Slashdot Mirror
Has the Second Dotcom Bubble Started?
An article at the Guardian asks whether the exceedingly high valuations of social tech companies signify the arrival of a second dotcom bubble. Quoting:
"Every week, one of the new generation of internet firms seems to attract a sky-high valuation. Zynga, the social-network games company that has tempted millions to grow virtual vegetables in its FarmVille game, has been valued at $9bn (£5.54bn). Profitless Twitter is said to be worth $10bn. Groupon, vendor of online discounts, rejected a $6bn offer from Google and is considering a flotation with a potential valuation of $15bn. Tech-watchers say this is just the start: the real boom will come when Facebook, the head boy of the new dotcom frenzy, goes public, probably next year. ... The last dotcom boom really took off after the flotation of the internet software company Netscape in 1995. Patrick says this time it's likely to be Facebook that lights the fuse. So far, private investors have been locked out of the New Thing. But JP Morgan is setting up a fund, and Goldman Sachs recently tried to get its clients' money into Facebook."
The problems that monetizing free services like Facebook are largely as follows.
-The value of the product to users is determined by the number of your friends that use it. It's value to consumers massively diminishes if large swathes of your friends dont use it. Its the same reason I don't use MSN messenger anymore. That's actually a really great product, but I don't know anyone else who uses it, and that pushes its value to 0. What this effectively means is that Facebook cannot charge users for content. As soon as they do that, some people will leave, which pushes down the value for money that users who want to stay get. So they leave too. No future there.
-So if they can't charge, how do they generate income? As we know, its largely advertising revenue. That's true of Google, and Facebook, and any aspiring free products out there. The success of that model is difficult to predict. On the one hand, the amount of information about users that these companies can get is astronomical. It is certainly of use to advertisers, and they are probably willing to pay huge sums so that they can integrate that data into their systems for personalized adverts. On the other hand, I've yet to see personalized advertising systems which is accurate enough to be of value. I've never clicked any Google or Facebook ads because they have never hit anything that I would want. Until that gets addressed, there's not a huge future in that either.
Is it just my observation, or is eldavojohn an idiot?
During last dotcom boom companies had no usable plan to get income. However, Facebook is advertisers dream with its extremely targeted advertising system, Zynga has a huge amount of casual players and both advertising and direct payment system and groupon receives good money from the stores. They all have business plan. They might have to work on them a little bit as they're still so new companies, but they definitely have one that work.
That's why it's not a second dotcom bubble - it's just that the masses have started using internet a lot more than before and web itself has changed.
I hope this happens for two reasons. One, after everything that's happened in the last 15 years, investors seem primed to look for bubbles wherever they can find them. It's been looking like Treasuries might be the next Big Thing; if that happened, it would accelerate the destruction of the dollar. I'd much rather speculators charge after some stock than my country's currency.
Second, my career really started at the beginning of the last bubble. Maybe a second one bring in some new blood to the industry, especially my step-son (who'll be graduating college in two years and is gonna need a job).
God invented whiskey so the Irish would not rule the world.
I think a better name would be The Social Valuation Bubble.
It's not often I agree with a piece in the Guardian, but on this occasion, I think they're onto something. I remember the build-up to the first dotcom bust and a lot of the signs are showing up again. The over-valued floatations of profitless companies are certainly the most obvious of these, but there's a lot more than that out there if you want to look for it. Most worrying for many slashdot readers (though not for me with my nicely non-IT-based job), I'm starting to see the same kind of rush towards IT and computer-science based courses that we saw in the 90s, as the area became seen as a good route to "get rich quick". More competition for jobs and downward pressure on wages on the way.
Actually, I think the Guardian article is, in some ways, a little under-stated. It assumes that we're about to see the start of the bubble, which will begin in earnest with a facebook floatation. I suspect that we're actually a bit further along the cycle than that - already well up on that bubble and waiting for it to burst.
