Web 2.0 Bubble May Be Worst Burst Yet 417
athloi writes with a link to an editorial by John Dvorak over at the PC Magazine site. Rather than his usual tilting at windmills, Dvorak turns his attention to possibility of another big internet economy 'pop': "Every single person working in the media today who experienced the dot-com bubble in 1999 to 2000 believes that we are going through the exact same process and can expect the exact same results — a bust. It's déjà vu all over again. Each succeeding bubble has been worse than its predecessor. Thus nobody is actually able to spot the cycle, since it just looks like a continuum. I can assure you that after this next collapse, nobody will think of the dot-com bubble as anything other than a prelude." It certainly seems like another burst is imminent; will this one be worse than the original, or have less of an impact?
I dont believe so. (Score:5, Interesting)
Re:It's a bit different (Score:5, Interesting)
The startups still aren't making money, they still don't have business plans, they're exactly like they were in the bubble 1.0 days. Only now, instead of an IPO, you wait until Google buys you.
Re:It's a bit different (Score:5, Interesting)
Re:What's to worry? (Score:2, Interesting)
Re:This is nothing like '99 (Score:2, Interesting)
In fact, one of the big political battles we had was between the part of management that only cared about smoke and mirror displays and treated investment as revenue, and the red-headed step child part of the company (that I was in) that actually thought we should make sure that are current customers were kept happy and satisfied with our level of performance. In the end, the smoke and mirror people drifted away on golden parachutes, and we were asked to take stock in lieu of pay for a little while while we worked essentially for free (none of us were dumb enough to take that deal).
It was exciting though, I'll give it that. In an "oh god, oh god, we're all going to die" sense.
Unfortunately, I think there is a general weakness in the economy currently that may end up causing me just as much hardship eventually, but I don't see this as Dot.Com II, the Quickening.
Re:It's a bit different (Score:2, Interesting)
The Economic Whipping Boy Ain't Tech (Score:3, Interesting)
The HOUSING market and mortgage industry, however... hooooooooo boy, that sector is bursting as we speak, and it just keeps getting worse. Tech will likely be the only thing that doesn't fall completely apart in the next 6 months, frankly.
It was nothing to do with tech failure either (Score:5, Interesting)
Internet stock trading was suddenly made a lot easier which flooded the (previously relatively stable) stock market with a bunch of very inexperienced and irrational traders. They drove volatility and demand. Suddenly a stay-at-home mom could generate thousands a day by logging in a few times a day.
The venture capitalists supply these markets too and recognised a feeding frenzy. Float anything and it would get snapped up. This caused a boom in small start-ups created with no business plans and often no skilled staff/management. It did not matter if these start-ups would make it or not, they were just bait. Many employees of "real" companies got side-tracked into these failed start-ups wich impacted the entire industry.
Of course any such activity is not sustainable and a crash was inevitable.
So what's happening now? Well there's definitely a resurgence, but at least it appears most based on sound businesses principles. This will boom, but should not boil over.
Re:This is nothing like '99 (Score:2, Interesting)
Honestly, the problem was that we had some very shady people in upper management who weren't interested in letting it succeed on its merits, and we had an internal struggle going on between the scam artists and the people who were trying to build a decent product.
This was my first real job, I was making more money than I ever had in my life, and for all I knew all companies were like this. Certainly it was better than my previous jobs, like working at Radio Shack (shudder)....
Re:Venture Capital Firms' Spending (Score:1, Interesting)
The tech bubble never fully burst either, it moved into the housing market, it's world-wide and it's the ginormous mother of all bubbles. The Federal Reserve has been jump pumping money into the economy, and slashed interest rates to almost to 0%. If you were to look at M3 (total money), before the Fed stopped publishing that number in the last couple of years, you were seeing total money supply double within less than a decade. This thing is like a bump in a carpet, you step on it, and it moves somewhere else.
