe the term came from the Japanese economy which, during the '80s, could do no wrong, until things popped. They've still not recovered. Those were called the "Bubble Years".
for the 4 years before my company started laying off folks (Silicon Valley Dot-Com-Hosting-Company...) I averaged about a 25% annual increase...
I started at just over $70k in 1996. When I left, I was making about $135k... and I left for a job working for a non-profit making $65k.
Best decision ever.
Of course, options do dilute the value of the stock. But the public knows this going in, the total outstanding options are stated in all reports. And the public votes each year weather or not to continue to provide options. If the company grows and stock price increases, everyone is happy. If the price stagnates, the options are worth zilch, are not sold and the market is not diluted.
How do you calculate the cost to the company? You can't estimate the cost when the option is granted, it have no fixed value until the option is sold. If you wait until the option is sold, then the public has already bought their shares, with no way to know the expense that will be created when the option is exercised. Once you try to expense options, you may as well buy public stock, hand it to the employees but not let them cash out for 5 years. At which point you way as well just pay them more
Options to buy General Motors stock at today's price don't have any motivating value to the line worker who is unlikely to be able to raise the stock price of a company
It's an interesting question how the affect of options tails off with size. I suspect it is not linear though. By the time I left Yahoo it had 2000 people. You'd think that would be well past the point where ordinary employees thought they could affect the fortunes of the company, but it wasn't. We had the most gung-ho receptionists you can possibly imagine.
The thing is, many (most) people that got into a field only because of the money AREN'T good at it because they aren't motivated and tend to have fragile knowledge. With something like computers, change is happening all the imte. So you must be motivated and really understand what you are doing to keep up and do well. If you think you can just get a degree/cert and then be done, you're wrong.
.comers were the memorization, fragile knowledge, unmotivated types. They'd memorize what they needed to get a degree and/or some certs and then figure they could go get a job. They had no real robust understanding of what they were doing, and little to no motivation to learn more. They just wanted to collect a large paycheck.
/. I'd be up against a lot of others and stiff competition, probably some who were more ideal than me, or at least more experienced. Well lots of others yes, stiff competition no. The hiring staff told me that yes, they got tons of applications but preciously few good appilcants. Many qualified on paper, few in reality.
There ARE jobs like that, most retail is like that, as one example. You help people find what they need, sell it to them, put stuff on shelves, maybe oversee some other people doing that, rinse and repeat. You never really need to learn anything new unless you want to move up the corperate ladder and even then you often don't. Being a cashier today doesn't require much different skills than it did 50 years ago.
Not the case with computers. Being a prgrammer today requires vastly different skills than one 10 years ago. 10 years ago it was all about DOS apps in a single user envrionment, with just some being Windows or MacOS. Now it's all about multi-user, multi-tasking apps and cross platform is continuing to get more and more important. Languages have changed too, I mean look at the rise of Java and PERL.
Also all the real knowledge and skills you need are robust ones. YOu need to understand how a computer works, how it thinks and how languages relate to that (if you're a programmer) so you can quickly learn and adapt to neaw languages, OSes and environments. Not the case with a cashier job, you can just memorize all the things you need to know and have no deeper understanding.
Well way too many
Those people, I don't much feel sorry for if they can't find jobs, they really shouldn't have gone in to tech.
When I got my current job (computer support), I was kind supprised. I mean I was qualified, no question, but not ideally. I figured with all the doom and gloom on
They said that most couldn't answer questions to match their credentials (CCNA's who couldn't correclty sum up the differences between a switch and a hub) and most appeared to just want any job they could get where I seemd to actually want to work for THEM (which I did, they specificaly interested me).
So I think the grandparent was valid, people that are interested and motivated in a higher level field will almost always be better than those that just are chasing dollar signs.
Work -- and life -- is not something you skate by on, with the minimum acceptable level of effort, so you can do "something you actually like" after it's over.
It may not be a good plan to hope to do "something you really like" after many years of minimum effort, but it does work to do SYRL after a few years of maximum effort. At least, it worked for me.
I talked a little bit about this in Great Hackers, and much more extensively in "How to Create Wealth," which is probably the most subversive of the essays in Hackers & Painters.
A marketing expert can put together an army of coders in India or Russia for pennies.
This was already happening during the Bubble. One of the companies we worked closely with was started by MBA types, and outsourced all their development to India. It was a disaster.
Outsourcing development is for banks who need to get reams of routine database software written, not for startups. If someone is really just a "marketing expert," they won't have the vision to tell the armies in Russia and India what to build.
Doesn't always work that way. I attempted to get into Medical School because I knew that doctors get paid heaps. Nine years later, I'm loving every minute of it -- and I get a cool title, too.
ARM has 730 employees. Average revenue per employee is $287K. For comparison, Microsoft has an average revenue per employee of $646K (and 57,000 employees)
His point about the rising power of nerds highlights something of great importance: the "old class relations" that sparked Marxism are essentially dead.
Marxism classifies people not by their place on a 'social ladder', but by ownership of means of production: capitalists own them (factories, resources, distribution chains etc.), and workers don't. Hence, the concepts like "middle class" are out of Marxist classification: you have only the capitalists and the workers.
Now, in post-industrial society the superficial contrast between the owner and the employee may not look so dramatic, but the distinctions still exists. A burger flipper doesn't own the restaurant, an engineer has no control over his corporation's marketing, distribution and financial resources, a scientist in a corporate research lab does not control the fate of the project he runs or the results of his work.
Lisp is the Tengwar of programming languages.
I don't know where you got this from, but even taking it at face value, remember that this is "average" by quintile. In other words, when you look at the 80-100% quintile, this is skewed upwards dramatically by the 98-100% slice that makes something like 500k/900k/6000k. And when you look at that last percentile in its components, it's probably something like 1000k/2000k/3000k/50000k.
Cheers,
Richard
The Internet genuinely is a big deal. That was one reason even smart people were fooled by the Bubble. Obviously it was going to have a huge effect. Enough of an effect to triple the value of Nasdaq companies in two years? No, as it turned out. But it was hard to say for certain at the time.
... more aptly, my voice could not be heard at all over the furious frauds being hawked to the public. Investment capital was being burned like cordwood, given far more heat than light, and the crackling sounds alone drowned out rational speech.
BULLSHIT. The bubble was perfectly obvious, but the "hype machine" was running at 110% throttle and didn't allow criticism of itself. People like myself were shouted down
The exact same thing is happening right now in the current bubble of American politics. It is perfectly obvious that America is starting WWIII, but the hype machine doesn't allow examination of that, much less criticism. After 1995, criticism of the Internet was squashed in a similar fashion; due to people's greed and hatred, they fully supported an irrational environment of operation. Hence it crashed. It could only crash.
[You have a stable society when some nut guns down a schoolyard and the law doesn't change.]