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Facebook, Instagram, Ben Bernanke: Thank You For the New Tech Bubble
pigrabbitbear writes "Those who continue to inflate the tech bubble will be quick to remind us all of how they've learned from the past. That this time, it's simply different. They do have a point. Silicon Valley (and Alley) have matured. Startups these days are focused, driven, and efficient, creating products that people actually use. In a period of less than a year after its launch, Instagram was used by 5 million users, who by August of 2011 had uploaded 150 million photos. But even with these impressive results, it's impossible to ignore the fact that many of the fundamental economic factors that led the first bubble remain."
A couple other readers contributed similar articles — Instagram's sale seems to have solidified the idea for many that we're in the midst of another tech bubble, though some are more certain about it than others.
yeah, they're focused on money and driven by greed.
So it sold for a billion dollars.
It must have had some serious revenue to make it worth that much.
It didn't?
Then we've learned nothing from the last bubble.
"Startups these days are focused, driven, and efficient, creating products that people actually use."
Creating products that people use is easy. Creating products that people will pay to use is the hard part.
Does that drive anything on wall street (or in this country) anymore. It's humorous to watch the DuckTales bottle cap episode play out in real life over and over again.
Oh right, this isn't the same thing. If Facebook spends a billion dollars on a company, and it flops, then FB goes under... not your 401k.
Most software is more mundane and niche than the fly-by-night social network phenomena. Software underlies the processes that operate the world. This is far bigger than a few companies/services.
Brian Fundakowski Feldman
We're not replacing anything. What's happening now is simply is business as usual - or do you think corporations and the government haven't been trading analytical data on people/customers/et cetera since forever?
Even the, "Hurr, it's free!" Google/Facebook/etc. crap isn't new. Grocery store discount cards, anyone?
Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.
And you've saved $900 million. Which can be used for other projects or acquisitions.
If we have, I don't see it.
The dotcom bubble was all about the IPO or selling to someone bigger and becoming an instant multi-millionaire.
We have the huge IPO's again and now we're seeing the massive purchase prices of systems without viable revenue streams.
"Silicon Valley (and Alley) have matured. Startups these days are focused, driven, and efficient, creating products that people actually use" The StartBus begs to differ.
http://startupbus.com/americas/
Can't tag - mod this up.
I bought 14 stocks during the dot com boom and I sold everyone of them 90 days after I bought them.
It was a very profitable year.
The bubble now that everyone should be paying attention to is gold. It's at a ridiculous valuation, it's unsustainable and when you hear companies marketing to the general public that they should switch from greenbacks to dollars, you know you should steer clear.
I am loading up right now on a gold short (ticker: DZZ). It's a position that, once gold's price collapses, should rocket up. Besides you have very little chance of being part of a company that Facebook is going to buy anyway.
Be fearful when others are greedy and greedy when others are fearful.... Warren Buffett.
For anyone who's still scratching their head about the instagram purchase, here's something to think about.
At least one of Instagram's employees, Philip McAllister, was at Gowalla when it was picked up by Facebook less than 6 months ago.
That guy might be the luckiest bastard in the world, having worked for 2 tiny companies whose only significant accomplishment was getting acquired by Facebook. On the other hand, Zuckerberg could just be funneling company money to friends?
I made a PHP/MySQL library that prevents SQL injection & makes coding easier!
We've been deflating and re inflating the same once since 2000. It never went away, just waned a bit. It'll still pop.
Instagram isn't a good data point. The instagram purchase was done pretty much by Mark Zuckerberg alone, and then told to the Facebook board (not proposed).
Pretty much it was a rich kid saying, "oh yeah twitter, 1 Billion dollars, how do you like that?!?"
I don't think this bubble is the same. Recent IPOs (Groupon, Zynga, etc) have pretty much calmed down (although they may still be somewhat too high, it isn't as crazy as the last time). Google just make 2.9 Billion, so their valuation is pretty reasonable. Facebook, according to SEC filings is cash positive, so it isn't unreasonable to place at least some value on them as well.