Of course, things won't be absolutely the same this time as they were in the original boom. I think the first boom and bust was characterised by a lack of understanding over what the public actually wanted out of the net. Pretty much everybody who was a significant online presence in those days was a new startup of one form or another and what the bust really did was sort out the wheat from the chaff. The businesses who had hit upon a successful model - like Amazon - came through it just fine. Meanwhile, the likes of Boo.com were exposed as fundamentally unviable - the public weren't remotely interested. It's worth remembering that outside of a small number of finance types and journalists, nobody was actually even looking at the sites of most of the victims last time. I was a heavy net user at the time and I remember seeing these huge IPOs for companies that I hadn't even heard of.
This time around, I think there's a better understanding of what people are interested in. The problem this time isn't the "everything dotcom is exciting" myth that we had last time. Rather, it's the "this is popular, therefore I must be able to make it insanely profitable" myth. The huge valuations are being attached to companies that have already undergone some fairly extensive testing in the court of popular opinion. The problem, however, is that that popular isn't the same as profitable and, I think, the lessons of the last 15 years or so indicate that making them profitable (at least to a degree that justifies the IPO) will likely not prove possible.
Advertising isn't going to do it alone in most of these cases. Sure, advertising is always going to be part of the online economy, but it's been proven time and time again that it isn't a silver bullet - not least because so many people these days just block it. At some point, a lot of these businesses are going to be pushed in the direction of starting to charge for content or services that they have been offering for free. And in a world where people have been used to having these things for free - and where free alternatives will still exist - I don't think that's going to work. Particularly not for social networking enterprises like these, where a lot of their value hinges upon the fact that everybody you know uses them. Some companies may fare better (just as some did in the first bust) - those selling casual games, for example - because they're already extracting revenue from customers.
I just ask a simple question: "Is this company selling a product that people will buy?" If the answer's no, then the company's story probably isn't going to have a happy ending.
So Facebook goes public, and lots of private entities invest in the company. Investment returns are based on profitability, and profitability will be based on using user's uploaded information for specific advertising. "Social gaming" will tie in as well.
I think this will blow up in Facebook's, erm, face when users get tired of having their personal data being used by corporate entities. There are some open source alternatives surfacing (e.g. Diaspora, etc.) that can potentially cut out the corporate bloat.
Users jump ship to a better platform, and Facebook (along with its 3rd party application developers) is left with the pieces. And angry private investors.
http://youtu.be/I6IQ_FOCE6I
Apple is worth how many times their yearly profit? Thirty-something? Meaning if I buy a share I will statistically start making a profit when I'm 75. For Facebook it will probably be 156. Don't get me wrong, Facebook will in time become a huge money-machine. But the first investers will be one-cell brained "Facebook is big: must buy" kind of people. The more I learn to know bankers, the more I despise them. We are warming up for the next round of "let's kill people savings for fun".
10 ?"Hello World" life was simple then
Put your money where your mouth is. Sell short.
Wall Streets (and the market in general) function have always been to separate fools from their money. Now we have a bunch of fools who missed out on the first dot-com. They too need to be separated from their money.
TCAP-Abort
why should we take the opinion of someone who utters such a sentence ?
Read radical news here
the rush of the lemmings is all done by rich, well-connected investors this time around, a select few, rather than mom and pop investors like last time around. there has been a trend away from going public in recent years, and sticking with private investors. why deal with the SEC and obsessing over stock market valuation? the stock market is becoming a thing of the past. which is part of a larger story away from the citizen investor and a return to the days of plutocrats and a class structured society, the death of the middle class
so, since dot-com crash 2.0 is all about rich assholes losing their money out of blind greed, i ready my world's tiniest violin
intellectual property law is philosophically incoherent. it is your moral duty to ignore it or sabotage it
I think there is a huge bubble in some tech sectors, especially mobile. There is huge money being dumped into this sector but I see little ROI in the end.
did you forget to take your meds?
Maybe there is a bubble and it's just elsewhere.
...are parted from their money , whats the problem?
