Dot-Com Bubble v2.0?

eldavojohn wonders: "With the recent acquisition of YouTube by Google, there has been a lot of speculation (on both Slashdot & The Toronto Star) that we are nearing the second economic bubble created largely in part by growth in the digital sector. While one may be able to debate that the revenue from advertising and sales can indeed back this growth, are we headed towards the second bubble and, if so, how hard is it going to pop? Keep in mind that popular voodoo economic theory has attributed the first bubble phenomenon to 'a combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital.' I think we're experiencing all those, although it is not as flagrant as it was during the first bubble. What do you think?"

This time it's all "private money"

[Animats]

Last time, it was mostly companies going public. This time, it's companies heavily funded with venture capital, and the companies are then bought by other companies.

But it's definitely a bubble. Way too many companies are chasing the same pool of advertising money.

And, unlike Bubble 1.0, most of these new companies don't really do very much. Or even stuff that hasn't been done before.

As I wrote in another article, "social networking" sites have a life cycle. EZboard peaked mid 2003. Nerve peaked early 2002. Bondage.com peaked mid-2003. Tribe peaked early 2006. Xianz (the "Christian Myspace") peaked in spring 2006. Friendster peaked twice, once in late 2005 and again in mid-2006, but that's an unusual pattern. Usually, once they peak, it's downhill after that. Myspace has flattened and looks like it's about to peak. This works just like nightclubs; they become hot, they grow, they get too popular, they get overrun, they decline, they hang on, but nobody cares.

YouTube is terribly vunerable to the RIAA. Once somebody builds a tool to check audio on YouTube against RIAA licensed material, they're going to get notice-and-takedown orders by the ton.

No bubble

[Rob Kaper]

There was no dotcom bubble and there won't be a new one. We had a good economy with over-the-top entrepreneurs. It topped, scaled down and weeding selected the sensible business. It happens all the time, in all industries and sectors. New shops open town in good times and silly ideas go bankrupt in bad times. It may look overwhelming because we're so close to the source, but I'm sure the average resident in my neighbourhood isn't even aware of the dotcom tale. It was that insignificant in the grand scheme of economical cycles.

We are straight in it

[Shados]

We're really straight in the middle of the second bubble. Its different than the first in a way, mind you, but a lot of companies have while projects and dreams thanks to the "newfound" power of information technologies (like all the web 2.0 crap). Some work, many don't, and honestly, I don't see how long they'll be able to stay afloat pumping all that money in these projects. Just as an anecdotal reference: I put my resume on Monster 2 weeks ago. I only have an associate degree, and a few years experience in .NET and Ajax. I did not apply -anywhere-. Yet, since I put my resume up, I have gotten at least 2 interview offers per -day- (not counting weekends) for so called "Web 2.0" projects of all kinds, all wilders one than the next.

Re:What made Youtube take off?

[bth0002]

They provided a seemless entertainment through video at a time when TV cost too much, and movies were not all that great for the money. By over supplying a high demand they catapulted themselves into the checks and balances situation where they are now in. They beat both TV and movies and bittorrent to the fruit punch, the sweet spot so to speak. Instant on TV like entertainment that was both creative and more down to earth. Its like jackass streaming in real time almost. Its not pay per view but in the future if internet on demand takes off aka higher quality internet to compete with cable and microsoft, youtube will have to go the way of napster and netflix perhaps.

Re:Happens All The Time

[nevesis]

I think you're underestimating the impact.

Back in 1997 if you had told me that big and bad US West would be bought out in a few years by the tiny little 1 year old company down the street, Qwest, I would have laughed you out of my office

But then Qwest made a bunch of money during the bubble and took US West by force in one of the decade's most unanticipated and disconcerting hostile takeovers.

This doesn't prove that the bubble was deleterious, and correcting the market certainly isn't a deleterious effect, but it is silly to argue that the actual impact was overblown.

As an investor who's been in many IPOs

[WillAffleckUW]

I think that it is quite possible the YouTube purchase was over-valuated.

However, the problem is that the market has no useful mechanisms to properly evaluate the true worth of future technologies.

They could be insanely great - legendary.

Or they could be really lame.

So, trying to predict future cash flow and growth at the beginning of a company with a new technology is mostly a crap shoot.

