Dot-Com Bubble v2.0?

eldavojohn wonders: "With the recent acquisition of YouTube by Google, there has been a lot of speculation (on both Slashdot & The Toronto Star) that we are nearing the second economic bubble created largely in part by growth in the digital sector. While one may be able to debate that the revenue from advertising and sales can indeed back this growth, are we headed towards the second bubble and, if so, how hard is it going to pop? Keep in mind that popular voodoo economic theory has attributed the first bubble phenomenon to 'a combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital.' I think we're experiencing all those, although it is not as flagrant as it was during the first bubble. What do you think?"

Comments

OMG! v2.0

[__aaclcg7560]

It's "Dot Com v2.0" and no one took out a patent?! Where's my attorney!

Re:OMG! v2.0

[2.7182]

Actually the best predictor is how many Herman Miller chairs your office has.

Re:OMG! v2.0

[stevesliva]

$500 is just a drop in the bucket for the cost of your average tech worker making $55,000 / year.

$55000 is probably what your average tech worker's family healthcare premiums cost these days... now let's hope that chair's extra ergonomic.

Re:OMG! v2.0

[Xeger]

When I first went to intern with the company I'm working for now, they accidentally gave me an $800 Steelcase chair reserved for full-time senior engineers. They felt bad about the mistake, so they let me have it for the entire summer.

That very winter, I came back to to a project for them, only to find a cheap POS "executive office chair" at my desk. Yes, it was leather; yes, it was very flashy looking and fit well with my pressboard laminate desk -- but it wasn't very comfortable to sit in.

After four weeks of working 12-16 hours a day sitting in that damned chair (what, I didn't mention this was a tech job?) my spine was twisted in knots, my neck ached constantly, and my elbows hurt persistently. My productivity dropped essentially to 0, I had to see a chiropractor on a weekly basis and I chose to work from a noisy dorm room most of the time rather than deal with that chair.

Eventually, I took up the issue with the HR department who instantly caved and gave me back my fancy Steelcase chair. To them, $800 is a huge bargain when you consider the cost of disability payments, surgery to alleviate carpal tunnel synrome, etc.

I've had that chair for four years running now; I don't work quite as hard now as I did that first winter, but I haven't had a single back complaint, I'm free of carpal tunnel syndrome despite being a constant keyboard user, and I'm rarely the worse for wear despite spending all day in this chair, five days a week.

As a software developer, your chair, desk, keyboard and mouse are the physical tools of your trade. A carpenter doesn't skimp on his hammer; an assassin doesn't carry around a water gun. Why should *you* suffer with inferior tools?

Taco's Evaluation

[dsginter]

Methink's Taco's VA Linux stock hasn't quite rebounded yet.

Does anyone know if any of the slashdot ownership was realized as cold, hard cash or did it all go down the pipes and stay there?

I'm waiting for the third bubble, myself.

Re:Taco's Evaluation

[timeOday]

It's not just Taco. Take a look at a ten year history of the Nasdaq and tell me we're in a bubble like 1999.

If tech stocks are overvalued now, it's nothing like they were then. Now let's talk about housing, shall we?

Starting to mimic other economic systems

[Jazz-Masta]

Seems to me the Internet is starting to mimic other economic systems, such that it is now subject to the whole boom and bust cycle. Just that they call it a bubble. There will be many of them in the years to come.

Re:Starting to mimic other economic systems

[Hotawa Hawk-eye]

Anybody know of a stock trading BBS based on slashcode? In such a database may be a solution....

Finally a good use for mod points! Mod SCO and Microsoft down ...

Economic Growth

[dracocat]

If by bubble you mean a time of ecenomic growth, then yes we are headed there.

The economy is on the upswing, and people (perhaps minus slashdotters) are generally optimistic.

It is very possible to have ecenomic growth without a hyperinflated economy resulting in the proverbial bubble. After the economic growth will be a time of economic slowing and finally a recession of the economy.

You can count on it, although unfortunately you can't set your watch by it. Timing of the whole thing is still not very precise.

Re:Economic Growth

[argoff]

If by bubble you mean a time of ecenomic growth, then yes we are headed there.

