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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

#101

Post by SkyMarshal »

steve8918 wrote: post #79

As the old saying goes, history never repeats itself, but it often rhymes. Asset bubbles occur when people are more interested in acquiring assets rather than effort to acquire the money used to buy the assets. Basically, people start throwing money around just to get that asset. It usually occurs when money is easily acquired through loans, etc, and as the asset prices increase, the general idea is "I can borrow the…

Good writeup, completely agree.

>My guess is that the bubble will burst soon after the Facebook IPO. Why? Because at that point, paying $1B for a company with zero revenues will likely be the cause of shareholder lawsuits, and there will be a lot more scrutiny involved in these acquisitions. Since selling to Google or Facebook is the exit strategy for most of these SV startups, if that door closes, then funding will get pulled quickly and violently, and it will be the start of the next dotcom bust 2.0.

Yes, another thing that would burst the bubble is the end of cheap money. The Fed's zero interest rates + debt monetization + QE + the Federal Government's massive deficit spending won't last forever.

The end result will either be hyper/inflation, higher across-the-board interest rates, and/or a contraction of the money supply, or some combination. The latter two will definitely end this state of affairs you've described, maybe the former as well.

The macro situation is ugly.

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

#102

Post by dkrich »

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…

Agreed 100%. This is not a bubble that is going to burst because this "bubble" consists of VC's, angels, and private investors putting their own cash into the businesses. These people are already wealthy. If they stop nobody will notice except the people who are desperately seeking funding. There are a few tech stocks that are insanely overvalued (Linkedin, Zynga, Groupon, and Pandora to name a few). But even those only represent a very small amount of money relative to the market overall, and they are all crashing down to earth as we speak.

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

#103

Post by dkrich »

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…

> Let’s say Angel and VC money dries up, and Series A funding also dries up. You then have a bunch of start ups that don’t get funded at all, or who burn through their first Angel/VC raise, and then can’t get any further funding. They then can’t afford to hire or keep talent (hackers, system admins, designers, etc. – i.e. the people here) and there are only so many positions at companies like Apple, Google, Facebook, etc.

This is precisely what the view looks like for those inside the bubble. Outside the bubble, that would be called a return to normalcy. A world in which solid businesses that have a prayer of actually returning investor money are rewarded and those that don't, die on the vine. The reality is that if you can't raise money for your startup and you aren't making enough to pay your employees, your business sucks and it's time to do something other than create slide decks and beg people for money.

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

#104

Post by moldbug »

cstross wrote: post #10
fourply wrote: post #3

Interesting article, Mr. Stross. I think it's great to see so many people hungry for the next new thing, out hustling and working hard to try to make it happen. As awareness of startup culture grows, it is necessarily going to attract some goofiness. That's OK. Not every idea is a good one, and not every good idea is going to work. We need these stories to make the successes stand out so much brighter. You may be rig…

I was in the web/dotcom 1.0 biz from early 1995 through late 2001. I am reading the news these days with a strong sense of deja vu for late 1999. Kickstarter and crowdsourced funding is great news for artists, but I don't see it scaling much bigger than AFP and "Iron Sky" without attracting fraudsters. Again: hacker/maker culture is great, it has brought us great things in the past, and I expect great things to come…

Not only is poetry dead as a market, it's arguably even deader as a form. The profession of poetry is all about making the connections you need to get a book published, at which point you can work (for pennies) at a community college teaching poetry, and have as good a right as anyone to introduce yourself to chicks as "a poet." You can't be utterly illiterate, though, unless you're a protected minority.

But "Poetry," capital P, is an entirely different and quite solid business. I wouldn't at all count this startup out. It's called a vanity press, honey! The profession of fleecing people who want to be Poets may not be the oldest, but it's got to be at least fourth or fifth.

(It's also worth noting that before, I don't know, 1850 or so, the distinction between a vanity press and a real one was by no means clear. Plenty of reputable authors invested in the production costs of their early works. It was almost embarrassingly easy for a good writer to acquire a reputation based on one work - Dr. Johnson went from nobody to lion after one 300-line poem, his imitation of Juvenal's Third Satire. Of course, the tennis court had a net then.)