Seriously , if anyone genuinely thinks Facebook or Twitter are worth billions then then they deserve to lose every penny they have. Its not like there arn't recent lessons from history to learn from. Friends Reunited (remember that?) was bought for hundreds of millions by ITV and was sold essentially worthless a few years ago as the Trenderati moved on to the next shiny online bauble.
he problem this time isn't the "everything dotcom is exciting" myth that we had last time. Rather, it's the "this is popular, therefore I must be able to make it insanely profitable" myth.
As they touched on in TFA, everything "Social Media" is hot now.
When we start seeing every website and business idea doing contortions to fit into the "social media" category, that will be the top of the bubble.
See QE 1 and QE2 for the reason behind the US bubble economy. The money has to go somewhere once it has hit the banks and they get to buy into lots of shiny toys.
It's worth getting in at the bottom of these things, but watch for the burst.
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Is a bubble coming? Well, is a valuation something passably sophisticated -- or is it a version of "Facebook has 500 million users... how much is a user worth?...oh, say, 100 bucks... presto, $50 billion!"
Maybe Google's IPO idea of "e * appropriate power of 10" lends a false air of accuracy -- all those digits! Not pulled out of thin air either.
PS. Ads? What ads? Facebook has ads?!?
Can a journalist say anything they want as long as they put a question mark after it?
I'm surprised that this article didn't cover what is probably the most obvious example of a bubble stock: Netflix. While Netflix is indeed making money, they are not making (nor have the potential to make, due to various reasons) what their stock is currently valued at. But, the problem is people think "oo netflix that's the way of the future, not old fashioned cable providers" and they pump their money into it.
There are many articles about Netflix being a bubble, but here's the first one I found off of Google which summarizes a portion of the problem: bubble.
I think the difference between the last .com bubble and this one is that in the last one, companies had no way to make money, whereas in this one they are making some money, just nowhere near the crazy valuations that investors are giving them. The mindset is the same as last time, but the implementation is somewhat different.
Please define valuable.
You realise that they are knocking houses down because the supply of them is such that they are worth less than the loans which were taken out to build them.
Let me say that again, to emphasise the insanity. They are knocking houses down.
Despite all the poverty and homelessness, despite the trailer parks. Because for capitalism to function, supply must never meet demand. It is only by destroying perfectly good housing that the supply can be reduced, the remaining stock can be made more valuable and people can go back to their wage slavery in order to pay the mortgage.
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Think about it : some companies are evaluated directly over the number of software patents the own. They buy those for sometimes millions. What do you think will happen when the market discovers it has no inherent value ?
The Wise adapts himself to the world. The Fool adapts the world to himself. Therefore, all progress depends on the Fool.
If a companies only source of revenue is advertising, it's doomed.
Groupon seems to me like one of those ideas we'll look back in retrospect and think, "Why was it worth that much? It was so obvious!"
The idea of landing a big number of first-time customers sounds great until the customers start coming in. From the experiences of business owners I know, Grouponers were, simply put, cheap (not condemning cheap people here, as the times demand it for many.) If the groupon is "get $50 for $25," you better damn be sure most customers will spend the $50 and not a penny more. And if it's a restaurant, they'll tip on the $25.
I expect that those customers will not be back; they will move on to the next goupon.They're not looking for a new place to eat; they're looking for a deal.
And for consumers, the deals are already being watered down by the typical (one month free at the gym, or free karate classes for a week) that you see everywhere.
As for the businesses themselves,I wonder how many more of these kind of situations we'll see - a restaurant using a Groupon-like company hoping to land quick cash in desperation.
Also, from my conversations with people who own businesses, Groupon's sales approach is very aggressive. They put dollar signs in the business owner's eyes. But eventually, they'll get found out. Right now, people don't want to miss out on this since all the cool kids are doing it.
Of course there are businesses who've had great results with Groupon. I just think it's lunacy to think they're worth $15B.