First off, the economy is not on the upswing. While we don't seem to have another dot.com bubble, we absolutely have a housing bubble and that is worse! If your stock tanks, you still aren't making monthly payments on it and it's a lot more liquid. The record low savings rates and record high debt rates are not symptoms of a healthy economy. Neither is the account deficit over 6%. So far the US is the only country in history to have that high of an account deficit and not have a currency collapse. The fact that it is increasing rapidly is not good. (BTW, I know it's political season, so let me just say it's not Bush's fault, but structural - for people who think I'm bashing Bush)

It is very possible to have ecenomic growth without a hyperinflated economy resulting in the proverbial bubble. ....

Not in the US, not since 1911, the year of the federal reserve act. You can't keep printing up money and loaning it into the economy and expect nothing bad to happen. In fact, the efficiency of the information age means that when the money passes thru, that adjustment will be far more extreme, not less extreme. The worst part is that the Fed thinks they have lernt the lesson of the great depression - that the solution is more liquidity. No it's not! It will just change it from a great depression to a hyperinflationary great depression. I don't think people have any idea what they're in for.

Why is everyone so sureal. Any look at the numbers is just terrible, do people understand that the dollar can't make it as a global reserve currency for more than a few more years and likely can't make it as a currency at all within the next decade? Can your family afford a debt of about 480K that is increasing at the rate of about 30K per year? Well, between all the obligations and systemic debt it already must.

Re:Economic Growth

[argoff]

In a hyperinflationary depression the economy reaches a point where investors won't invest in businesses, so they then put all their money into commodities. This causes commodities to skyrocket, unemployment to go up, and pay to be pressured down. So everything goes up in price except for pay and profit. That makes the defaults on debt worse, makes the drive to commodities even more, causing a vicious circle. This happened in the late 70's in the US and we were able to break out of it by offering 21% interest on bonds to get investors to stop dumping cash. But this time a 21% prime will rip the US economy to shreds. BTW, over the last 5 years commodities have trippled while pay has done nearly nothing.

Happens All The Time

[PepeGSay]

Rises and falls in every sector happen all the time. We don't need to over analyze every rise in the market like it's the second coming. Things will inflate and deflate over time in all areas. The fact is the first dot com bubble burst wasn't that big of a deal. It's not like we had soup lines. Some *speculators* lost money. Enterpreneurs in *speculative* businesses lost their jobs. Really, it had not delitirious effect other than to correct the market and kick out some losers that needed to be kicked out anyway.

Re:Happens All The Time

[nevesis]

I think you're underestimating the impact.

Back in 1997 if you had told me that big and bad US West would be bought out in a few years by the tiny little 1 year old company down the street, Qwest, I would have laughed you out of my office

But then Qwest made a bunch of money during the bubble and took US West by force in one of the decade's most unanticipated and disconcerting hostile takeovers.

This doesn't prove that the bubble was deleterious, and correcting the market certainly isn't a deleterious effect, but it is silly to argue that the actual impact was overblown.

What is the Metric?

[SRA8]

During the first bubble, we had wild stock prices. Seeing that most of the new back of dot com's are not public, are we making this claim simply based on the purchase prices of a handful of private companies? Seriously, its nothing like the dot com boom of 2000, where hundreds of shell companies went for their golden IPO.

During the first bubble

[ackthpt]

During the first bubble the hubris was so thick in the Silicon Valley air you could feel it. People around you virtually hummed with it. And like The Emperor's New Clothes, if you actually looked at some of the shiny bits you'd notice some what people where trying to sell was utter shite, a scam, not worth a penny, yet people bought their stock on IPO and it all went nuts. There was 'the big strategy', to develope something Microsoft, Oracle or Cisco didn't have and would want and to trumpet it all over the place and hope one of these big companies would make you an instant millionaire by buying you out. Didn't always work.

Now I think most of what is going on in this bubble actually cuts the mustard in the ledgers. It pretty much has to. Too many (ad)venture capitalists got burned and they're a bit more careful now.

This time it's all "private money"

[Animats]

Last time, it was mostly companies going public. This time, it's companies heavily funded with venture capital, and the companies are then bought by other companies.