One good rule is - don't buy into a rise. It's better to put most of your money in an index fund (Euro stocks mix with say Total US market at a 50/50 split) and only use speculative funds to invest in such speculative ventures. So, let's say you save $20,000 a year - put at most $2000 in YouTube and other such speculations, where the downside is as likely as the upside.

Also, realize that the one thing most new investors are very bad at is knowing when to sell. When I bought into Red Hat at the IPO, I planned to sell half of the stock at a specific dollar amount, right before the lockup expired and the price dropped for a bit. Then I sold most of the rest when the largest lockup expired. Then I bought back into the same number of shares using 1/20th the money I had "earned". Net result - I had the same number of shares - and a lot of cash.

If you buy into such a thing, be willing to sell part of it when it rises to a certain point. If it falls, know at what price you'll give up. You can also sell at a price when you think it will be quiet for a month or so, lock in the capital loss to wipe out the capital gains for tax reasons - and buy back in one month plus one day later.

Main thing is trust your gut.

Re: the nightclub analogy

[Animats]

re-inventing them every so often.

Area, the hottest nightclub in NYC for part of the 1980s, did a complete redecoration and theme change every six weeks. That kept it a hot club for years.

But redesigning a web site doesn't have the same effect. Tribe just did that. (New! Web 2.0! Now you can rearrange your home page!) One of most active tribes is now "Tribe.net bug reports". Oops.

Re:Economic Growth

[argoff]

In a hyperinflationary depression the economy reaches a point where investors won't invest in businesses, so they then put all their money into commodities. This causes commodities to skyrocket, unemployment to go up, and pay to be pressured down. So everything goes up in price except for pay and profit. That makes the defaults on debt worse, makes the drive to commodities even more, causing a vicious circle. This happened in the late 70's in the US and we were able to break out of it by offering 21% interest on bonds to get investors to stop dumping cash. But this time a 21% prime will rip the US economy to shreds. BTW, over the last 5 years commodities have trippled while pay has done nearly nothing.

Re:What made Youtube take off?

[Anonymous Coward]

I'm not doubting everyone else's thoughts that a clean interface, the ease-of-use and simple video sharing helped YouTube, but I seem to recall a certain Saturday Night Live clip helping to propel them into the mainstream media's eyes. "You can't buy that sort of publicity," as they say. Suddenly newspapers are throwing your name around, comedians are using your site's name in jokes and the reach is now beyond Internet geekdom. Take a look at Alexa graphs and you'll see YouTube take off, where the likes of MetaCafe didn't, around the time "Lazy Sunday" was all over the place. NBC inadvertantly put YouTube on the map.

There are other confluences of circumstance that, I think, helped YouTube. They scaled well enough. Broadband usage was pervasive enough. Flash player matured as a streaming video player.

YouTube got lucky with a wave of traffic, and their core was strong to surf it instead of crash under its force. The rest is history.

Re:OMG! v2.0

[Xeger]

When I first went to intern with the company I'm working for now, they accidentally gave me an $800 Steelcase chair reserved for full-time senior engineers. They felt bad about the mistake, so they let me have it for the entire summer.

That very winter, I came back to to a project for them, only to find a cheap POS "executive office chair" at my desk. Yes, it was leather; yes, it was very flashy looking and fit well with my pressboard laminate desk -- but it wasn't very comfortable to sit in.

After four weeks of working 12-16 hours a day sitting in that damned chair (what, I didn't mention this was a tech job?) my spine was twisted in knots, my neck ached constantly, and my elbows hurt persistently. My productivity dropped essentially to 0, I had to see a chiropractor on a weekly basis and I chose to work from a noisy dorm room most of the time rather than deal with that chair.

Eventually, I took up the issue with the HR department who instantly caved and gave me back my fancy Steelcase chair. To them, $800 is a huge bargain when you consider the cost of disability payments, surgery to alleviate carpal tunnel synrome, etc.

I've had that chair for four years running now; I don't work quite as hard now as I did that first winter, but I haven't had a single back complaint, I'm free of carpal tunnel syndrome despite being a constant keyboard user, and I'm rarely the worse for wear despite spending all day in this chair, five days a week.

As a software developer, your chair, desk, keyboard and mouse are the physical tools of your trade. A carpenter doesn't skimp on his hammer; an assassin doesn't carry around a water gun. Why should *you* suffer with inferior tools?