The problem is that these valuations are likely not at all realistic for what these companies are making. I would bet that Twitter's revenues are about 1/100 of its market valuation. When you have a company that is that highly priced relative to its revenues, you are basically playing cards at a casino where Goldman Sachs is the one that controls the house.
IANASB (IANA Stock Broker), but I wouldn't touch these companies with a ten foot pole if these are their prices when they hit the market. I know people who did that with RedHat and got burned very badly...
You're right, they do have viable business plans, but I'd be shocked if their plans were viable enough to maintain those stock prices for more than a year or so.
What would be interesting is to see if some investment can be directed toward funding open source. It's more than fair, a huge amount of these operations depend on open source. I favor setting up threshold pledge funds -- http://en.wikipedia.org/wiki/Threshold_pledge_system
Build your own energy sources from scratch. http://otherpower.com/
I realize that we need to understand what's going on with the economy, the Internet, etc. But do we seriously need to name every little thing that happens like it's some kind of amazing phenomenon? A dotcom this and a generation that, and everything is called an i-something these days. Just call it what it is! It's an increase in Internet activity, sales, marketing, etc. It's bound to happen with the number of people on this planet that are connected to the 'tubes. Stop trying to put a name on everything!
/Okay... rant over.
Bite my shiny metal ass!
is Alan Greenspan rising from the grave* to soberly chide the market about its irrational exuberance.
*Yeah, I know he's not dead. But you can't prove he wouldn't get into a grave for the sole purpose of rising from it, especially if it gives him occasion to do the "irrational exuberance" bit again.
Welcome to the Panopticon. Used to be a prison, now it's your home.
Facebook 09 estimated revenue is indeed $800 million...yet Goldman Sach's offer could place the total value near $50bn. That's laughable compared to Groupon, who saw profits around $350 million, yet were only offered $6bn. If Facebook really is worth $50bn (it's not) then Groupon was right to reject the offer. Hell, that $800 million is only revenue. I'm sure it's probably not by very much, but their income is going to be less.
The smart investor won't dump money into a company so overpriced as Facebook when you look at the money they can get. Besides, how long will it be until Facebook is unseated? 5, 10, 15 years?
Tracking has. Gathering and storing as much data as possible about you has. Driving around to get your wifi data has. If google is nice when it comes to privacy, the Ethiopian princess that asks for my bank account data is real.
Nae king! Nae laird! Nae yurrupiean pressedent! We willna be fooled again!
after the last two bubbles venture capitalists paid congress to enact all sorts of laws protecting them from themselves. You have to show the money is going to the business for one, and there's a ton of rules about how capital can be invested. Plus the world economy (US especially) it too top heavy. All the money's held by the top 1%, and like I said, they've been burned twice and don't have any incentive to get burned again...
Hi! I make Firefox Plug-ins. Check 'em out @ https://addons.mozilla.org/en-US/firefox/addon/youtube-mp3-podcaster/
Socialism is dead, and capitalism is the walking dead. For capitalism to function, more stuff must be continually made and sold. It doesn't really matter what the stuff is, but stuff has to be sold constantly, in large amounts, consuming work/jobs, material, transport, put the whole socity to make stuff. Nobody cares what the stuff is. That's only possible if the stuff doesn't last very long. If everyone produces garbage, stores garbage, transports garbage, advertises garbage, buys garbage, and makes money on garbage, it's OK, because everyone is employed and busy and the economy is working. What the stuff is doesn't matter, it's entirely secondary and unimportant. The more waste there is, the more stuff needs to be produced. Waste is not only good for capitalism, nowadays capital basically depends on waste. While there is still no well known, easily adopted replacement for capitalism, and socialism clearly shows it doesn't work either, inisiting on what doesn't work at this point is only holding back imagination to invent other work distribution and reward systems that would be better. Socialism is dead, and capitalism is the walking dead. The future needs imagination and courage to abandon the dead.