But it's definitely a bubble. Way too many companies are chasing the same pool of advertising money.

And, unlike Bubble 1.0, most of these new companies don't really do very much. Or even stuff that hasn't been done before.

As I wrote in another article, "social networking" sites have a life cycle. EZboard peaked mid 2003. Nerve peaked early 2002. Bondage.com peaked mid-2003. Tribe peaked early 2006. Xianz (the "Christian Myspace") peaked in spring 2006. Friendster peaked twice, once in late 2005 and again in mid-2006, but that's an unusual pattern. Usually, once they peak, it's downhill after that. Myspace has flattened and looks like it's about to peak. This works just like nightclubs; they become hot, they grow, they get too popular, they get overrun, they decline, they hang on, but nobody cares.

YouTube is terribly vunerable to the RIAA. Once somebody builds a tool to check audio on YouTube against RIAA licensed material, they're going to get notice-and-takedown orders by the ton.

No bubble

[Rob Kaper]

There was no dotcom bubble and there won't be a new one. We had a good economy with over-the-top entrepreneurs. It topped, scaled down and weeding selected the sensible business. It happens all the time, in all industries and sectors. New shops open town in good times and silly ideas go bankrupt in bad times. It may look overwhelming because we're so close to the source, but I'm sure the average resident in my neighbourhood isn't even aware of the dotcom tale. It was that insignificant in the grand scheme of economical cycles.

Self-fulfilling prophecies

[Wills]

The more people talk about "the stock market bubble" and upcoming crash, the more people start expecting it and theb selling their stocks, which makes it more likely to happen.

We are straight in it

[Shados]

We're really straight in the middle of the second bubble. Its different than the first in a way, mind you, but a lot of companies have while projects and dreams thanks to the "newfound" power of information technologies (like all the web 2.0 crap). Some work, many don't, and honestly, I don't see how long they'll be able to stay afloat pumping all that money in these projects. Just as an anecdotal reference: I put my resume on Monster 2 weeks ago. I only have an associate degree, and a few years experience in .NET and Ajax. I did not apply -anywhere-. Yet, since I put my resume up, I have gotten at least 2 interview offers per -day- (not counting weekends) for so called "Web 2.0" projects of all kinds, all wilders one than the next.

Frictionless environment

[mcrbids]

WARNING: This post sounds remarkably like something written in about 1998. It's still true.

The "digital marketplace" is fundamentally different than the standard "meatspace" environment. In cyberspace, product carries no mass. In many cases, intellectual property is "production grade" the moment it's written. EG: PHP code. There's no duplication cost, virtually non-existent distribution cost, and the result can be seen/used by millions overnight, if you have some servers to handle it.

Note: the servers to handle "millions" can be surprisingly cheap, and getting cheaper every day

So, while it takes an auto company years, and eleventy billion dollars to come out with a new line of cars, it takes maybe 2-5 guys consisting of a decent programmer, a few salespeople, and a book-keeper armed with a few thousand bux to develop a product usable by millions, even if they are working day jobs to pay rent.

So this means that the boom/bust cycle can happen in 2-3 years rather than 2-3 decades.

Get used to it - it's only going to accelerate from here. Ever heard of the technology singularity?

It's coming.

Re:What made Youtube take off?

[bth0002]

They provided a seemless entertainment through video at a time when TV cost too much, and movies were not all that great for the money. By over supplying a high demand they catapulted themselves into the checks and balances situation where they are now in. They beat both TV and movies and bittorrent to the fruit punch, the sweet spot so to speak. Instant on TV like entertainment that was both creative and more down to earth. Its like jackass streaming in real time almost. Its not pay per view but in the future if internet on demand takes off aka higher quality internet to compete with cable and microsoft, youtube will have to go the way of napster and netflix perhaps.

Re:What made Youtube take off?

[DJ Jones]

Interesting question, and the answer is most likely far too simple for most bussiness executives to comprehend. I would attribute youtube's success to two simple, but important factors. One, they had a good-clean user interface, unlike similair publicly uploaded video sites. And secondly, and more importantly, they enabled even the most basic computer users to easily copy direct URL links to certain videos, essentially turning individual users into advertisers through social networking sites like "myspace".