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

#105

Post by mhartl »

It seems that the main piece of 'evidence' here is a post by someone who wants to "disrupt poetry" (contra the OP, no mention is made of an IPO), admits it's a "longshot", and in fact is abandoning the project to join a different startup. Moreover, it's just one dude with a blog. Charlie Stross realizes that anyone can start a blog, right? To call this a strawman is an insult to strawmen.

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

#106

Post by matwood »

webwright wrote: post #81
matwood wrote: post #60

Earlier quoted context omitted.

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? Zuli…

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.

I agree and it's why I think if there is a bubble it's a very narrow one and not a total tech bubble. There are lots of companies making good money right now as you point out.

Of course who really knows if Groupon is in the zero revenue group or not since no one has any idea what their financials really look like ;)

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

#107

Post by kriro »

Agreed, good chunks of the "web development startup scene" seem rather bubbly.

The entire "get a bunch of users and worry about making money later" mindset seems somewhat broken. Let's see what happens if all major browsers come with ad-blockers preinstalled overnight or more importantly if people/governments? start taking privacy more seriously.

What happened to the good old bootstrapping mindset that used to be the go to philosophy in IT. Seems like it got replaced by a cracklike addiction for VC-money-shots.

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

#108

Post by olefoo »

rpeden wrote: post #91
wtvanhest wrote: post #80

Earlier quoted context omitted.

This is really interesting. It seems like everyone on HN, arguably the people who are most inside this industry are agreeing it is a bubble. Usually that only happens after it is in mid/late pop. Is it possible that people are just scared of bubbles as we are reminded every day of the housing bubble? Alternatively is it possible that there is a specific asset class (ad based platforms) which may be in a bubble? Possi…

I see a lot of people who are inside the industry as employees agreeing that it is a bubble. But I see a lot of people inside the industry as investors saying it isn't. I'm not sure if that means anything, though.

I would take the words of the employees over that of the investors, you tend to be a little more clear eyed and less inclined to gamble when it's your livelihood at stake.

That said, the bubble we're in is mostly a media creation; people want to hear good financial news from somewhere, and if it's based on someone paying for popularity ( Facebook buying Instagram )in the mobile cat-picture-sharing space; it will still get more attention than it's worth.

Meanwhile the real economy is still in a serious demand slump, and has structural issues that prevent it from achieving anything but tepid growth. And while that situation obtains, excess capital will be looking for alpha in the technology sector.

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

#109

Post by MortenK »

zwigby wrote: post #86
LargeWu wrote: post #82

Earlier quoted context omitted.

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.

"To make money" means to make a profit, not generate revenue.

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

#110

Post by hkmurakami »

brudgers wrote: post #97
steve8918 wrote: post #79

As the old saying goes, history never repeats itself, but it often rhymes. Asset bubbles occur when people are more interested in acquiring assets rather than effort to acquire the money used to buy the assets. Basically, people start throwing money around just to get that asset. It usually occurs when money is easily acquired through loans, etc, and as the asset prices increase, the general idea is "I can borrow the…

> "Since selling to Google or Facebook is the exit strategy for most of these SV startups, if that door closes, then funding will get pulled quickly and violently, and it will be the start of the next dotcom bust 2.0" This points to one of the differences between this boom and the last one. Valuations are being driven by companies with lots of cash are buying startups and sophisticated investors funding growth. Last…

Mutual funds (since they typically invest in readily marketable securities) may not feel the pain, but pension funds, university endowments, sovereign wealth funds, etc. will take a hit: a non-trivial portion of VC money is derived from such institutional investors (who are limited partners in the fund).

Pension Funds: Retirees (ex: public workers) take a hit.

University Endowments: Future students, faculty, and employees (think of the guy who's repairing the plumbing in the dorms, rather than the chancellor) take a hit.

Sovereign Wealth Funds: The citizens of said country takes a hit.

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