Feeds

Yes, there's a Tech Bubble. But that's OK

Facebook will live. Groupon will pop

Build a business case: developing custom apps

Open...and Shut Even as Silicon Valley sages Marc Andreesen and Peter Thiel pooh-pooh the notion of a tech bubble, there are clear signs that tech is frothier than may be sustainable.

Competition for engineering talent is fierce, and startups sprout too quickly. In addition, there's something incongruous about a world where everything is falling but tech continues to rise. And yet the thing that best suggests this tech bubble may be healthy is that the problems its primary beneficiaries are trying to solve are often big, long-term societal problems.

Of course, this isn't tremendously different from the 2001 dot-com bubble. Back then, the internet was The Next Big Thing, prompting investors and entrepreneurs to throw caution to the wind and put anything and everything online, as venture capitalist John Doerr recently opined. From that wreckage emerged a few clear winners – such as Amazon, eBay, and Google – even as $5 trillion in market value was wiped clean.

Today, there are plenty of silly products foisted on the world by Stanford undergraduates, but there are other clear winners like Facebook, Twitter, and Zynga. It's possible that just as the internet wasn't enough to sustain weak ideas in 2001, "social" won't be enough to keep bad businesses afloat in 2011.

But I'm optimistic. Pets.com never made sense to me, but Facebook does. I use it all day, every day (and I'm not alone in this, with roughly 25 per cent of Americans' time online spent on social networks, with Facebook claiming the lion's share). It makes my life better, and it makes a heck of a lot of money in the process. That's not bubble fodder.

Given the importance of services like Facebook and Twitter in our lives, it's not surprising that their valuations are being bid up to stratospheric levels. By extension, it's also not surprising that the startups they buy to extend their products' functionality are also overpriced, though recent data from The 451 Group suggest startup valuations may be on the wane.

For the same reason, I'm not overly concerned that big companies like Google are dramatically overpaying for engineering talent, or that they're growing headcount as fast as they are, as Redmonk analyst Stephen O'Grady documents. Given how much money companies like Google and Facebook are making, and the stakes involved, it's not surprising that they'd bid up the valuations of engineers (or the companies for which they work). When I joined a Linux startup in 2000 (Lineo), my first day of work was with the bankers, preparing our S-1 to file for an IPO.

We had under $1 million in revenues, 40 employees, and no right to be going public. But that was the mania of the times, and our bankers urged us to rapidly add headcount as a way to justify our valuation. So we bought six companies and so went from 40 employees to 400 employees overnight. We never recovered, and a year or two later were sold for scrap.

That was the last bubble. This new bubble is not nearly so manic. No, the revenue models generally aren't any better than they were in 2001, but there are a few companies who are succeeding, and big time. For these winners (Facebook, Twitter, Google, Zynga, etc.), the popping of the bubble will leave them standing stronger, just as Amazon and eBay emerged from the 2001 dot-com crash the unopposed leaders in their respective markets. And it will pop.

It's simply not sustainable to have the rest of the economy tanking without Silicon Valley taking a dip, too. But this bursting of the bubble will be a healthy thing for those that have focused on building real, sustainable businesses. Like Facebook. And unlike Groupon. ®

Matt Asay is senior vice president of business development at Strobe, a startup that offers an open source framework for building mobile apps. He was formerly chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears twice a week on The Register.

Build a business case: developing custom apps

More from The Register

next story
Assange™: Hey world, I'M STILL HERE, ignore that Snowden guy
Press conference: ME ME ME ME ME ME ME (cont'd pg 94)
Premier League wants to PURGE ALL FOOTIE GIFs from social media
Not paying Murdoch? You're gonna get a right LEGALLING - thanks to automated software
Caught red-handed: UK cops, PCSOs, specials behaving badly… on social media
No Mr Fuzz, don't ask a crime victim to be your pal on Facebook
Online tat bazaar eBay coughs to YET ANOTHER outage
Web-based flea market struck dumb by size and scale of fail
Amazon takes swipe at PayPal, Square with card reader for mobes
Etailer plans to undercut rivals with low transaction fee offer
US regulators OK sale of IBM's x86 server biz to Lenovo
Now all that remains is for gov't offices to ban the boxes
XBOX One will learn to play media from USB and DLNA sources
Hang on? Aren't those file formats you hardly ever see outside torrents?
Class war! Wikipedia's workers revolt again
Bourgeois paper-shufflers have 'suspended democracy', sniff unpaid proles
prev story

Whitepapers

Endpoint data privacy in the cloud is easier than you think
Innovations in encryption and storage resolve issues of data privacy and key requirements for companies to look for in a solution.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Top 8 considerations to enable and simplify mobility
In this whitepaper learn how to successfully add mobile capabilities simply and cost effectively.
Solving today's distributed Big Data backup challenges
Enable IT efficiency and allow a firm to access and reuse corporate information for competitive advantage, ultimately changing business outcomes.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.