I'm always perplexed why the quality of the number of users is never challenged.
How do you know a ton weren't generated as apart of some marketing strategy?
Or rather, how can you NOT suspect that a significant portion of them aren't fake?
Has the issue of verifying online registration as belonging to an actual, unique person been solved with absolute certainty while I wasn't paying attention?
- tgg
As long as this particular bubble ONLY hurts the greedy and the stupid, bring it on!
Table-ized A.I.
The last few Tech Bubbles popped when the U.S./World Economy was doing alright. And even then they did tremendous damage. If this one pops, it will pop in the middle of an already quite severe Global Economic Crisis. And that won't help make things better. As for Facebook & Twitter... I'll eat my hat if by 2015 either one is worth 1/5th of what it is currenly valued at. Both are places where lots of people with time to ki hang out because they are Free & Social & Trendy. If the World Economy manages to get back on its feet in the next 3 years, I doubt that so many people will hang out at these free "Social Hangouts". Facebook is seriously boring. Twitter is a mere novelty that may go out of fashion, globally, within a span of a mere few weeks. I wonder what will replace FB&Twitter 3 years down the road. As for "Instagram", only a terrifically stupid person (like the Zuck?) would pay 1 Billon for a company whose greatest achievement is throwing a few nice looking photo filters togethers and letting users post images online. 1 Billion Dollars invested differently would buy - litterally - thousands of unique, custom-developed Photo Filters. Its Bubble-Time, all right, judging by what is happening. And its going to burst eventually. My bet is on mid-to-late 2013, or maybe early 2014. It all depends on how the Zeitgeist changes in the next 12 - 18 months.
Why did the chicken cross the road? Because Elon Musk put an AI chip in its head.
For a while there, everybody used the Netscape browser and the Netscape portal page was the first thing everyone saw. That is, until Microsoft got around to making a better browser and the Apache server ate Netscape server's lunch. I believe Mark Zuckerberg was around 10 years old at the time.
Remember when they were trying to guilt their users into upgrading to Netscape Gold for like $30-40? Hilarious!
He single-handedly did the Instagram deal without outside involvement. He was 14 years old when the last bubble crashed, and he probably didn't learn a whole lot from it.
Then again, with Facebook now worth upwards of $100B, he can afford to overpay for companies by 10x and get away with it.
For a startup idea, make a website that makes it easy to bet against companies one feels will kiss the shark fairly soon. Reverse investing. eTrade in reverse.
I know there are already ways to make bets against companies using stock "puts" etc., but they are tricky for the average Joe because they are designed for institutional and expert investors. Make it easy and safe for consumers, and I'll be an early customer.
You hear that, Microsoft and Facebook?
Table-ized A.I.
"Startups these days are focused, driven, and efficient, creating products that people actually use."
I'm not entirely sure this is true. Just take a walk through downtown Palo Alto, and you'll find a social networking startup on every corner. How many people use them?
I...see precious little evidence that most of these social networking/ad revenue companies will amount to anything other than (at most) getting bought by a bigger company. Besides, I'm not even sure what most of these companies actually do. Their mission statements are written in such dense business jargon that, unless you are versed in start-up lingo, there's no way any half way intelligent person can even figure out what they do.
"social commerce software-as-a-service solutions"-all right, go ahead and try to guess what the fuck that means.
Startups these days are focused, driven, and efficient, creating products that people actually use.
Having users with no business plan to monetize that popularity isn't particularly different than having no users at all... I think the same held true in the late 90s, there was the interest and the users, but a lack of sold plans to translate that into something economically feasible.
XML is like violence. If it doesn't solve the problem, use more.
For the United States, that is. Is there anything left that the United States is a world leader in as far as its domestic economy is concerned?
We have chosen to build an empire, and pin it on slaving electrons for mankind and military might. (OK, producing services based utterly and irrevocably on computers...) As opposed to doing, for lack of a better term, "real" things materially.
