I don’t buy the premise. How is it a bubble? Where’s the “irrational exuberance?” Where are the ridiculous P/E ratios? And what’s with the graph? What is it supposed to mean? I don’t even know what the data represent, but they show two different timescales, so whatever it is, it’s not an apples-to-apples comparison. (What would Tufte say? )
The things you show as “warning signs” hardly define a bubble – they’re more like side effects, and are also found in a boom. The defining characteristic of the dot-com bubble was the non-sensical business models, the mentality that doing something – anything – on the internet was good by definition, that the normal rules of profitability somehow didn’t apply. Put it out there and we’ll figure out how to make money later. Are P/E ratios out of whack? And where are the day traders? I don’t see any of that, and I doubt we will anytime soon, but that’s just MO.
It seems a lot more plausible that there is pent-up demand for IT spending since companies froze their spending for those three years. Now that companies are spending again, there is more opportunity and hence more investment in the industry.
If Bill Gates gets his way and there is no limit on technical visas, our salaries will remain stagnant like they have for the past 7 years. Also many of us will get pushed out of the market based on our price, so it wont matter.
Unfortunately, internet usage growth tracks hardware software growth, so realistically we’re still just running in place. 10 years later servers don’t crash and burn as often as they did then, but you still have to provision enough extra bandwidth cpu to deal with all those new broadband users on your AJAXified site, and your software platforms have to be tremendously more scalable than they once were. (Fortunately, modern languages and platforms make this a bit easier.)
As for the bubble, I’ll try to keep my day job and chase the get-rich-quick at night this time around.
I was a little too young to have been part of the dotcom bubble 1.0, but I remember my dad’s job (he was in hardware) going from a short-hour, high income, pleasant workplace to a 150-hour week with pay cuts and insane schedules. Just as all those late-90’s startups were going bottoms-up, my dad actually left the industry for a job with a fraction of the salary, but better hours.
This bubble 2.0 will be nothing like that. Most active internet users have broadband. Even my grandparents do, and they just figured out the cellphone. With the open-source boom, everyone can run a cheap server out of their house, and recoup all their costs from easy advertising (thanks Google). It reminds me somewhat of the late 80s, early 90s BBS network, where everyone and his brother ran a system off a Winchester hard drive and an IBM clone.
Also, bubble 2.0 won’t have as many small fortunes to be made. One original idea (Youtube) will make millions, or billions, and then all the knock-offs that use the same concept will get plenty of traffic - ergo more money - but not as much.
Finally, the idea of a internet-connected computer is an amorphous one. Do cellphones count? How about the PSP? PDAs? Everyone is always wired. There is no escaping the internet, short of Gene Hackman’s Faraday cage-enclosed computer from “Enemy of the State”. Nuff said.
“And what’s with the graph? What is it supposed to mean? I don’t even know what the data represent, but they show two different timescales, so whatever it is, it’s not an apples-to-apples comparison. (What would Tufte say? )”
Dave, the file name should make it clear: nasdaq-graph-1997-2007.png
Great thing that i am seventeen and didnt experience the first bubble, which means that i dont have any mistakes to do again and are able to understand what everyone else did wrong seven years ago!
Some advice: “bubble” is the wrong word. “Wave” is much more descriptive: the irrational exuberance is going to carry a crest higher and higher until it’s unsustainable and crashes down. So what do you do with a wave?
You ride it. The key is knowing ahead of time that the wave is going to crash, and preparing for it. Make your money while the wave is rising, and save it. If you’re young, and single with no kids (and you live in a reasonably priced neighborhood), there’s no reason you shouldn’t be able to move towards saving half your income. “Save” is a loose term here; that can mean paying into a 401k, paying off debt, buying stocks, buying investment real estate, or…actually paying into a savings account.
By the way, I agree with Dave P. The P/E ratios are not ridiculous like they used to be, and VC’s aren’t handing out million dollar checks to 19 year olds anymore. The labor market for IS/IT is tightening, but that doesn’t constitute a sector bubble, that may be a much more limited phenomenon.
This time… I wont use windows, the new generation of developers are starting to see that, like the mainframe before the pc, windows is like a giant aging ape who thinks he’s still the king.
I’d like to ask a question somewhat related to this. What’s the situation regarding subcontracting (*) in the States now, and how was it during the first bubble?
(*) not sure if it’s the correct term: I mean when you’re contracted by a company to work for a different company (which may then send you to a third company, etc).
