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I'm calling this Bubble 2.0, and it's ready to burst

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Re: I'm calling this Bubble 2.0, and it's ready to burst

#81

Post by webwright »

matwood wrote: post #60
d4nt wrote: post #43

I have a theory about bubbles: It's relatively easy to spot that you're in one, but it's very hard to pinpoint what sort of bubble it is. I'll explain... During the lead up the 2008 debt crisis I saw a lot of people talking about how house prices had been going up year on year and questioning whether we were in a property bubble. There was a debate though. Demand for housing was strong (partly due to population growt…

TLDR; I don't think this is "[Tech] Bubble 2.0", this is probably "[Something else] Bubble 1.0". It's a 'social, generate zero or near zero revenue bubble.' It's certainly not a tech bubble in general. There are lots of small tech companies making plenty of money right now. Some happen to be acquired so not, but even the ones that are not continue to generate profits and carve out their niche. The other thing, is tha…

"It's a 'social, generate zero or near zero revenue bubble.'"

Can you point to a few high profile examples of this besides Instagram? There are SO MANY new ways to make money now and new low-friction ways to get distribution.

We'll always have the next hot social thing (Instagram, Twitter, Facebook, Turntable.fm, FormSpring). But Zynga? Groupon? Social games in general? PaaS plays like Parse and Heroku? Fab.com? Zulily? Gumroad? Twilio? Many startups might have inflated valuations/outcomes, but they certainly can't be described as "zero or near zero revenue".

Re: I'm calling this Bubble 2.0, and it's ready to burst

#82

Post by LargeWu »

mikemoka wrote: post #68

Everyone keeps talking about the new bubble.. there is a slight difference from the 2000s anyway..hasn't anyone noticed the 2 BILLION PEOPLE online?...

And somehow, Twitter, Groupon, Instagram etc., have not yet figured out how to actually make money off of those 2 BILLION PEOPLE. And last time I checked, making money was the whole point of investing.

Edit: Just to clarify the above, making money == making a profit. I think that's pretty well understood in business, guys. If I bought a single share of stock for $100, and sold it for $50, I sure as hell did not "make money" on the deal, even though I gained $50 in revenue from selling the stock.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#84

Post by roc »

Estragon wrote: post #71
roc wrote: post #48

Earlier quoted context omitted.

Bubbles require huge flows of investment cash to grow. You can't miss that scale of growth. They don't sneak up on you. What's hard is determining the point at which the growth is legitimate and at which point it's fad investment/fraud. It was easy to see huge flows of cash into tech in the dot com bubble. It was easy to see huge flows of cash into real estate and the financial sector in our most-recent bubble. But t…

It's actually relatively easy to see when it's become fad/fraud driven. The hard part is predicting when the music is going to stop, because that's controlled by the people investing. Some of the best times to invest in a bubble come during the final frenzy. Warren Buffett was absolutely correct that the dot com bubble was vapid, but he still lost money betting that way. People were predicting in 2003 that the housin…

I still think the cut-over from legitimate growth to fad/fraud-driven is murky, but you're absolutely right that it's trivial to identify fad/fraud long before the bust.

That said, my feeling is that betting against the bubble is ultimately as bad as betting with it. Either approach can reap enormous gains, if you get the timing right. Which shakes out to: broad bets are little different from gambling.

And I think investment shouldn't be gambling. As such, the 'best' (in my terms) approach to a bubble would be to hold onto your money while it grows. Then, when it bursts, pounce on the depressed prices of the good investments.

It appears to me that Buffet learned that lesson after the dot-com bust and has been executing that plan on grand scale since 2008.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#85

Post by phillmv »

rpeden wrote: post #76
Estragon wrote: post #71

Earlier quoted context omitted.

It's actually relatively easy to see when it's become fad/fraud driven. The hard part is predicting when the music is going to stop, because that's controlled by the people investing. Some of the best times to invest in a bubble come during the final frenzy. Warren Buffett was absolutely correct that the dot com bubble was vapid, but he still lost money betting that way. People were predicting in 2003 that the housin…

You're right about the Canadian housing market; There are those predicting it is in a bubble, the most vocal of whom is a former government MP blogging at http://greaterfool.ca . The funny thing is that even after watching the carnage in the US housing market, people here don't believe it. I hear countless homeowners talking about housing is the best investment you can make, prices won't fall, it is different here, e…

House prices here in Toronto are totally obscene. I genuinely don't understand how people are forking over $500k on average.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#86

Post by zwigby »

LargeWu wrote: post #82
mikemoka wrote: post #68

Everyone keeps talking about the new bubble.. there is a slight difference from the 2000s anyway..hasn't anyone noticed the 2 BILLION PEOPLE online?...