Of course there will be bubbles. They will rise and burst, each rise and each burst higher, until the decline and fall of the great American Empire. Until there is nothing left of the country.
...creating products that people actually use.
So? People using your product isn't the point of business. Making a profit off of people using your product is the point. That's why we had the dot-com bubble: nobody could make any money off of this new-fangled internet thingy.
Any startup where advertising is the stated (or likely will become) the source of revenue, could be replaced. With what? With something like networks (in the old sense, as in TV networks) where "producers" create "shows" that run on the network. In other words, "Facebook, brought to you on NBC Internet by Sudso. Sudso. The soap that cleans your mind".
The current process of angels, VCs, etc makes a lot of money for some people. OTOH, it seems rather inefficient compared to the old network model. If Groupon were a gameshow, it would make money for the network, give away some prizes, and eventually get cancelled when people lose interest. Ditto for myspace. The whole process of taking these shows through early rounds all the way to IPO is just way too cumbersome.
As an added bonus, the "shows" might have a greater incentive to support things such as porting your data to the next "show", whereas in our current realm they have an interest in making their site "sticky".
I don't think privacy would be any better or any worse.
This model faces an uphill battle in terms of recruitment, I think. Producers expect the IPO pot of gold at the end of the rainbow. A studio job won't lure the big talent as easily.
I could be waaaay off the mark of course. Just idle speculation on a Friday afternoon...
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
There are some pockets of excess certainly. However that's true in any stock market that isn't actually in crash mode. Look at Chipolte for example - the valuation there is beyond reason.
However it isn't a full fledged bubble until the excesses have the Mom and Pop investors chasing the market. That isn't happening.
We now know from hindsight the internet bubble, claims of what could happen on the internet was both grossly understated and 10 years ahead of its time. Had the Fed not interfered with the free market by controlling liquidity surrounding the free market stock frenzy, we would have seen just as many bankruptcies and perhaps more paycheck folks invest and loose 100% of their money. But we would also have seen broadband to every door arrive in 2005-7 rather than "not yet" in 2012.
Why is the government allowed to pick winners and losers when they are so bad at it? When people buy 1000 lottery tickets in 1999 on wild-ass ideas, if they are allowed to pay out, we get lit fiber rather than dark. We get webvan.com still with all its vans for sale in Fontana, CA because they were still at least 3 years ahead of the tech, but we also get video on demand to the house in 2007, which we only now have only in Fios connected houses, not everywhere.
We also needed to have deregulated airwaves so we could have ELTE way back in 2007 as well.
GFL wishing. Regulatory, legal and reverse incentive by government is stronger than ever, and they are crippling liquidity during a liquidity crisis too.
NEVER trust the government. NEVER trust a politician who promises to "help you" with government resources.
You WILL suffer.
JJ
Probably some of the reasons of such a big investment went thru some key patents. Thats the bubble that must be feared, the one that big capitals will try to keep growing at all cost, and that will sink us all either by bursting, or by not doing it.
Maybe. Although I'd expect that most of Instagram's userbase is already part of Facebook's userbase. So they'd be paying a billion dollars for access to people that they already had access to.
Which is the point. If they can get that for a billion dollars, can they get the same for less?
Can they get BETTER for less?
And by "for less" I'm talking about a hundred million dollars. Which is why I think that this is part of the new "bubble" and not a wise or reasonable business investment.
There was an enormous hype predicting the fall of web2.0 in 2008, yet it was one of the few sectors that managed to grow in the crisis. Stop publishing these fake stories by sour speculants.
That might be closer to the truth than some would guess. Zuckerburg made the purchase without consulting the board, and quickly before the IPO when other stockholders could squawk about it. When I read about it my first thought was that he must be in bed with Instagram's founder.
1. People are stupid
2. People do what people around them do
source - http://edge.org/conversation/infinite-stupidity-edge-conversation-with-mark-pagel
How is instagram worth more than half the countries in this world? I mean, from a utilitarian perspective, Facebook is worth less to humans than a good shit. It's scary to me that meaningless code, completely useless in reality, absolutely un-groundbreaking and without merit, could be worth 1 billion dollars. What a ridiculous waste of money.