“Great thing that i am seventeen and didnt experience the first bubble, which means that i dont have any mistakes to do again and are able to understand what everyone else did wrong seven years ago! :)”
I only quote this b/c it demonstrates the truly ideal case in that we will actually learn from past mistakes. The truth of the matter is that most people DO NOT learn from past mistakes. It’s one thing to say from the outside looking in “I can study history and I won’t make the same mistakes everyone else did by investing in company XYZ”. But wait until you’re on the inside or actually get caught up in the day-to-day AS IT’S HAPPENING–you get sucked into the euphoria and celebration cause we’re all making money, it’s the “New Economy”, the VC money is flowing from a neverending source, we’re young and brilliant and can do no wrong!
Ha!
Consequently, I never worked for a “hot” company; I worked for Worldcom and, believe me, the little bit of euphoria that was there didn’t last long once the fraud emerged. I lost a little, but not nearly as much as many others.
I also weathered the storm, lasting there until the recovery was in full swing and I was able to find a new job fairly quickly. I consider myself lucky and I appreciate my current job more if only b/c I’ve seen the dark side and it ain’t pretty.
Jeff, I have to agree completely with Dave P.'s view. Some bubble signs are found in booms too, and I think what we’re in is more like boom than bubble.
Bubbles occur when people begin to make financially irrational decisions, often claiming some rationality that just doesn’t hold. In the 2000 bubble, money was pouring into the industry on the basis of new business model calculations around things like “eyeball count”, rather than hard, attainable profitability.
Of course it’s always easier to see the irrationality in hindsight, and it may be occurring right now and leaving us blind to it. But my perception is that business remains pretty hard-nosed these days, and that seems to me a good sign that we’re not bubbling.
What people fail to realize is that a substantial factor in Bubble 1.0 growth was cannibalization of the post Cold War “Peace Dividend.” We’d love to believe we were all so clever, so high tech, so efficient… but that was hardly a cause and more of a symptom.
As regulations on banking, tradem and commerce were stripped away unprotected consumers thoughtlessly transferred their surplus liquidity into the hands of Mercantilists. Taxation in western countries was adjusted to shift corporate responsibilities onto individual taxpayers, taking up the slack of the Peace Dividend. Consumerism paused as the mysterious cash well went suddenly and as mysteriously dry, and the Bubble popped. Plain folk lost millions in rented securities shares (mutual funds, 401K type accounts).
Bubble 2.0 came about through exploitation of the carefully nurtured consumer greed and shortsightedness of the 1990s. Careful political manipulation at national, regional, and global levels put a new mechanism into play. This set in motion a second round of consumer exploitation, funded from new sources. Domestic manufacturing and brick and mortar retail was cannibalized, mortgaging the future rather than the 1990s “pay packet bonus” that even the lowliest workers had seen.
Things are already starting to fray. In the US people are being distracted by the “sub prime mortgage market” woes. Sadly that’s just a sideshow, a distraction, and one where liabilities have been carefully “sealed off” to leave US taxpayers holding the bag. If you want to be truly afraid look at other segments of banking in the U.S. - and the auditing firms scurrying to cover what they’ve found. The EU is another story, mostly due to a different political tradition. China… well let’s just say the globalization windfall hasn’t exactly been shared according to Communist ideals. Don’t even look at India right now.
With the open-source boom, everyone can run a cheap server out of their
house, and recoup all their costs from easy advertising (thanks Google).
Does anyone question the viability of Google’s business model? Are advertisers
measuring the returns on Google ads? Do they work, are they worth the money,
or is the jury still out?
And if Google goes in a few years, what ind of IT downturn would that cause?
I will do exactly what I did during the last bubble. I will keep developing software that people are going to need regardless of the state of the Internet, and which are not dependent on this year’s fashion for their revenue. And just like the last bubble, the only effect it will have on me will be having to watch a lot of very serious-faced financial journalists on television.
"This time… I wont use windows, the new generation of developers are starting to see that, like the mainframe before the pc, windows is like a giant aging ape who thinks he’s still the king.
ryan on April 23, 2007 08:48 AM "
Very true. (Ubuntu, etc). One potentially enormous and pervasive thing that differentiates “2.0” from “1.0” is the ease of mass collaboration, and opening previously non-porous walls, corporate or otherwise. The new business model is developing of how to create value (make money from something useful that becomes in demand) as a result of shared information. Look how many API’s are available now - it’s getting to be the norm.
Also, consumers are influencing corporations directly now - Dell caved to not requiring Vista on new machines, as well as offering Linux OS installation options - both as a result of feedback from their IdeaStorm site.
Anyone who wants to weather the ups downs would be well served to read Wikinomics and understand how collaborating with anyone anywhere anytime on anything will influence and change conventional business. Red Hat figured it out with unix.
Amazon is is the deepest and most versatile and adaptable online company - dig into their Associates features and other growing forays into effective business tools readily available to the little guy.
Previous comments on smaller amounts of seed $ needed to launch a product are very true. Likewise, having a viable product is key.
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