And somehow, Twitter, Groupon, Instagram etc., have not yet figured out how to actually make money off of those 2 BILLION PEOPLE. And last time I checked, making money was the whole point of investing. Edit: Just to clarify the above, making money == making a profit. I think that's pretty well understood in business, guys. If I bought a single share of stock for $100, and sold it for $50, I sure as hell did not "make…

Actually Twitter and Groupon both make a lot of money off those people. Revenue != profit. Groupon is spending a ton of money moving into new markets. Now, I don't love Groupon but saying they don't make money is just wrong.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#87

Post by hkarthik »

Ultimately, the issue right now is nobody really knows how much users are worth. There's a lot of speculation that if your site has a lot of users (20 million or more), your company is worth a lot of money. Even if you really have no idea how to monetize those users without pissing them off. There's an assumed value there that may not match up with reality.

Facebook's IPO is relevant here. Once more information comes out, we'll have a better idea of how large user bases (like Facebook's) can be monetized and what it takes to extract the value. Things could go either way after that, and it all depends on how the market reacts to this information.

My hope is that the software industry can weather this storm, and that its now diversified enough to deal with investors pulling out of the startups amassing users and shift to focusing on startups selling to SMBs or enterprises. There's bound to be some collateral damage here, but hopefully it'll be minimal.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#88

Post by firefoxman1 »

F_J_H wrote: post #67
jasonkester wrote: post #63

So what exactly is supposed to happen when this Bubble bursts that in any way affects anybody here? The 1999 bubble was only an issue because it happened with publicly traded companies that lots of people were investing in and making unrealistic gains on. You couldn't watch television without seeing ads for online brokers showing how easy it was to get rich quick, and your "My Account" page on said brokerage site was…

hmmm.... Here's an exaggeration to make a point: “The housing bubble didn’t really hurt anyone who already owned their home, or those who never owned a home in the first place.” Yes, a tech/start up bubble burst would not have near as much impact as the housing bubble for the reasons you point out, but when you suggest that it won’t hurt “anyone here” (i.e. people who frequent HN), I’m not sure I agree. Let’s say Ang…

The difference is that this time there's only a few hot .com IPO's that could "pop" (ZNGA, GRPN, LNKD) and most of Wall Street is really skeptical of those already...just look at their charts.

If it is a bubble and it doest pop, it's really only going to affect the tech jobs market and the ridiculous valuations at which tech companies can be acquired or raise money. So it will be like 2-4 years ago when we all thought Mint.com was an enormous exit, and 12 million for Reddit was more than fair.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#89

Post by viscanti »

There's a lot of comparing apples to oranges going on here. It's difficult to compare the current state of the world to Bubble 1.0. There's over 5x more users on the internet now than when the first Bubble hit. In fact, for a lot of those Bubble 1.0 companies, their biggest problem was that they were too far ahead of their time. There's a lot more attention bandwidth now on the internet, which can support higher valuations of more startups. I don't see people moving away from technology in any significant way any time soon.

The other problem I see is that people are looking at an isolated outlier and making predictions based on that. If we remove the one 1 billion dollar deal (which looks like it could actually have been competitive with FB and cost FB way more in time/money to compete down the road), we're not really seeing any examples of Bubble like behavior, other than what we should expect to see with a growing sector.

Some tech companies are focusing on growth over profitability, with the hopes of being acquired. In almost all cases, those aren't billion dollar+ moves. I haven't seen any broadcast.com like deals. The scale of deals/exits is different now than Bubble 1.0.

Re: I'm calling this Bubble 2.0, and it's ready to burst

#90

Post by corford »

hemancuso wrote: post #56
benwerd wrote: post #25

Earlier quoted context omitted.

So let's be clear about this: these kinds of startups are arbitrary containers for investment dollars. They could be corn, or property, or jelly futures. But as it happens, technology companies are where a lot of people are putting their money right now. As a result, it's not the startups with the secure bottom line that are getting investment: it's shiny startups that happen to be very popular. Because those are the…

I think it's important to recognize that the Public can't easily invest into startups. It really is just a small group of investors who are in this market right now. This is an important difference between today and the late 90s.

True but a lot of VC money comes from public pension pots etc. So there is some scope for innocent people to be indirectly damaged by a bust.
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