We live in a fraud driven, violently unstable economy, a massive Ponzi scheme masquerading as an economic model!
It doesn't work, it can't work!
It WILL destroy itself.
I killed da wabbit -Elmer Fudd
2015. You, me, and a hat.
Facebook produces gaping customers that are ready for the plucking by advertisers. It is really one of the few commodities that can be produced in the US today. It doesn't pollute, it isn't involved in any sort of racial profiling and it doesn't require raw materials from either a strip mine or China.
if the economy didn't suck so hard, maybe we'd be hard at work and not logging so many hours into facebook and twitter
Remember kids, if you're not paying for the service, YOU ARE THE PRODUCT THAT IS BEING SOLD.
Not a "Tech" bubble, an "Instagram" bubble.
Now send more money!
My ism, it's full of beliefs.
Right...
Look, Facebook is not buying Instagram with only cash, it's a cash/stock swap deal and likely mostly stock. Basically Instagram is swapping its worthless/worth little paper for Facebook paper which is equally worthless ($60 billion my ass).
If Instagram thought it was going to be mega then it wouldn't be swapping its own stock for Facebooks because it wouldn't benefit from that. Instead the deal is like this:
Facebook to Instagram: we buy you for some ridiculous sum. We pay you in shares, and you pretend that those shares are the real inflated value we say they are. So we say we've bought you for $1 billion, you talk like we really gave you $1 billion when we actually just gave you Facebook paper, that way people will think that Facebook paper is worth the $1 billion ready for the IPO. If you do it convincingly enough you can cash out soon after the IPO and take real money.
That's about the measure of it, it's a pure stock price pumping scam just before Facebooks IPO.
Yes, this. If I want to sell rubber duckies, I could spend oodles on a SuperBowl ad (one extreme) and hope that a lot of people who watch the Super Bowl also take baths and like rubber duckies. I could also spend significantly less and only send ads to every person in the U.S. who likes baths and rubber duckies (other extreme), that's a no brainer. My rubber duckie / bath potential customer list is also dynamic and real time. That's marketing gold, and marketing is fucking expensive.
Also, SuperBowl ads only make sense to companies who sell a broad product that everyone could want (like shampoo or blenders, not rubber duckies) but Facebook offers many many different niche companies sensible marketing avenues. Not only that, if I'm a super niche glow in the dark rubber duckie company, Facebook can find customers who may be interested and not charge more to find the specific market. That is also marketing gold, and I've already discussed how expensive marketing is.
The surest sign that a bubble is occurring is that if those inside the bubble are asked if it is a bubble, they respond "no, this time it's different".
Honesty, look down through history, from the gold-rushes, through the 1920's, 1980's, dotcom, sub-prime, and you will see that same phrase come up again and again. Bubbles only pay off for those who know it is a bubble and who hype it - they are a long form legalised ponzi-scheme - and they only make money if the majority of people believe it isn't a bubble - hence this time, clearly, it is different - yeah right.
The financial system in the U.S. is corrupt, in my opinion. There are many arrangements that help those in control steal from the average person.
... was charged ... based solely on a Facebook
Sooner or later, people will realize that Facebook promotes fake relationships. Unfortunately, that realization will apparently come after investors have lost billions in Facebook's IPO.
Facebook's reputation with the mainstream media is rapidly getting worse. Facebook is getting a bad reputation partly because of articles in the mainstream media like these:
Worst company: Facebook was a semi-finalist in the competition to be voted the worst company in the United States.
Facebook follows its business rules? Not always. The April 7, 2012 Wall Street Journal story, Selling You on Facebook, says:
"Facebook requires apps [mobile phone software applications] to ask permission before accessing a user's personal details. However, a user's friends aren't notified if information about them is used by a friend's app. An examination of the apps' activities also suggests that Facebook occasionally isn't enforcing its own rules on data privacy."
