Sunday, February 20, 2011

Is The Second Dotcom Bubble Underway?

Some would argue there are 10 tell-tale signs that a technology bubble is building. Insert "social networking" for "New Thing," for example.

You can make your own decisions about how well the logic works for "cloud computing," "mobile payments" or "tablet computing." So far, by my reckoning, those other trends have not yet created "bubble" logic, but could. Keep in mind that the last Internet bubble, which began in 1995 or 1996, actually was a couple of bubbles, both Internet and telecom. It is possible there were be a couple of bubbles this time, if in fact a bubble is building.

But it also is fair to note that bubbles build because people really believe something "really big" will result.

1. The arrival of a “New Thing” that cannot be valued in the old way. Dumb-money companies start paying over the odds for New Thing acquisitions.

2. Smart people identify the start of a bubble; New Thing apostles make ever more glowing claims.

3. Startups with founders deemed to have “pedigree” (for example, former employees of New Thing companies) get funded at eye-watering valuations for next to no reason.

4. There is a flurry of new investment funds catering for startups.

5. Companies start getting funded “off the slide deck” (that is, purely on the basis of their PowerPoint presentations) without actually having a product.

6. MBAs leave banks to start up firms.

7. The “big flotation” happens.

8. Banks make a market in the New Thing, investing pension money.

9. Taxi drivers start giving you advice on what stock to buy.

10. A New Thing darling buys an old-world company for stupid money. The end is nigh.

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