There's been no housing market panic yet. Just total denial. You'll see panic when people start seeing valuations drop by 10% then 25% and 50% in some areas. Standard box $700k homes and $900k condos, lol. For at least a year, people have been deluding themselves that people need a place to live, and people who want to sell have been sitting, waiting for some magical stabilization. When people realize they're paying 2M mortgages for 400k homes, they sell or declare bankruptcy too. Ain't no bailout that can stop it either, unless you think giving every home owner a multiple K credit is feasible, lol.
This is all caused by government interference in the market, which by definition creates poverty in absolutely every instance, no matter how good the intentions. If you can xerox every dollar bill out there every seven years, yeah we have a problem Houston. And the Federal Reserve emergency policy is to drop fiat monopoly money dollars from helicopters. The US government plays the exact same game 3rd world dictators play. Iran justifies misery by blaming US foreign policy. The US justifies misery by dividing the public into class haters of each other, getting people to blame corporations, "the rich", immigration, free trade, etc.
If money is doubling every 7 years, and interest rates have been about 5%, money is the biggest hot potatoE (ty Can Quayle) since the Muffin Man attempted to destroy NYC in Ghostbusters. It's all subjective valuation, money included. May as well make cow turds the official currency now, and that applies world wide.
But most people are morons, and still don't understand the cause of the Great Depression. The cause was massive scale protectionism. Free trade only voluntarily occurs because that which is received is valued more than that which is given away in exchange. You use violence to prohibit trade economy wide, and massive wealth is instantaneously lost. Yes, kicking out all the illegal immigrants would cause a recession. But of course paying out the the entitlement socialist benefits to those illegal immigrants would cause a recession too.
The bills can't be paid. The way out is the same way out that always occurs. Massive devaluation of debt and obligations through mega pumping of the money supply.
Re:Companies come and companies go (Score:5, Interesting)
Yeah, but if it were just a problem with the way the VCs were funding things, the entire stock market wouldn't have tanked, because venture capital funds are generally regarded as relatively high-risk anyway and, in any case, a company that goes off the radar before going public has little effect on the stock market. No, there's another connection here that you didn't mention.
When a venture capitalist funds a company, it will often put its own executive management into place in order to ensure that the goals of the VC are met. The question then is: what are the goals of the VC?
Well, to make money, of course. Thanks to the internet hype during the dot-com boom, internet companies were able to go public and get some crazy money for the initial stock offering. VCs typically own the bulk of said stock, and thus VCs were able to make a lot of money off of that. Initially, the companies in question generally offered something of value, but when the VCs caught on to how easily IPOs made money for them, they started to fund pretty much any internet startup, even those without any solid business plan or any real product. Their goal was to make money as quickly as possible.
They would do this by manipulating the appearance of the company to outsiders, by forcing (via the executive management they put into place) the company itself to grow rapidly regardless of need. In those days, company growth was seen as an indicator of future success, and the VCs took advantage of that. In fact, they did so at the expense of the long-term prospects of the company, since they wanted to make their money as quickly as possible. The companies would go IPO and the VCs would make a pile of money on it.
Why did the market crash, then? Because investors eventually wised up. The companies in question went public via IPO but because they often had no real product and no real business plan they were unsustainable. Even companies that had good products and a good business plan ended up failing because their long-term financial outlook was severely compromised by their unneeded growth. And their post-IPO stock performance eventually reflected that.
Stock investors eventually caught onto the scam, and stopped buying into IPOs. IPOs as a result started failing out of the gate, and VCs started losing money as a result as well. But most importantly, the whole thing destroyed the confidence of investors in the stock market. And the market naturally crashed as a result, with all the fallout that comes of such a thing (which you described nicely).
The bottom line is that VCs are, from what I can see, primarily responsible for the dot-com crash. Some of it was the result of stupidity, but most of it was the result of willful greed.
Re:Companies come and companies go (Score:4, Interesting)
What's the opposite of a bubble? (Score:3, Interesting)
The dollar bubble is a much more serious concern. That's the bubble of all bubbles and it's popped. No one wants anything to do with it anymore given how recklessly the US congress has been spending our money (for things most people are very much against). No one wants our bonds and oil producers have started selling in Euros instead. The fed's answer: print more money. All "bubbles" spawn from this one and the eco-pundits treat it as a good thing cause it'll encourage exports, as if we still exported anything other than weapons. As a web application developer, I'd much rather the discussion be focused on the big picture rather than any one portion of our economy that is merely perceived to be inflated. The rest would work itself out on its own if we'd stop pumping worthless paper into the economy.