Build your own energy sources from scratch. http://otherpower.com/
During the last bubble, 3 digit, and even 4 digit, P/Es were not all that unusual. Most of those companies listed in the parent post, have P/Es around 20. If this is a bubble, it's certainly nothing like the last bubble.
As long as this time around I can be the one to cash out I'm fine with it. I saw many millionaire developers driving Ferraris and when my time came it went to the birds. Such is life but a new bubble would be sweet for a lot of us. Is anyone really harmed when a fool parts with his money?
Tiger Blooded Bi-Winning Machine
Is Goldman Sachs involved?
Yes.
Watch this Heartland Institute video
So many sectors are experiencing a bubble. Not just Dot Com companies. Many economies haven't truly recovered from the last recession and are prone to stall when oil prices get ridiculous.
the rush of the lemmings is all done by rich, well-connected investors this time around, a select few, rather than mom and pop investors like last time around.
Good, why should people be betting their retirement on Facebook?
Well, the oil price has just become ridiculous again.
Rethinking email
There is one key difference between this bubble and the first tech bubble - most of the companies in the current bubble are profitable, or at worst running around break-even. In Bubble 1.0, most of the newly public companies were losing scads of money, but were hoping to be the ones sitting when the music stopped.
Netflix, Facebook, and the like are making money now, even if it's lower than what their valuation would suggest. The biggest risk now that the 2.0 companies face is that a lot of them are tied to someone else's fortunes or assume that the competition will remain clueless. Zynga's tied to Facebook's fortunes, Netflix assumes Blockbuster will die (correct so far) and that studios will keep bending over for them.
Should Facebook become the next MySpace, or if another engine takes the momentum from Google, things could change. But that's a risk factor that should be accounted for in valuation. Profitability, though, is something we didn't have back then.
-- Josh Turiel
"2. Do not eat iPod Shuffle."
Mark my words, the market will be spammed with tablets and nobody will buy them soon.
I do as well - note the (ducks for cover) to indicate I was mostly joking.
I know from direct experience though that there is a no-man's land where the site costs more to maintain in time and money than the advertising on the site is worth. Many sites never break out of that area, or falter. 4chan was on that fence for the longest while because the nature of its content is upsetting to advertisers making it harder to reach volume to break out.
And web businesses aren't alone in this. A lot of business's struggle to reach a break even point.
Of course NOT.
The Bernank is pumping the system full of money using whatever set of letters (TARP, QE1, QE2, etc).
So the cheap money is plentiful and needs a target to use it on.
See the commodities rise higher.
See the stocks rise higher.
No, it is not all good.
The article has the wrong title. We've already had *two* dotcom bubbles, one in the late '90s, one in the early 2000s.
Those who do not remember history and all that ...
Have you all actually looked into the financials of any of these companies? I hear person after person mentioning "profitless companies" when this time it's exactly the opposite - the companies actually have real revenue streams spanning multiple markets and are completely profitable. The speculation is all about how big those revenue streams will be - i.e. will Netflix replace cable TV? or will internet video advertising begin to replace TV advertising? Let's not forget that with emerging international markets, they could be a lot larger than you might expect at first.
so, since dot-com crash 2.0 is all about rich assholes losing their money out of blind greed, i ready my world's tiniest violin
Let me know how that violin sounds after you find out your mutual funds bought a few hundred thousand shares. I don't want to hear anymore 'who cares? the fat cats can suxorz it!' This affects anyone who plans on retiring.
if you plan on retiring soon, and you have your money in internet company investments, you will retire poor, and you deserve to, for your aggressive investment approach when you should be conservative
if you aren't planning on retiring soon, then take some risk for potential greater reward and invest in an internet company. but don't whine about it if your investment doesn't pan out: no risk, no reward, same as its always been
so what was your point again?
intellectual property law is philosophically incoherent. it is your moral duty to ignore it or sabotage it
These companies provide nothing of value... so yeah. Once the oil prices go up permanently (and consequently food and everything else) and people realize what's really important in life like ACTUAL face to face socializing and stuff like EATING then who's going to care about Farmville, especially when you'll be more concerning about GROWING FOOD FOR REAL.
