The Best of the Tech Bubble Meme
Yesterday the New York Times published a story about the (possible) bubble in technology that’s occurring at the moment. The story itself was just a mainstream version of what has been said by about every blog in the space (including mine), “Hey, there seems to be WAAAAY more investment in private tech companies than there was in the past, and that might not be fully warranted.” NYT though, being a for-profit newspaper, added a bit of a doomsday twist to catch their readers eyes. They pointed out that in 2000 the 24 largest private tech companies were worth $71B while today it only takes the 5 largest companies to reach that number. The article was posted online at 3pm yesterday and has already sparked at least 3 great responses (and some other terrible ones). I’m not feeling overly original today, so I thought I’d share my notes from reading through these thoughts this morning.
- Print media and the major newspapers are dead? Then how come the NYT is driving the memes in the tech world?
- I recognized right away, and a number of bloggers pointed out, that the $71B statistic and graphic in the NYT piece is flawed. First of all it doesn’t reflect regular old inflation, let alone the growth of the tech sector. Second, it doesn’t reflect the fact that many of those “private” companies are actually pretty public in secondary markets.
- Chris Dixon makes a great point in his reaction (it’s point #3 in his post). The people who are “holding the bag” as this bubble forms are not the “Main Street” investors that got burned in 2000. It’s the “Wall Street” institutional investors this time, and they can afford to take a several million dollar flier on Facebook in the secondary market. Secondary markets are to blame/thank for putting these risky bets in to the hands of the people that can afford them.
- Howard Lindzon points to this article from Paul Kedrosky where he points out that if there is a bubble forming in the secondary markets it may indeed pop when these companies go public on the exchanges. It’s an interesting thought… Facebook hit $85 Billion in valuation on one of the secondary markets, perhaps they’re not going public because they’re afraid it would deflate the value of the company.
- Dave Winer tackled the issue. Two of his points bear repeating… First, the biggest shame in a bursting bubble will be the quality entrepreneurs that will be suddenly locked out of the system by a lack of capital. Second, that companies that rely heavily on free services from other companies (e.g. plug in to Twitter or Facebook’s APIs) may all of a sudden find that when those two companies (and others that offer tons of free services) tighten their belt less and less things will be free.