Baby Boomers

[Anonymous Coward]

Baby Boomers all the way. The boomer demographic is the real bubble underlying stock prices, housing prices, etc. Those folks are in their peak earning years, and there are a lot of them. They are pumping HUGE amounts of money into 401Ks, pension funds, you name it. When they start dying, getting sick, retiring, the flow of money will reverse. They will be selling houses and moving into assisted living and nursing homes. They will be taking money out of their 401k instead of putting it in.

Just because the dot-com bubble popped didn't cause these people to stop trying to squirrel money away for retirement. And since they never really saved the way they should, they're trying to make up for lost time by speculating in stocks. So the irrational exhuberance continues. Eventually, though, it will stop. And when it stops, the bubble will collapse in a very very big way.

The fallout will involve all these folks whining about how the next generation should pump more money into SS so they can afford the affluent lifestyle to which they've grown accustomed. Screw 'em. The most irresponsible generation decided to give their life savings to the pinstriped crooks on Wall Street. That's their problem, not mine.

Baby boomers are the big white elephant in the room that everyone pretends they can't see. Instead we have to endure all manner of ridiculous handwaving BS about new economies yada yada yada. Phghght. What a bunch of crap.

"Not a huge deal"?

[SuperBanana]

The fact is the first dot com bubble burst wasn't that big of a deal. It's not like we had soup lines.

Wow, talk about revisionism. The first bubble burst was HUGE deal; dozens of major banks grossly violated their 'chinese wall' policies while underwriting the IPOs of clients and looked the other way when internet companies were engaging the shadiest accounting practices known to man. Companies swapped "shares" and both counted it as revenue based on projected stock prices, for example. Tens if not hundreds of thousands of people lost their jobs in "layoffs", and it had a massive ripple effect in places like SF. The crash and delisting of hundreds of "internet" companies destroyed "investor confidence" on the stock market, and affected all manner of investors, from individuals to massive retirement accounts.

Christ, man! It was enough to destroy Arthur Anderson Consulting. Why do you think they're known as Accenture now? Having your top officers lambasted by Congressional investigators for conspiracy, fraud, etc on national TV doesn't exactly bolster confidence in a business where clients are trusting you...

Re:"Not a huge deal"?

[Anonymous Coward]

Christ, man! It was enough to destroy Arthur Anderson Consulting. Why do you think they're known as Accenture now?

Accenture used to be Anderson Consulting, which is not the same company as Arthur Anderson. Also, Arthur Anderson was Enrons auditor, which might have had more to do with their demise than the bubble.

As an investor who's been in many IPOs

[WillAffleckUW]

I think that it is quite possible the YouTube purchase was over-valuated.

However, the problem is that the market has no useful mechanisms to properly evaluate the true worth of future technologies.

They could be insanely great - legendary.

Or they could be really lame.

So, trying to predict future cash flow and growth at the beginning of a company with a new technology is mostly a crap shoot.

One good rule is - don't buy into a rise. It's better to put most of your money in an index fund (Euro stocks mix with say Total US market at a 50/50 split) and only use speculative funds to invest in such speculative ventures. So, let's say you save $20,000 a year - put at most $2000 in YouTube and other such speculations, where the downside is as likely as the upside.

Also, realize that the one thing most new investors are very bad at is knowing when to sell. When I bought into Red Hat at the IPO, I planned to sell half of the stock at a specific dollar amount, right before the lockup expired and the price dropped for a bit. Then I sold most of the rest when the largest lockup expired. Then I bought back into the same number of shares using 1/20th the money I had "earned". Net result - I had the same number of shares - and a lot of cash.

If you buy into such a thing, be willing to sell part of it when it rises to a certain point. If it falls, know at what price you'll give up. You can also sell at a price when you think it will be quiet for a month or so, lock in the capital loss to wipe out the capital gains for tax reasons - and buy back in one month plus one day later.

Main thing is trust your gut.