There's more like that in the article.
Facebook tracks every web page you visit that has a Facebook button (using Javascript). For example, if you visit the Oregonian Newspaper web site, Facebook tracks every story you visit, even if you don't click on the "Like" button. There are ways to prevent that (using Firefox with the NoScript add-on), but most people don't know about them.
Companies pay people to click on Facebook "Like" buttons. The number of Facebook "Likes" doesn't give any indication of popularity.
On December 9, 2011 it was necessary to click on a Facebook "Like" button to be allowed to see Fry's Electronics ads.
Do 86,688 people (on April 9, 2012) really like Firestone Complete Auto Care, or did the company offer something to be "liked"?
A few problems with Facebook: Richard Stallman wrote a short list of things wrong with Facebook.
How much information does Facebook keep? Read the December 13, 2011 article, Twenty Something Asks Facebook For His File And Gets It - All 1,200 Pages.
What do people in other countries think? The May 14, 2010 article, Facebook is not your friend gives one idea.
The June 15, 2011 article, The End of Facebook, and the June 14, 2011 article, Is this the beginning of the end for Facebook? give others.
Most people don't understand the problems that may occur. For example, consider the March 28, 2012 article, Teacher's aide says 'no access' to her Facebook; now legal battle with school.
This April 4, 2012 article would be funny if it weren't so sad: Woman arrested for assault based on Facebook photo. Quotes:
"Aston
Internet companies like Facebook or Instagram are still classified as technology companies for historical reasons, but technology is not driving them.
These companies are creating consumer services and the main deciding factor for their success is marketing and consumer behaviour. Innovations they do are just as technology oriented as new Nike shoes or Gillette razors. Technology is just in the background just like (chemical) technology is in the background of new shampoo or conditioner.
Back to the bubble. We are not in bubble. These prices are speculative prices in market share battle between companies that help to profile customers for marketing. In this market network externality (network effect) plays major part, so there can be only few global players. Companies like Facebook and Google must keep their checkbooks open and keep paying if they want to stay relevant. I would not worry about bubble until Facebook or Google start taking debt to pay for their acquisitions. Just like Microsoft was paying huge sums for companies just to drive them down to keep it's monopoly on PC markets for decades (while staying profitable all the time), Internet firms must do the same if they want to keep up their position in more volatile market.
Dyslexics have more fnu.
Microsoft beat netscape by being an abusive monopolist, and using strategies like product lock-in, vendor lock-in, and network effect.
Do you remember the first MSIE? Also known as "internet exploder" it was crap.
San Francisco is full of useless VC-funded startups most of which will die of smugness or marketing department stupidity or just plain failure to create something really worth a damn. Driven by fantasies of exit-plan cashout. Bubble, hell yes. Oh look, a mobile application that lets you check the cat litter box from the office. Gotta have it. I'm sure millions of pet owners need it. Let's fund it to the tune of $5 million in the first round. I'm sure Facebook will buy it for $1 billion once its value is seen. Because it's totally unique and no one could duplicate it easily and we can always get a patent and troll everyone in the future.
Is there another tech bubble? That's been obvious in San Francisco for the last year. Apartment rents are way up (and there have been times when availability was near zero), and there are meetup groups like the "Nightowls" that are clearly packed with venture capital pimps and 'hos. Notably, this time around there's plenty of office space available, because unlike bubble 1.0 tech start-ups don't bother with it, instead they try to work in cafes like Ritual Roasters and the like.
So, there are all these kids around trashing their backs and hands trying to work on laptops without ergo furniture, in the hopes of being the next facebook/instagram/ad nauseum (it was actually flicker that got the current craze started, in my opinion), who aren't even being paid all that much this time around because like they say, startups are now "focused, driven, and efficient".
Just as a side note: these kids are being called "hipsters", though myself, I would not say that they're not exactly "burning for the ancient heavenly connection to the starry dynamo in the machinery of night". And by the way gang: if you're going to ride a fixie, please put a full set of brakes on it.