Re:Does anyone listen to him any more? (Score:2, Interesting)
Re:Does anyone listen to him any more? (Score:4, Interesting)
Re:Does anyone listen to him any more? (Score:3, Interesting)
The CD-ROM boom was a large number of small companies making crappy software for doing everyday things. Many of them faded out of existence, though the technology market didn't crash.
The dot-com boom and subsequent crash was due to companies forming in order to apply brick-and-mortar business models to the internet-based businesses, thinking that the internet was just a 'virtual storefront', and worked much the same way. Hence your 'online haircut' and 'online pizza delivery' companies.
'Web 2.0' is a model that ensures payment through advertising and subscription to deliver content and allow the users to interact. I'll admit, the most I get to play with Web 2.0 pages is Digg and gmail, but I like to code in the style Web 2.0 implies - quick-response interface rather than static content.
Anyway, Web 2.0 sites are generally more tools for cool things than misplaced business models. There will be some failure, of course - there always is when there's a technology-related paradigm shift in business - but nothing close to the magnitude of the late '90s.
Re:Does anyone listen to him any more? (Score:4, Interesting)
It was the time CDs became popular and allowed for more content and interaction, in fact it was the only way to get rich content.
Take Encarta and other encyclopedias. They were the only alternatives to paper-based materials and with animations and video, they were really nice learing tools. Games started to add voice - I recall King's Quest V being the first adventure game I've played that had hi-res graphics and voice. How's that bad?
Sure, all those multimedia CDs have morphed into online content, but the CD-ROM period was a stage in evolution, not a hyper-inflated bubble.
It's like saying that radio was a bubble because TV came next.
In contrast, the dot-com bubble was like "attract venture capital to build a site that sells anything from confetti to pets online, don't worry about drafting a business plan, spend big on offices and fancy cars, then sell everything at a loss and go bankrupt." When the bubble was over, we were all back to square 1.
Re:Does anyone listen to him any more? (Score:2, Interesting)
It's also worth mentioning that according to research I've done (on behalf of http://www.cerf.cam.ac.uk/ [cam.ac.uk]) not as many companies went properly bust as many as people tend to assume. A large proportion were bought out, and a lot had to delist (hence the sting for investors).
The summary of the project I helped with (http://www.cerf.cam.ac.uk/projectdetail.php?proj
In my opinion, the next big bubble of significance is more likely to be China. US investors and businesses are getting better at accepting (if not avoiding) the downturns, but the Chinese are new to this. With the number of registered share-trading accounts in China now larger than the number of Communist party members, would the government survive a crash?
Re:Companies come and companies go (Score:3, Interesting)
Recall the year 2000 scare. There was a huge buildup in all areas of IT as companies around the world rushed to update 5 to 20 year old systems. This included replacing hardware and software. Anyone who could even spell 'C' was in high demand. Hardware companies had to work full-tilt and add capacity to meet the demand for replacement equipment. Investors saw profits going up, and saw nothing but dollar signs. Never thinking to look beyond the upward curve to why it was curving up, and why it would curve down much harder after New Years 2000 passed.
The year turned over. Crisis abated.
Now what do we do with all those 'engineers' that can barely spell C? Lay 'em off.
We won't need to buy new equipment for years to come, so all the harware companies have surplus equipment, surplus capacity, AND surplus labor. Lay-offs again. I was working in the telecom sector (Alcatel). Not only did customers not need our new equipment, but there was a surplus of barely used equipment on the market. There was no need to keep development engineers on the payroll when there was no revenue rolling in to pay them.
It was a perfect storm. A conflaguration of several crashes that all came at once. Web2.0 won't have the same sort of bust, unless there is a Year-2000 type of event to go along with it.