Can't wait

[twistedcain]

The system needs a good flushing. The web (and tech in general) is a mess of useless, pointless crap. Thousands if not millions of websites offering pretty much the same thing. Good examples would be the youtube clones, youtube itself being one of course. One good blog to every 1,000,000 poorly slapped together ones. Useless Bookmark/social sites like bluedot. Webmasterworld, where 500 good question/answers have been repeated 5 million times. Digg, a place to visit adsense filled blogs with one or two lines of information and a link to the actual source of information, and never worry about missing one of these adsense filled blog posts, it will be repeated on the front page at least 10 times a day. Not even going to talk about MySpace and the clone army the venture capitalists will be sold into creating.

As for tech, quit cock-teasing us and put together a phone with wireless internet, camera, mp3 player, video player, video recorder, gps, and 3d gaming. Get rid of the psp, gameboy, DS, ipod, palm, blackberry, blueberry, boysenberry, and so on.

A bubble burst only effects the crappy businesses who use copycat ideas and whose only purpose was to make a quick buck. Good-bye and good riddence.

Re: the nightclub analogy

[Animats]

re-inventing them every so often.

Area, the hottest nightclub in NYC for part of the 1980s, did a complete redecoration and theme change every six weeks. That kept it a hot club for years.

But redesigning a web site doesn't have the same effect. Tribe just did that. (New! Web 2.0! Now you can rearrange your home page!) One of most active tribes is now "Tribe.net bug reports". Oops.

People in the Bay Area say there *was* a bubble

[Infonaut]

There was no dotcom bubble and there won't be a new one.

There was a tremendous bubble. I was there. I did work for companies that were almost entirely virtual. There was no "there" there. It was all hot air. I know plenty of people who suddenly had fantastic jobs and were living a lavish lifestyle, only to be out on the street looking for a job when the boom dropped on the bubble. Bay Area traffic noticeably thinned for at least two or three years. It definitely was a bubble, and when it popped, the effect was very painful to a lot of people.

My guess is that while the average person on the street doesn't know the entire dotcom tale, they do know that there was a tremendous upsurge in the NASDAQ for a period of time, and that it was fueled by rampant speculation. This isn't the same thing as Starbucks overextending itself by opening 54 shops in Dubuque, rather than the 52 it can actually support. There was a huge outlay of capital, there were companies going public every day, and the stock market had lost all rationality. Even non-techies could see this. All they had to do was watch the news.

This time it is different, in the sense that all of the Web 2.0 companies aren't going public. As another poster has already mentioned, this time it's private capital chasing after some good and many bad investments. When the majority of these companies die, John Q Investor won't take it in the shorts this time. In that sense, the Web 2.0 investment phenomenon is a lot closer to the normal course of business events you describe.

/. is really more of an Alice in Chains crowd:

[smittyoneeach]

Angry Chair
Sitting On An Angry Chair
Angry Walls That Steal The Air
Stomach Hurts And I Don't Care

What Do I See Across The Way
See Myself Molded In Clay
Stares At Me, Yeah I'm Afraid
Changing The Shape Of His Face

Candles Red I Have A Pair
Shadows Dancing Everywhere
Burning On The Angry Chair

Little Boy Made A Mistake
Pink Cloud Has Now Turned To Grey
All That I Want Is To Play
Get On Your Knees, Time To Pray Boy

I Don't Mind, Yeah
I Dont Mind, I-I-I
Lost My Mind, Yeah
But I Don't Mind, I-I-I
Can't Find It Anywhere
I Don't Mind

Corporate Prison We Stay
I'm A Dull Boy, Work All Day
So I'm Strung Out Anyway

Lonliness Is Not A Phase
Field Of Pain Is Where I Graze
Serenity Is Far Away

Saw My Reflection And Cried
So Little Hope That I Died
Feed Me Your Lies, Open Wide
Weight Of My Heart, Not The Size

Pink Cloud Has Now Turned To Grey
All That I Want Is To Play
Get On Your Knees Time To Pray

Re:What made Youtube take off?

[RKBA]

You can also download YouTube and most other videos with the FireFox plugin at:
http://videodownloader.net/

Re:What made Youtube take off?

[a gash]

It's very simple. One, they paid for the bandwidth for people to distribute their videos. Two, they had a lax policy regarding copyright infringement.