To understand that if a company is making zero profit, it's only worth what you can get by selling all of its resources (servers, desktops, office space, etc).
Anything more than that is speculation. And speculation is the life blood of bubbles.
Do not underestimate the value of distracting ourselves from our boring little lives. Decades ago people used the same arguments against television.
“Common sense is not so common.” — Voltaire
According to Wikipedia, Hollywood's highest grossing films are Avatar ($2.8B) and Titanic ($1.8B). Have you ever wondered why?
My theory is that these films address deeply embedded human archetypes and needs, namely living in a better world (Avatar) and becoming immortal (Titanic).
Facebook effectively addresses both needs and gradually works its way towards replacing Real Life for good.
It doesn't always have to do with money, the real 21st century currencies are going to be defined by the new Attention Economies.
Unless a third wold war emerges, Facebook is safe.
Google (2013) = Excite (1993)
It's at the heart of every bubble, and it always seems to work, right up until the point when some of its most fervent proponents realize they've become the Biggest Suckers.
The economy has grown too fast and we have sacrificed our kids for the almight buck. People have grown accustomed to owning 3 or 4 new vehicles, a nice big house and of course have over-extended themselves...so the wife goes to work too in order to provide those things. Meanwhile the kids are at home with nothing to do but Facebook and Tweet, etc. Gotta make more $$$ to support the habit so everyone that can work...making product for people who don't know they don't need it. Of course to pick up the slack, the government needs to create jobs for all those people who need a job and or a "free" service. Now here we are with kids who are essentially neglected by the parents due to keeping up with the Joneses, parents who think they need to keep up with the Joneses, a government who taxes the Joneses, but can't seem to understand how the Joneses are affording all that stuff, banks and other institutions which loan the Joneses money even though they know the Joneses are already bankrupt... And people wonder whether there is a dotcom bubble. You can't spend $110 dollars when you only make $100...and really only need $80. Anyone that thinks Facebook is worth $50 billion is smoking some serious dope; it is gravity and it pulls people towards it because the other people particles were pulled towards it...charging $$$ is the first step towards anti-gravity and casting off those people particles...no way could Facebook every start charging for their service and be successful.
We know everything about you and every single person you know.
On the other hand, I've yet to see personalized advertising systems which is accurate enough to be of value. I've never clicked any Google or Facebook ads because they have never hit anything that I would want. Until that gets addressed, there's not a huge future in that either.
Hi. This is purely anecdote, so it will be natural if you take this with a grain of salt. In the last couple of months I've been seeing an improvement in the type of advertisements I see (read get) with Facebook. I've not stated in Facebook any interests in training for embedded systems and FPGA stuff and crap (rather, I've done it in other forums, blogs and in StackOverflow.) And yet, I've been getting advertisement for equipment and training that is right up my alley, things that sometimes I never find even with the most extensive of googling efforts. Similarly with other activities I like (crossfit, MMA, etc.) Whatever FB is doing wrt to personalized advertisements, at least on the narrow fields of interest that touch a chord me, they must be doing something right.
Obviously, YMMV, but I just find it curious.
I am ready to invest in this dot-com bubble just like I did during the first dot-com bubble.
But this time around, please warn me just before the bubble pops and not months later. Thank you.
How long before Facebook and Twitter start throwing away money on Super Bowel advertisements? Would that be a good indicator that the bubble has burst?
The latest version of MSN(now Live Messenger) you link it in to Facebook and can use it to chat to all your Facebook friends.
It's much more stable than Facebook's chat, plus you can keep chat history.
Official interest rates are 0.25%. Do you need any more evidence? Also consider the unofficial rates of inflation at shadowstats.com. High unemployment and high inflation? The US is a currency and Government bubble right now.
http://en.wikipedia.org/wiki/Silvio_Gesell
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I guess my point is Wired Magazine has always and still does suck