Are we entering another bubble?

It's obvious in hindsight, but apparently it wasn't in the present.

While there are isolated instances of on-the-face bizarre valuations, such as Instagram or color.com, the prevailing actors in the market are actually making money.

In other words, if this bubble pops, who will loose out? Will it have catastrophic consequences for the economy at large?

Take Facebook--$100 billion valuation, more than Unilever, Anheuser-Busch, Amazon, McDonalds, or Cisco. Seriously?

Bubbles aren't defined solely by the extent of their damage post-pop. They're defined by the delta between bubble valuation and real value. In admittedly simplistic terms: the size of that delta, multiplied by the number of people who buy into it, usually dictates the impact of the burst.

Right now, we're arguably in the early stages of a bubble. Almost everyone admits that startup valuations, not to mention a few recent, high-profile IPOs (Groupon in particular) are inflated. Money is easy.

I'd argue that today's operative question isn't "by how much are valuations inflated," but rather, "how many people are buying into them?" And where will the contagion spread from here?

We have a few troubling indicators. Celebrities like Ashton Kutcher are leaping into the angel and VC scene. I have nothing against Ashton Kutcher, but I do question his fundamental grasp of the technology business. And I wonder whether his sloshing easy money around the startup world is inherently constructive or destructive to rational valuations within that world. Furthermore, Ashton's just the tip of the iceberg. CAA, Hollywood's leading Hollywood talent agency, is launching a VC arm focused on tech companies. Precisely what a Hollywood talent agency understands about tech firms is anyone's guess -- but CAA has more money than God, is extremely well connected to investment banks and hedge funds, and could serve as a bridge to the general public's interest in tech equity. (We'll recall that the 1999-era bubble was marked by a similar influx of carpetbagging investors from outside the tech industry).

People often point out that the frothy tech startups of 2012 are fundamentally unlike the frothy tech startups of 1999, in as much as 1999's startups went IPO, and today's startups generally get acquired. This is fair. But in both cases, investment money became (is becoming) very easy and very loose. This leads to a propagation (and propping up) of fundamentally unsound startups. History indicates that, eventually, there can be so many bad apples in the batch that people stop being able to tell the good ones from the bad ones. That's when the trouble begins. We're not there yet, but why wait around and let it happen?

The valuation may or may not turn out to be overly high right now, but it's by no means insane.

For example, let's consider the most recent housing bubble. The housing bubble was predicated - at least in the beginning - on the fact that populations are growing, but land mass (and livable land mass, at that) remains constant. If we work under that assumption, land is at a premimum, and therefore _in the long term_, it can only go up. However, the problem is that too much happened too soon, and it created artificially high prices.

The tech bubble of the 90s was largely similar. It was a case where any retailer could chuck a .com at the end of their name and make millions. The fundamentals, however, were largely correct. I do almost ALL my big-ticket purchases online. Amazon's online retail presence is huge and pervasive.

I believe we MAY now be in an "information bubble." This isn't the .com bubble of yore. Rather it is a battle for your information. Facebook's got a nice chunk of it, as does Google. Instagram had a nice chunk of your photos. Essentially, information is at a premium right now. To what end? I suppose that remains the deciding factor on whether or not we are ACTUALLY in a bubble. If the information can be monetized then perhaps what we are seeing is simply the markets catching up to the tech trends. Eventually it will slow down - but that's entirely different from a "pop."

The alternative to the above is that people start to realize that the information isn't wholly reliable, and can not be converted (easily - for now) into revenue. In that case I'd expect there to be a correction at some point. But I think the fundamentals are sound. Information is the currency of the future - especially as we become more and more connected.