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Summary:

Is there a tech bubble or is it really a boom? Ask a thousand people and you are going to get a thousand answers. To give you a historical perspective on the last Internet bubble/boom and the current bubble/boom, here is a handy infographic.

techboomorbubble

Is there a tech bubble or, is it really a boom? Ask a thousand people and you are going to get a thousand answers. In fact — as noted investor & commentator Paul Kedrosky points out — there is a bubble in bubble-oriented commentary. For our part, we thought it was best to talk to survivors of the last bubble and learn from themwhat they did they right and how they made it through the storm. If you missed it, try catching up via our mega-post: How to survive the next bubble.

The debate still hasn’t stopped. And to give you some sort of a historical perspective on the last Internet bubble/boom and the current bubble/boom, Fee Fighters and Kissmetrics created this infographic:

Infographic courtesy of FeeFighters & Kissmetrics

(Disclosure: Kissmetrics is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.)

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  1. No, the next bubble will be in the Chinese market, in oil or in the Euro or pound. The Nasdaq is still over 40% below its high before its last bubble in the late 90′s. I’d be skeptical about google, but Apple and Microsoft look pretty good to me.

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  2. jnthibeaultw Sunday, July 17, 2011

    It’s funny to see this story propagate around the Internet but, like other comments I’ve posted, I would say we are not in a bubble. Unfortunately the concept of a tech bubble is built on our current definition which is largely formed from the early 2000s. The tech market in which we currently exist is both a different environment and has different investors. It requires a different approach when analyzing for inflated value. There are two core differences here. First is that the companies being valued very highly are those that are generating revenue. In the previous bubble, valuations were all based on revenue projections, on the opportunity, not on hockey-stick like actuals (yes, revenue is different than EBITDA and a natural correction will occur). The second is that the investment landscape has changed. Institutional investors are really no longer sticking money into paper-napkin companies. They are putting cash into companies that have definable markets, growing customer bases, and legitimate businesses. We may not agree with it but is Groupon a legitimate business? Yes. Anyway, below are a couple of links to my blog entries on these which expound more on these concepts:

    http://blog.jasonthibeault.com/index.php/2011/07/13/deflating-the-bubble/
    http://blog.jasonthibeault.com/index.php/2011/07/14/a-shift-in-tech-startup-mentality/

    J

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    1. Jason

      I do agree with you that we are using the 1990s/2000 metrics of the bubble but I think there is something else going on here, but mostly from a investment in early stage company side of things.

      There are some folks out there who are making an argument that there is no bubble because public market valuations on tech companies are so low, but then at the same time are pushing up the valuations on the private companies to somewhat questionable levels.

      I think there is a lot of that kind of stuff that is prompting the bubble talk.

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      1. jnthibeaultw Monday, July 18, 2011

        I agree that valuations are high for private companies but let’s look at what they are based on. Take Zynga vs. EA for instance. EA represents a classic game distribution model which is very expensive. You hope that development and marketing opportunities pay off for a AAA title but it could loose millions. Couple that with user playing behavior (i.e., the rise of casual gaming) and along comes Zynga. But not only are they making casual games, they are also targeting them at where all the users are: Facebook. Furthermore, their production costs for a game title are astronomically smaller in relation to traditional game dev/publishing and they have a revenue stream that has proven to be extremely lucrative: in game micro-sales and targeted advertising. A very interesting thing we are seeing with this round of tech companies is their interconnectedness. Zynga isn’t a company built just on one revenue stream, it has multiple thanks to the maturity of the Internet and the maturity of online user behavior. And given their hockey stick growth coupled with the continued explosion of social media and online advertising, the upside to their millions already in annual revenue is staggering.

        Of course, there are many many factors involved in identifying an economic bubble and I’m not one to say that it’s a single this or that which says we are in a bubble or not. Nor is Zynga the poster child for saying it’s not but it is a prime example of how we need to rethink the valuation game. Big valuations in 1990s/2000s were based on pure speculation. Well, that speculation has happened. The internet and online behavior is where they had thought it would be. Unfortunately, few if any companies made it out alive of that time to see it happen.

        I agree there will need to be corrections. I just feel that this talk of a bubble gets everybody spun up irrationally without looking analytically at the whole situation using past data as a guide, not as a blueprint.

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      2. Jason, I see your point. But doesn’t Zynga also have a much lower barrier to entry than EA? EA’s competitors must compete with amazing graphics, immersive storylines, multiple gaming strategies (individual vs. multiplayer), mass distribution, marketing, etc. Zynga has created some pretty interesting games leveraging Facebook’s userbase, but let’s not kid ourselves about whether or not another company can come along and produce similar games and provide massive competition due to the very low barriers to entry. Zynga is low hanging fruit in the gaming world. Groupon has showed us that these new business plans are susceptible to competition (otherwise Groupon wouldn’t be buying every single competitor that pops up). Fortunately, the current wave of tech companies are valued on actual revenues and not eyeballs; however, there has to be some barrier to new entrants otherwise these companies will be the next wave of dot-com busts as each company competes at increasingly lower price points racing each other to the bottom.

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    2. Wonna Gombaluma Monday, July 18, 2011

      How original, “this time its different” – nobody in a bubble ever said that, except for every other bubble we’ve ever had.

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  3. Its an amazing report, Internet, Social media are no more just a need for people, it has now become a habit or we can say necessity for a big number of people..

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  4. Great Story, I never actually knew how does internet and websites grow…and the best thing is that i got to know more websites other than twitter and facebook, google..now gonna check out these websites too…

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  5. Really interesting article, its amazing how well social networking has done. Like someone said below it has become a necessity.

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  6. So much focus is on the finances but what gets lost is that the last bust up, caused by a number of factors came about. As a result of customer behavior not meeting expectations. The bust started when companies found that display ads were over. Priced by a factor of 10x, and that it was unsustainable. Once that realization occurred — that companies were counting on the hype and hope to work, a collapse was inevitable.

    All the signs are there now. Companies like Twitter have lowered their rates drastically, companies are merging, IPO’ing to cash in before people realize that even small changes in consumer behavior or behavior that doesn’t match the hype and hope will trigger another collapse. It wil b worse this time because of the dependence of thousands of smallcompanies on the big players.

    Ad based revenue means fundamental instability with new channels.

    I’ve talked a lot about this for at least two years on http://socialmedabust.com, and predict latter 2012 for the crash. The Groupon IPO may be the obvious initiating event to kick things in motion.

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  7. The only problem is that the current “boom” is happening during a severe recession, so smaller numbers are normal compared to a “normal” period.

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    1. Agreed. I think the boom is localized and the bust is going to be localized as well.

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  8. No, This is indeed a tech boom, all these companies have showed consistent growth over the years, whereas some people mistake it as a spike in the stock index.

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  9. I was there (in Silicon Valley) during the last bubble. There are bubble-like variables played out like the last bubble but there are differences as well.

    Differences:

    1. The proliferation of digital devices (smart phones, tablets, e-readers, etc.)and the overall digitization of consumers behavior through companies such as facebook, twitter, linkedin, zynga, foursquare, etc. creates a confusion whether it is boom or bubble. The initial conditions of this possible bubble are different than before.

    2. Companies are proving their business models and actually making money. In the old bubble, when I worked for Net Market Makers and later Jupiter Media Metrix, I had spoken to hundreds of companies that were well funded but with zero or minimal revenues. Most of them lived on hype alone.

    3. The cost of starting a company to prove its business model and actually make money is lower than ten years ago. So, the risk for investors is lower and when a company goes public (unlike before) they can actually show they’re making revenues. It also creates problems for VCs because the power has shifted to entrepreneurs. When you can build an idea for basically nothing, and you can prove market traction, you can choose what VC firm you want to have on your team.

    The biggest concern is the overall global conditions from a geopolitical perspective. With all the companies wanting to go public, will there be enough investors on Wall Street interested in providing an exit for Silicon Valley and Silicon Alley investors and entrepreneurs — or any other tech hub.

    Exiting is an art. In any potential bubble, you have to exit to generate ROI for investors and entrepreneurs but these conditions have changed as well with private stock exchanges like Sharespost.

    It is a different ball game today than before. The biggest bubble-like behavior I see is the high valuations in the seed and Series A stages. If the company is valued at $1B in the early stage, they have to become really, really big for investors to get a big ROI — unless the investors are ok with mediocre returns as part of their portfolio strategy. Math doesn’t work when I do the calculations. If anything, there will be down rounds on some early stage companies in the future.

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  10. Perhaps we’re in a “booble” :-) This name kind of makes me think of Google, which is no bubble. Nice chart though.

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